According to a top property assessor, the shutdown of Macau’s satellite casinos might result in significant property devaluation and financial instability, with some hotel buildings potentially losing more than 60% of their value.
Property assessment specialist Franco Liu, who works in Macau, warned that certain properties may have loan-to-value ratios as high as 150%, which might lead to defaults and strain on the financial system.
Since elements like the existence of a casino and differences in management fees greatly influence the total value of a property, Liu told Macao Daily News that the absence of a definitive solution on satellite casinos would make property appraisal difficult.
There are currently 30 casinos in Macau, 11 of which are satellite operations, meaning they depend on outside gaming concessionaires. By the end of this year, these businesses must abandon their old commission-based structure and switch to a management fee model, as mandated by new casino regulations that were introduced in early 2023.
Due to their greater valuations, hotels with satellite casinos have historically been able to obtain larger loans. Liu cautioned that devaluations may make many of these loans unsustainable, affecting banks that have a large amount of exposure to the industry, as closures are imminent.
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According to him, “the loan-to-value ratio of some properties could reach as high as 150% as a result of such loans drastically exceeding updated valuations following the cessation of satellite casinos.”
The Monetary Authority of Macau reports that the delinquency rate for commercial property mortgages has increased to 5.4%, the highest level ever recorded.
With MOP11 billion ($1.37 billion) in gross gaming revenue and MOP4 billion in taxes collected last year, the satellite casino industry continues to be a major economic engine in Macau.
13,500 employment, including 5,500 in nearby enterprises, are also directly and indirectly supported by this industry, making up 4.6% of Macau’s domestic workforce.
Liu pointed out that although the change might unite Macau’s gambling sector, it will probably cause problems for companies that depend on the more frugal customers that frequent satellite casinos.
Industry observers caution that low-stakes gamers could not follow as gaming tables from satellite casinos return to their original concessionaires, which might lower overall gaming revenue.
According to official property records, the total amount of loans associated with satellite casinos and surrounding businesses is estimated to be between HK$25 billion and HK$39 billion ($3.2 billion to $5 billion).
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