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Citigold PROPERTY INSIGHTS Malaysia Quarter 3, 2013 Caution in anticipation of dampening measures Market Overview The Malaysian economy registered a slower than anticipated growth of 4.3% in Q2 2013 as exports faltered. Amid a weaker global economic environment, Malaysia is actively promoting investment inflows although consumer confidence has declined due to a weaker job and income outlook. Figure 1 Prime Office Rental Index (Q1 2011=100) 120 100 The office market remained stable with both 80 vacancy and rental rates remaining unchanged in spite of the substantial supply in the pipeline (Figure 1). Whilst sentiment remains resilient in the short term, the medium-term outlook for the office market 60 40 Q4 04 Q4 05 Q4 06 Q4 07 Q4 08 Q4 09 Q4 10 Q4 11 Q4 12 Q4 13 Q4 14 remains uncertain and dependant on its ability to Source: DTZ Research absorb the new completions in the coming years. Going forward, retailers could face a challenging year ahead if consumers continue to be cautious, whilst the possibility of the implementation of a sales tax and the continuation of subsidy reduction will further reduce the purchasing power of the low- and middle-income households. The high-end residential market saw substantial new supply with the completion of another two projects, with marginal capital and rental appreciations throughout the market segment. Small-sized units were generally well-received and more launches are expected in the last quarter of 2013.

Trends & Updates Economic Overview BNM lowers 2013 GDP growth forecast Bank Negara Malaysia (BNM) has lowered Malaysia s growth forecast for 2013 to 4.5% to 5%, compared to its previous estimate of 5% to 6%, since growth was slower in the second quarter at 4.3% (Figure 2). It is due to the prolonged weakness in the external environment that has affected exports although domestic demand has continued to be strong. Domestic demand is expected to remain firm, supported by sustained private consumption, capital spending in the domestic-oriented industries and the on-going infrastructure projects. Figure 2 GDP growth (y-o-y) and unemployment rate 8% 6% 4% 2% 0% Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 GDP growth (y-o-y) Unemployment rate Source: Bank Negara Malaysia, Department of Statistics Malaysia, DTZ Research Malaysia to continue strengthening foreign direct investments (FDI) Malaysia ranked as the third largest recipient of FDI within ASEAN in 2012 with inflows of RM32bn, with the majority of its FDI receipts contributed by the manufacturing sector. Despite a weaker global economic environment, Malaysia continues to garner higher FDI in Q1 2013 of RM18.3bn, a 110% increase from RM8.7bn in Q1 2012. To promote FDI inflows, Malaysia aims to further build on its existing competitive position as an outsourcing destination for transnational companies in the electronics, automotive, machinery manufacturing, and oil and gas industries. The Consumer Sentiment Index (CSI) slipped 13.2 points quarter-on-quarter (q-o-q) to 109.7 in Q2 2013 as confidence on job and income prospects faltered. Although household incomes are stable, inflationary fear is dampening consumers retail spending. No change in the Overnight Policy Rate BNM maintained its Overnight Policy Rate at 3% on the basis that the global economy continues to pose risks to domestic growth. Market uncertainties on the direction of US monetary policy have resulted in substantial volatility in global financial markets and this has affected both the local equity market and the Ringgit exchange rate. Heedful consumer spending Consumer Price Index (CPI) increased by 1.9% to 106.5 in August 2013 compared to 104.7 in the same period last year. The CPI increase is due to increasing prices of food and non-alcoholic beverages and non-food items such as housing, water, electricity, gas and transport.

Residential Substantial new supply in the quarter The quarter saw substantial new supply with the completion of another two high-end residential projects, adding a total of 543 units into the market. This is quite a substantial number after an insignificant supply of 40 units in the previous quarter. For the first three quarters of 2013, 2,025 condominium units have been completed. The two new completions in Q3 are located in the city centre, namely ViPod Residences@KLCC and 6 CapSquare@Dang Wangi, developed by Monoland Corporation and BRDB respectively. Another 2,161 condominium units are expected to be completed by year-end (Figure 3). Amongst the major developments expected to be completed in Q4 are M Suites at Jalan Ampang (442 units) and One@Bukit Ceylon at Jalan Ceylong (354 units); to name a few. Marginal capital and rental appreciations in high-end residential market In Q3, the high-end condominium market in Kuala Lumpur saw a small appreciation in both capital and rental values. The overall average price increased by 3.5% q-o-q to RM731 per sq ft in Q3 from RM707 per sq ft in Q2 (Figure 4). Average rents remained stable at RM3.60 per sq ft per month, a marginal rise from RM3.57 per sq ft per month in Q2. Smaller units selling well More launches expected in the last quarter Despite BNM reviewing curbs on overall household lending to cool the property market as well as to reduce financial risk to the banking sector, more scheduled launches are expected over the last quarter of the year. However, developers are cautious that any major new curbs to be introduced by the October Budget may dampen sentiment in the short term. If this happens, the forced shift to more affordable housing will take place. Figure 3 Future supply of high-end condominiums in Kuala Lumpur 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Source : DTZ Research Figure 4 2013 2014 2015 2016 Post 2016 City centre Outside city centre Rental and price indices of high-end condominiums in Kuala Lumpur (Q1 2011=100) 130 120 After an overwhelming response received for the 110 Residen 61 at Jalan Raja Chulan, especially for the smaller and reasonably priced units, the quarter witnessed another few launches. Tribeca@Bukit Bintang, a new serviced apartment by Low Yat Group, was recently launched at over RM1,800 per sq ft. The 100 90 Q3 11 Q4 11 Q1 12 Source : DTZ Research Q2 12 Q3 12 Capital value Q4 12 Q1 13 Rent Q2 13 Q3 13 project comprises a 37-storey tower with 318 serviced apartments of sizes ranging from 510 to 1,293 sq ft. Another YTL launch at Sentul, The Fennel, received an overwhelming response, with 458 units sold within two days at an average price of RM700 per sq ft.

Retail Spending caution Malaysia s Consumer Sentiment Index slipped to 109.7 points in Q2 from 122.9 points in the previous quarter. Despite relatively stable household incomes, the current quarter saw lacklustre financial and job outlook and rising inflation. Against this scenario, Malaysians will continue to be selective in their spending, demanding value-for-money goods and services. Moving forward, RGM foresees that 2014 will be a challenging year for retailers and consumers as the recent petrol price hike is likely to increase prices of goods and services that will lead to rising cost of living and reduce the purchasing power of Malaysian households. Consumer spending could also be affected due to the possible implementation of a sales tax and the continuation of subsidy reductions for fuel and other items such as flour and sugar. Domestic demand cushioned retail activities Driven by domestic demand, the retail sector remained resilient, as the occupancy rate improved marginally by 0.3 percentage-point to 92%. The retail stock in Kuala Lumpur remained at 23 million sq ft with no new major completions in the quarter. Only one mall, Cheras Sentral, a revived mall which was formerly known as Plaza Phoenix, is expected to re-enter the market after a period of refurbishment in 2013 (Figure 5 and Table 1). Challenging year for retailers ahead According to Retail Group Malaysia (RGM), retail sales grew 4.6% in Q2 which was lower than the forecasted 6.5% and growth of 7.5% in Q1. The 13th General Election was among the contributors to the slower sales rate as consumers held back their spending, particularly on high value goods and services, whilst a period of haze restrained consumers from outdoor activities including shopping. To attract shoppers, retailers had offered various attractive bargains which affected their bottom lines. Nevertheless, retail sales is anticipated to grow by a higher 6.5% in Q3 due to spending during the Hari Raya festivities while retail sales in Q4 is expected to expand by 6.0% due to the school holidays, year-end sales and festivals. With the mixed sales performance, RGM has revised downwards the whole-year growth forecast for 2013 to 6.2% from the earlier forecast of 6.4%. Figure 5 Retail new supply (NLA) in Kuala Lumpur, sq ft (million) 3 2 1 0 2009 2010 Source : DTZ Research Table 1 2011 2012 Completed Supply 2013 2014 New Supply Selected upcoming retail malls in Klang Valley Name of Development Cheras Sentral, Kuala Lumpur IOI City Mall, Putrajay Nu Sentral, KL Sentral Atria Shopping Mall, Petaling Jaya Sunway Velocity, Kuala Lumpur Quill City Mall, Kuala Lumpur Central Plaza@i-City, Shah Alam Source : DTZ Research Est area (NLA, sq ft) 500,000 1,300,000 680,000 450,000 800,000 770,000 1,500,000 2015 2016 Est year of completion 2013 2014 2014 2014 2015 2016 2017

Expanding networks to remain sustainable The retail sector in urban areas is becoming more intense and too fragmented with many retail players, resulting in some major retail players venturing into secondary towns for long-term growth prospects. The latest is Aeon Group of Japan, operating Aeon Big, which plans to open six hypermarkets in secondary towns across Malaysia between 2014 and 2016 to strengthen its presence and remain sustainable. Aeon has also aggressively refurbished and rebranded its outlets after acquiring the business from Carrefour last October. Besides reaching out to customers, Aeon Group has just inked a deal with Thailand s Index Living Mall Co Ltd and formed Aeon Index Living Sdn Bhd to tap the retail market for furniture and home decorations with outlet sizes ranging from 65,000 to 108,000 sq ft. In anticipation of greater Asean economic integration, more regional retailers from neighbouring countries are expected to expand here. Office Stable office market in Q3 After an absence of new completions in the last quarter, Menara Shell, located in KL Sentral, was completed in Q3. This added about 567,000 sq ft of Grade A office space to the stock. The completion increased the existing office stock in Kuala Lumpur to 68.3 million sq ft, translating to a 1% q-o-q increase from 67.8 million sq ft in Q2. The occupancy rate remained unchanged at 85% in Q3 compared to the previous quarter. This was despite a significant increase in the year-to-date net absorption to 1.5 million sq ft in Q3 from 1.0 million sq ft in Q2, as this increase in net absorption was offset by the additional supply (Figure 6). Figure 6 Office net absorption, sq ft (million) and vacancy rate 2.0 1.5 1.0 0.5 0.0 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12-0.5 Net absorption (LHS) Source : DTZ Research Figure 7 Prime office rental index 18% 16% 14% 12% 10% 8% 6% 4% Vacancy rate (RHS) Q4 12 Q1 13 Q2 13 Q3 13 Rental and capital values were unchanged Average prime office rents remained stable in Q3 at RM6.13 per sq ft per month (Figure 7). Similarly, the (Q1 2011=100) 120 100 average capital value was stable at RM838 per sq ft. 80 However, the supply pipeline remains high, with 1.4 million sq ft of office space scheduled for completion in the remainder of 2013 and another 10 million sq ft expected to be completed from 2014 to 2016 (Figure 60 40 Q4 04 Q4 05 Q4 06 Q4 07 Q4 08 Q4 09 Q4 10 Q4 11 Q4 12 Q4 13 Q4 14 8). Ofices expected to be ready by year-end include 1 Source : DTZ Research Sentrum, The Crest, Menara LGB and Glomac Damansara. The last two projects are located at the fringe of the city, bordering Petaling Jaya.

Lower occupancy and rent levels expected going forward Notwithstanding the current resilience, office rental and capital values could come under pressure in both the mid- and long-term. The substantial pipeline supply will likely affect both the rental rates and occupancies of older buildings as the tenants may relocate to newer buildings with better facilities whilst possibly enjoying similar rental levels. Besides the uncertainty over how the upcoming supply can be absorbed by future demand, developers now have to face the possibility of high cost of funds with the expected end to quantitative easing that will pose additional challenges to landlords and investors. However, developers interest has not fallen Figure 8 Office development pipeline, sq ft (million) 5 4 3 2 1 0 2013 2014 2015 2016 Source : DTZ Research significantly and if they continue to build new offices, adding on to future supply, this could pose a major risk to the economy.

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PROPERTY INSIGHTS Singapore Quarter 3, 2013 Citigold TDSR framework impacts transaction volume Market Overview Based on advance estimates by the Ministry of Trade and Industry (MTI), Singapore s economy expanded by 5.1% year-on-year (y- o- y) in Q3 after growing by 4.2% in Q2 2013. On a quarter- on- quarter (q- o- q) basis however, the economy contracted by 1.0%. Despite a significantly lower transaction volume, resale prices of non- landed private homes were unchanged q- o- q in Q3 (Figure 1). In the landed market, only non-prime freehold and leasehold terrace homes saw price increases in Q3, due to their more affordable overall quantum. Real estate investment activity reached a quarterly record of $13.3bn in Q3. Private sector investments accounted for the bulk of activity which comprised mainly mixed-use development and hotel deals. Investments originating from the public sector, on the other hand, surged by more than 80% q-o-q and amounted to about $4.0bn in the quarter. Figure 1 Primary and secondary home sales (excluding executive condominiums), units 5,000 4,000 3,000 2,000 1,000 0 Aug-11 Source: URA REALIS, 8 October, DTZ Research after three consecutive quarters of decline. Affected by the implementation of the new TDSR framework, resale transactions also fell in Q3, causing a further slowdown in price growth of prime strata- titled retail space across all regions. Nov-11 Feb-12 May-12 Aug -12 Nov - 12 Feb -13 May-13 Aug-13 Primary sales Secondary sales Units launched Leasing activity in the office market picked up in Q3 following months of gradual improvement. This resulted in islandwide net absorption doubling q- o- q to 350,000 sq ft. As occupancy rates grew, rental increments were seen in most areas, particularly in the newer and betterquality buildings. Average retail rental values in all regions remained unchanged in Q3, with rents in the other city areas flat

Trends & Updates Economic Overview Economy contracted in Q3, but outlook remains Figure 2 positive GDP growth rates Based on advance estimates by MTI, GDP growth in Q3 was 5.1% y-o-y, slightly higher than the 4.2% 20% y- o- y expansion for last quarter. However on a q- o- q basis, economic growth posted a pullback as overall 10% GDP figures contracted by 1.0% q-o-q compared to the surge of 16.9% in Q2 (Figure 2). The q- o- q slowdown in Q3 was partially caused by the financial services sector, which shrank as equity and foreign exchange market activities fell due to 0% -10% Source : MTI Q3 11 Q4 11 Q1 12 Q2 12 GDP growth (y-o-y) Q3 12 Q4 12 Q1 13 Q2 13 GDP growth (q-o-q) Q3 13 concerns over the QE tapering by the US Fed as well as the threat of military action against Syria. Figure 3 Singapore PMI and NODX While the Purchasing Manager s Index (PMI) stayed above the expansionary reading of 50 in Q3, weakness in the electronics and pharmaceuticals industries also resulted in a 3.4% q-o-q drop in manufacturing (Figure 3). This is a reversal from the 33.5% q-o-q growth 54 52 50 48 40% 20% 0% -20% in Q2. Overall GDP growth however still remains at previous projections of 2.5-3.5% for 2013. 46 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-12 Apr-12 May-13 Jun-13 Jul-13 Aug-13 Sep-13-40% Inflationary pressures picked up After easing in previous quarters, inflationary pressures picked up in Q3 as core inflation (excluding accommodation and private transport costs) increased to 1.8% y-o-y in August, from 1.6% in the first seven months of the year (Figure 4). While imported inflation should be kept under control going forward, this could be offset to some extent due to higher domestic cost pressures from the continued tightness of the labour market and cost pass- through to prices of consumer services. Accordingly, to guard against inflation, the Monetary Authority of Singapore (MAS) will maintain its policy of a modest and gradual appreciation of the S$ nominal effective exchange rate (S$NEER) policyband. The present width of the band is sufficient to accommodate temporary fluctuations in S$NEER and will be kept unchanged. PMI (LHS) Source: SIPMM, IE Singapore, DTZ Research *NODX figures for September 13 are not available Figure 4 NODX growth (y-o-y) (RHS) Inflation, interest rate and unemployment rate 6% 5% 4% 3% 2% 1% 0% Q3 11 Q4 11 Q1 12 Q2 12 CPI change (y-o-y) Overall unemployment rate Source: MTI, MAS, MOM, DTZ Research Q3 12 Q4 12 Q1 13 3-month SIBOR Q2 13 *CPI figures for Q3 13 are based on July and August. Unemployment figures for Q3 13 are not available. Q3 13

US fiscal impasse triggers uncertainty in world economy Due to ideological differences between Republican and Democratic houses, and failing to come to a consensus on budgetary implications of President Obama s healthcare reforms, the US government went into a much dreaded partial shutdown on 1 October 2013. Although private investment confidence has been shaken, there has been limited impact on Singapore s financial markets and trade up to date. Nevertheless, as the impasse continues, the risk of US national debt default looms and if materialises, could trigger significant consequences for Singapore s economy. Residential Transaction volume falls Primary sales of private homes fell from 4,538 units in Q2 to 1,224 units in July- August (Figure 5). Although transactions were expected to pick up in September with reportedly healthy take- up for newly launched projects, transactions in Q3 will not exceed that in Q2. In the secondary market, 1,452 units were sold in Q3, falling sharply from 2,407 units in Q2 2013 and 4,358 units in Q3 2012. Transaction volume was affected by the TDSR measures as the application process for a property loan is now longer and more onerous. Multipleproperty owners who still want to purchase or invest in residential properties found it more difficult to obtain a loan for their purchases. Resale prices largely unchanged in Q3 Notwithstanding the fall in transaction volume, resale prices across all non- landed private residential segments remained unchanged q- o- q in Q3 (Figure 6). Based on a basket of completed developments tracked by DTZ Research, resale prices of freehold condominiums in the prime districts of 9, 10 and 11 were flat after registering a 1.0% growth in H1 while resale prices of luxury condominiums remained flat for the fifth consecutive quarter. In the suburban areas, resale prices of leasehold condominiums were also unchanged in Q3 after registering a 2.2% growth in H1. Although the landed segment had held up better than the non- landed segment in previous quarters, resale price growth of landed homes Figure 5 Primary and secondary home sales (excluding executive condominiums), units 5,000 4,000 3,000 2,000 1,000 0 Aug-11 Nov-11 Feb-12 May-12 Aug -12 Nov - 12 Feb -13 May-13 Aug-13 Primary sales Secondary sales Units launched Source: URA REALIS, 8 October, DTZ Research Figure 6 Resale non-landed residential price indices (Q1 2011=100) 120 110 100 90 80 Q3 10 Q4 10 Luxury Q1 11 Source: DTZ Research Q2 11 Q3 11 Q4 11 Q1 12 Prime freehold Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Suburban leasehold also slowed down in Q3. Resale prices of landed homes in most segments registered flat growth q- o- q with the exception of non- prime freehold and leasehold terrace homes, which saw prices increase by a marginal 1.5% and 1.0% q-o-q respectively in Q3, due to their comparatively more affordable

overall quantum. This increase was, however, a moderation compared to their growth of 5.6% and 5.1% respectively in H1. Looking ahead, primary sales volume will fall from last year s record level of around 22,000 units but could still come in close to 15,000-16,000 units, similar to the levels seen in 2010-2011, while resale transaction volume is likely to remain weak as the TDSR measures and earlier cooling measures continue to work their way through the market. As the TDSR measures limit the amount of loans buyers can take, they are now more selective in their purchases even as they have more choices. Demand will therefore gravitate towards developments that offer buyers better value such as those that are competitively priced or projects that are welllocated with easy access to amenities. Nonetheless, there could be some downside pressure on overall prices going forward, against the backdrop of a strong pipeline supply and lower launch prices of new projects. Investment Quarterly record for real estate investments in Q3 Real estate investment activity reached a quarterly high of $13.3bn in Q3 2013, surpassing the previous record of $12.4bn in Q3 2007 (Figure 7). Investment sales comprise transactions that are $5m and above and exclude $734m of transactions in single residential units and lots that cannot be redeveloped/subdivided into more than one plot. Investment activity boosted by REIT listings Investment activity in Q3 was bolstered by three REIT listings (Figure 8). They were SPH REIT (with an initial asset portfolio worth $3.1bn), OUE Hospitality Trust ($1.7bn), and Soilbuild REIT ($905.3m). This led to average deal size almost quadrupling q- o-q to $166.9m in Q3. Excluding the REIT listings, real estate investment activity in Q3 amounted to a smaller $7.7bn although this was still about 31% higher than the $5.9bn registered a quarter ago. was acquired by SPH REIT for $2.5bn as well as UE BizHub EAST which was sold for $518.0m. Figure 7 Investment sales, SGD bn 45 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: DTZ Research Figure 8 Q1 Q2 Q3 Q4 Investment sales (Q3 2013), SGD bn - investor types REITs Net purchaser Mixed- use and hotel deals drive investment activity Private- sector deals dominated in Q3, accounting for about 70% of activity. They were largely driven by mixed- use and hotel investments worth $3.1bn and $2.8bn respectively. Some of these major mixed- use properties included The Paragon which Property Companies Corporates Source : DTZ Research Net seller -6-4 -2 0 2 4 6 8 Sell Purchase

Besides Mandarin Orchard, which was acquired as part of OUE Hospitality Trust s initial portfolio, other major hotel deals in Q3 included the sales of Grand Park Orchard, The Gallery Hotel, The Sentosa Resort and Spa and Hotel 1929. These hotels were sold at close to or above $1m per room. Residential GLS sites continue to see stiff competition After falling in the last two quarters, investment sales originating from the public sector surged by more than 80% q-o-q to $4.0bn in Q3. Despite the introduction of the Total Debt Servicing Ratio (TDSR) 1 framework on 29 June 2013, competition for residential sites under the Government Land Sales (GLS) programme remained intense. Residential sites awarded during the quarter received between six and 16 bids each, with one Executive Condominium (EC) site at Yuan Ching Road/Tao Ching Road fetching a new record bid for EC sites at $418 per sq ft per plot ratio. Other government sites that were awarded during the quarter included the reserve office site at Cecil Street/Telok Ayer Street and the mixed- use site at Yishun Avenue 2/Yishun Central 1, where the winning bids were 19% and 47% above the secondhighest bids respectively. 1 Under the TDSR framework which took effect from 29 June 2013, property loans extended by financial institutions have to meet the TDSR threshold of 60%, inclusive of all other loan obligations of the borrower. In addition, other rules related to loan-to-value (LTV) limits were refined, for instance, borrowers named on a property loan have to be the owners of the property for which the loan is taken. Retail Rents in all regions unchanged in Q3 Average rental values of prime retail space in all regions remained unchanged in Q3. The average rental value of prime retail space in the other city areas halted its decline in Q3, registering flat q- o- q growth after falling by 0.7% and 0.3% q-o-q in Q1 and Q2 respectively. Some of the asset enhancement initiatives at Marina Centre area have been completed, increasing shopper traffic in the area. Share of foreign investments increased in absolute terms Even though the share of foreign investments in Q3 was 12.7 percentage- points lower than that in Q2, in absolute terms, foreign investments increased by 9.3% q-o-q to $1.6bn in Q3. These investors originate mainly from the Asian region, and have accounted for $3.2bn of activity in 2013 to- date, which is already a shade higher than the $3.1bn they invested for the whole of 2012. While funds have remained inactive in Q3, foreign developers continued to participate actively in the GLS tenders for private residential sites, either singly or through joint- ventures with local developers while a Chinese investor was involved in the largest non- REIT and non- GLS deal in Q3 (Grand Park Orchard). 2013 investment volume to be on par with last year Going forward, due seasonal factors, investment activity is likely to slow in the last quarter of 2013. Notwithstanding, the $13.3bn invested in Q3 has brought overall investment activity for the first nine months of 2013 to $24.6bn, which is 15.4% higher than the same period last year. Investment volume for the whole of 2013 is now expected to come in on par with or slightly higher than the $29.3bn invested in 2012. The average rental value of prime retail space in Orchard/Scotts Road and in the suburban areas also held firm in Q3 (Figure 9). Suburban retail rents stood unchanged despite increased competition from newly completed malls, which have been successful in attracting international retailers eager to tap local demand. Some of these brands include, H&M, Books Kinokuniya and Victoria s Secret. American retailer Coach and Swedish brand Cos have also leased space in a soon- to- be- completed suburban mall.

These new suburban malls with similar tenant offerings to those in Orchard/Scotts Road could divert local shopper traffic away from older existing suburban malls as well as from Orchard/Scotts Road. Notwithstanding the increase in competition, retail rents are expected to remain largely flat for the rest of the year. Major suburban malls scheduled to open in Q4 have reported healthy pre- commitment rates while expected completions in Orchard/Scotts Road only makes up about 9.5% of the pipeline supply of 5.2 million sq ft from Q4 2013 to 2017 (Figure 10). In addition, demand in Orchard/Scotts Road will still be supported by international retailers who are new to the Singapore market looking to establish their first flagship store. Further slowdown in resale price growth Resale price growth of prime strata- titled retail space in all regions continued to slow in Q3, as transactions of strata- titled retail units fell by close to 60% q-o-q from 387 in Q2 to 161 units 1 in Q3. The average resale capital value of prime retail units in Orchards/Scotts Road and the suburban areas both grew by 1.7% q-o-q in Q3, after registering growth of 2.6% and 2.5% respectively in the previous quarter. Transaction volume was affected by the implementation of the TDSR framework, which lengthened the loan application process and increased the hurdle for multiple- property investors and buyers to obtain a loan for their purchases. 1 Based on information from caveats downloaded from URA REALIS on 8 October 2013 Figure 9 Average prime first-storey retail gross rental index in Orchard/Scotts Road (Q1 2011=100) 110 105 100 95 90 85 80 Source: DTZ Research Figure 10 Retail development pipeline including projects on awarded GLS sites, sq ft (million) 2.5 2.0 1.5 1.0 0.5 0.0 Going forward, after increasing by more than 10% in the first three quarters of the year, resale price growth of strata- titled retail units is likely to slow, especially in light of the new TDSR measures. Q4 04 Q4 05 Q4 06 2013 2014 2015 2016 2017 Completed in Q1-Q3 2013 Other city areas Source: UR A, DTZ Research Q4 07 Q4 08 Q4 09 Q4 10 Q4 11 Q4 12 Orchard Suburban areas Q4 13 Q4 14 Office Improved net absorption q- o- q Following months of nascent improvement, leasing activity in the office market picked up in Q3. Islandwide net absorption increased to approximately 350,000 sq ft in Q3, double the net absorption recorded for Q2. However, on a cumulative basis, net absorption up to Q3 remains relatively low at 890,000 sq ft, compared to the net absorption of 1.6 million sq ft for the whole of last year. Demand emanated from small- to medium- sized firms Besides the expansion of space by existing occupiers within the Central Business District (CBD), take- up of office space in Q3 primarily stemmed from small- to medium- sized firms. Because of the smaller space requirements by these firms, demand figures have remained relatively modest in 2013. Nevertheless, the steady build- up of demand has

resulted in a tighter leasing environment where landlords are now less flexible on rental negotiations and instead have been holding or increasing their asking rents. Office rents increase in most sub- markets Rental increments were seen in most areas, particularly in the newer and better- quality buildings. Within the CBD, sustained leasing activity led to an increase in the average gross rents in Raffles Place and Shenton Way/Robinson Road/Cecil Street by 1.3% and 3.4% respectively q-o-q to $9.40 and $7.50 per sq ft per month as occupancy rates held up well (Figure 11). The average occupancy rate in Raffles Place increased 1.0 percentage- points q- o- q to 95.3% while Shenton Way/Robinson Road/Cecil Street recorded a larger increase of 2.9 percentagepoints q- o- q to 97.7% in Q3. In Marina Bay, with most buildings more than 90% occupied, average gross rents grew by 4.8% q-o-q to $11.00 per sq ft per month. Limited supply in the CBD up till 2014 Supply of premium space in prime locations will be limited as 65% or close to 1.6 million sq ft of office space that are to be completed between Q4 2013 and 2014 will be in the decentralised areas (Figure 12). Currently, supply of premium space in the CBD is limited. Thus, despite relatively low pre-commitment rates, some landlords are holding on to their asking rents which range from the low-to mid-teens. If the moderate pace of leasing activity continues, there could be some pressure for these landlords to exercise some flexibility on rental terms. Furthermore, landlords of buildings with vacant space could face additional pressure when vacancy claims for property tax cease with effect from 1 January 2014. Office rents to increase gradually Figure 11 Office rental indices ( Q1 2011=100) 240 200 160 120 80 40 0 Going forward, demand for office space is expected to remain modest as occupiers are still cautious on their space requirements. Take- up of new office space within the CBD may be moderated as cost- conscious occupiers still prefer to renew existing leases rather than relocate to avoid incurring additional capital expenditure. Notwithstanding, average rents in the CBD are anticipated to rise on the back of strong occupancy rates and an expected economic improvement, but this increase will be gradual. Q4 04 Q4 05 Source: DTZ Research Figure 12 Q4 06 Q4 07 Q4 08 Q4 09 Q4 10 Q4 11 Q4 12 Q4 13 Ra es Place Shenton Way/Robinson Rd/Cecil St Office development pipeline including projects on awarded GLS sites, sq ft (million) 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0 2013 2014 2015 2016 2017 Completed in Q1-Q3 Decentralised Areas Source : UR A, DTZ Research CBD CBD Fringe Q4 14

PROPERTY INSIGHTS Hong Kong Quarter 3, 2013 Citigold TMT sector emerges as a new driver of office market Market Overview In Q3, leasing demand for office softened, and Figure 1 overall net absorption within the quarter reached -191,928 sq ft, attributed mainly from Sheung Wan/ Central/ Admiralty. As a result, overall rent decreased slightly by 0.72% quarter-on-quarter (q-o-q) to reach DTZ ofice rental index (2005-2018F) Q1 2006 = 100 250 200 HK$60.8 per sq ft per month. However, few stronger 150 sectors such as technology, media and telecommunications (TMT) sector were witnessed as continuing to expand within this quarter, a phenomenon which benefited districts such as Wanchai/ Causeway Bay and Kowloon East. 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2017F 2016F 2015F 2014F 2013F As a result of increasing number of daytripping Mainland visitors from across the border, New Territories retail rent witnessed the highest year-on-year (y-o-y) rental growth within this quarter, growing by 5.5 %, as compared to much flatter performance of retail rents in Hong Kong Island and Kowloon. While competition of tier 1 high street shops in prime retail districts remained intense, vacant space is on the rise in tier 2 and 3 street shops in prime retail districts, due the gap which has opened in rental expectations between landlords and tenants in these areas. Residential price remained stable and overall prices this quarter only decreased marginally by 0.1% q-o-q, although transaction volume continued to remain low. Supported by end-user demand, mass Source: DTZ Research Central/Admiralty Wanchai/Causeway Bay Island East Tsimshatsui residential price registered an increase of 0.5% q-o-q, whereas luxury residential price decreased 0.8% within the same time frame. Total number of deals exceeding HK$100mn dropped further by 36% within Q3, declining from 42 in Q2 2013 to 27 in Q3 2013, and investment volume dropped even more by 43% to just HK$7.524bn (US$0.969bn) in Q3 2013. Only transaction in industrial, hotel, and development site did not witness a decline, as industrial properties are attractive due to their revitalization potential and the hotel sector has benefited by strong tourism growth in recent years.

Trends & Updates Economic Overview Real GDP annual growth rate reached 3.3% in Q2 2013, higher than the 2.9% annual growth in Q1 2013 (Table 1), reflecting some improvement in local economic activities this quarter. The value of total exports dropped slightly by 1.3% y-o-y to reach HK$307.5bn in August 2013 (Table 1). The decrease in total exports was particularly severe in exports to Asian destinations including Malaysia (-16.7% y-o-y), Japan (-5.2% y-o-y), and Mainland China (-3.6% y-o-y). Inflation increased slightly in Q3. The overall composite CPI in August increased 4.5% y-o-y, lower than the 3.9% growth rate in May (Table 1). The seasonally adjusted unemployment rate remained low at 3.3% in June August 2013, reflecting that employers optimism in general towards employment (Table 1). Table 1 Economic indicators Indicator Period Unit Value Change y-o-y (%) GDP at constant prices* Total exports Private consumption expenditure Unemployment rate (seasonally adjusted) Visitor arrivals Composite CPI Total retail sales value Q2 2013 Aug 2013 Q2 2013 Jun 2013 - Aug 2013 Aug 2013 HK$bn HK$bn HK$bn % Million 482.6 307.5 329.2 3.3 5.4 +3.3-1..3 +4.2-9.4 Aug 2013-113.2 +4.5 Aug 2013 HK$bn 38.7 +8.1 *in chained (2011) dollars Source: Census and Statistics Department, HK$AR, Hong Kong Tourism Board Domestic private consumption expenditure increased 4.5% y-o-y in Q2, decelerating from the 7.0% y-o-y growth in Q1 (Table 1). Mainland tourist growth continued to support total visitor arrival growth. In August 2013, total visitor arrival grew 9.4% y-o-y to reach 5,358,087. On the other hand, retail sales also grew by 8.1% y-o-y in May 2013 to reach HK$38.715bn (US$4.989bn) (Table 1).

Residential Under the influence of the government curbs and concerns on the earlier than expected implementation of QE tapering by the US, prospective buyers remained cautious. However, mortgage rates in Hong Kong remained low as competition among banks continues to be intense. Property owners therefore were not willing to offer generous discount as they have strong holding power in general under the current low interest rate environment. As a result of expectation gaps between property owners and prospective buyers, the transaction volume of secondary residential properties remained low throughout the quarter. Since September, as some more new projects have been launched to the market, there was some pick up in primary residential sales. Nevertheless, total transaction volume of buildings and land in Q3 only reached 16,258, which is only 57% of the volume recorded in Q3 2012, although it did increase by 9.6% compared to previous quarter (Figure 2). Residential price remained stable despite the low transaction volume, due to the strong holding power of secondary home owners. As such, the overall residential price index decreased marginally only by 0.1% q-o-q, and it increased 3.2% y-o-y. But compared to its peak in February of this year, the price is down by 3% (Figure 3 and Table 2). Mass residential properties demonstrated relatively stronger momentum with respect to both transaction volume and pricing as their sales are more supported by end-user demand. As such, the mass residential price index increased 0.5% q-o-q, and 6.6% y-o-y. However, since luxury residential market is more affected by the hike in sales tax, its price index dropped by more than 0.8% q-o-q, and 0.9% y-o-y (Figure 3 and Table 2). Figure 2 Transaction volume of S&P Agreements (Q1 2005 - Q3 2013) Number of S&P Agreements 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000-2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Land Registry Figure 3 Residential price index (Jan 2005 - Sep 2013) Jan 2000 = 100 240 220 200 180 160 140 120 100 80 60 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: DTZ Research Table 2 Primary residential market statistics TBU Mass Market Luxury Market Overall Total stock (no. of units) price index (Jan 2000 = 100) q-o-q change (%) 1,032,377 211.24 0.5 6.6 85,555 220.54 Overall -0.8-0.9 1,117,932 215.10-0.1 3.2 y-o-y change (%) Source: DTZ Research, Rating and Valuation Departement HK$AR

As at 30th September, there are 22 residential projects totalling 9,328 units pending pre-sale consent approval, according to Lands Department. It is expected that a fairly large proportion of these projects will be launched to the market by the end of this year, which should provide more choices for prospective buyers. Moreover, developers have also begun to offer more incentives to buyers since September. As such, we expect a larger proportion of prospective buyers will switch their interest from secondary market to primary market due to the larger incentive and wider variety of choices, and as such residential property prices should continue to face downward pressure. Office This quarter, the overall market witnessed deceleration as a consequence of the softening of demand. Overall net absorption this quarter reached -191,928 sq ft, and overall rent decreased slightly by 0.72% q-o-q to reach HK$60.8 per sq ft per month (Table 3 and Figure 4). In the Central Financial District (CFD) of Sheung Wan/ Central/ Admiralty, where corporate in the finance sector are still in the midst of downsizing or consolidating their business, negative net absorption of 201,490 sq ft was recorded, contributing the majority of overall negative net absorption this quarter. On the other hand, rental in the CFD declined marginally by 1.2% to HK$103.0 (US$13.2) per sq ft per month (Table 3 and Figure 4). Leasing activities were quiet in Island East and Tsimshatsui, which recorded negative net absorption of 48,905 sq ft and 30,550 sq ft respectively. Rentals in the two districts remained unchanged compared to last quarter, at HK$37.4 (US$4.8) and HK$33.3 (US$4.3) per sq ft per month respectively (Table 3 and Figure 4). Table 3 Grade A office market statistics District Sheung Wan/ Central / Admiralty Wanchai / Causeway Bay Island East Tsimshatsui Kowloon East Overall Source: DTZ Research Figure 4 Total stock (million sq ft) 29.31 16.02 10.98 9.27 12.52 78.32 Availability ratio (%) 6.25 3.62 2.47 4.32 6.29 4.95 DTZ ofice rental index (2005-2018F) Q1 2006 = 100 250 200 150 100 50 Monthly Rent (HKD per sq ft) 103 47 37 33 33 61 Change q-o-q (%) -1.2 - - - - -0.8 However, there were a few stronger sectors such as technology, media and telecommunications (TMT) sector, which continued to witness expansion. This trend in particular benefited districts such as Wanchai / Causeway Bay, and to a lesser extent Kowloon East 0 2005 2006 Source: DTZ Research 2007 2008 Central/Admiralty Wanchai/Causeway Bay 2009 2010 2011 Island East Tsimshatsui 2012 2017F 2016F 2015F 2014F 2013F 2013 as well. For instance, SAP leased one floor (19,500 sq ft) in Times Square; Linkedin took a floor (16,500 sq ft) in Hysan Place. As such, net absorption in Wanchai / Causeway Bay reached 52,207 sq ft, the highest among all sub-markets this quarter. The availability ratio in the market also dropped from 3.94% in Q2 to 3.62% this quarter (Table 3).

In Kowloon East, supported by take-up from nonfinance sectors, net absorption reached 36,810 sq ft, the second highest after Wanchai/ Causeway Bay. However, due to a new project, the Kin Seng Commercial Centre providing an additional of 120,000 sq ft office space to the market being completed within the quarter, the availability ratio increased from 5.93% in Q2 to 6.29% in Q3 (Table 3). Looking forward, the market is expected to remain cautious as we expect the current downsizing trend to continue. However, the TMT sector is expected to continue to be a significant source of office demand due to the strong growth in e-commerce, social media, computer applications and sales of hi-tech products. Figure 5 Grade A office supply, net absorption and availability ratio (2005-2015F) 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00-1.00-2.00 New supply Source: DTZ Research % 10 8 0 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F -2-4 6 4 2

Map 1 Office availability by location Q3 2012 Q4 2012 Q1 2013 Luxury residential 6,457 3,741 2,294 Office 6,817 15,473 7,281 Retail 8,027 11,244 6,548 Industrial 1,552 1,508 1,605 Others 2,552 991 1,845 Total 25,404 32,956 19,573 Source: DTZ Research The Government of the Hong Kong SAR MAP reproduced with permission of The Directors of Lands Source: DTZ Research

Retail Number of total visitor arrivals in August grew 9.4% y-o-y to reach 5,358,087, of which 79% were Mainland Chinese visitors. At the same time, retail sales also grew strongly, jumping by 8.1% y-o-y to reach HK$38.72bn (US$4.99bn) (Figure 6). With respect to visitors spending pattern, while jewellery, watches and clocks, and valuable gifts still account for the largest portion of sales, sales of department store products increased more significantly by 23.2% y-o-y in August, reflecting a changing consumption pattern from high-end luxury products to more mid range products. Such change in spending pattern is to a certain extent contributed by the increased proportion of daytrip visitors, who are generally more interested in shopping for mid-range cosmetics products rather than the luxury products. The emergence of this trend is benefiting the regional shopping malls in New Territories close to the border or along the major light railway lines, such as Sheung Shui, Tuen Mun, and Shatin. As such, New Territories retail rental index witnessed the highest y-o-y growth in Q3, rising by 5.5%, followed by Kowloon, at 4.1%. On the other hand, Hong Kong Island rental dropped 3.6% q-o-q and 4.8% y-o-y (Table 4 and Figure 7). In the traditional prime retail districts such as Tsimshatsui and Causeway Bay and Mongkok, competition for retail space in tier 1 high street shops remained intense. In particular, cosmetics and midmarket retailers remained keen on expansion. For instance, a cosmetics company had moved to Canton Road in Tsimshatsui with a 286% increase in rentals. However, vacant space increased in tier 2 and 3 street shops within the prime retail districts as are persisting expectation gaps between landlords and tenants with respect to leasing such space. Looking ahead, Cosmetics and medium level retailers are expected to see improved sales in the next quarter, which will be underpinned by the holidays the October golden week and Christmas that bookend the quarter. This trend is expected to continue to support retail rental prospects. Figure 6 Total retail sales (Jan 2007 - Aug 2013) Value (HK$bn) Yearly growth (%) 60 50 40 30 20 10 0 Source: Census and Statistics Department HKSAR Table 4 Retail market statistics Hong Kong Island 189.6-3.6-4.8 Kowloon New Territories Rental Index (Q1 2000 = 100) 158.2 187.4 q-o-q change (%) 1.2 4.1-6.7 5.5 Source: Rating and Valuation Department HKSAR, DTZ Research Figure 7 Retail rental index (Q1 2006 - Q1 2013) Q1 2000 = 100 220 200 180 160 140 120 Jan May Sep Jan May Sep Jan Source: Rating and Valuation Department HKSAR, DTZ Research y-o-y change (%) 100 80 60 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2006 2007 2008 2009 2010 2011 2012 2013 Hong Kong Island May Sep Retail Sales Value Jan May Sep Kowloon Jan May Sep Jan May Retail Sales Volume Sep Jan May 2007 2008 2009 2010 2011 2012 2013 New Territories 35 25 15 5-5 -15-25

PROPERTY INSIGHTS. Table of content. Malaysia Singapore Hong Kong. Citigold. Quarter 3, 2013