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RESIDENTIAL PROPERTY • 3RD QUARTER • JUL – SEP 2008 Singapore Market Overview In 3Q 2008, Singapore’s private residential property market buckled under the pressure of global financial concerns as both prices and rents fell, recording the first drop in over four years. Demand & Supply Singapore’s private residential market continued to show signs of cooling as launch market activity waned amid elevated fears of the possible crumbling of global financial markets. With the financial health of global markets uncertain and overall growth fundamentals expected to thwart the dynamics of the residential market, it is anticipated that the launch market will remain moderate, at least until there is some stability in the financial markets. The secondary market continued to experience deflated demand as resale activity began to diminish at the onset of the second half of 2007. Secondary market transactions have substantially decreased in the beginning of 2008. While the number of secondary market transactions started to fall when financial woes began as early as 3Q 2007, it was only at the start of this year when these were registered less than the five-year quarterly average of about 3,020 units. As at 3Q 2008, secondary market sales stood at about 2,400 units. With escalating concerns in financial markets, the private residential sector in 2008 has performed way below 2007 in terms of both launches and sales. Developers launched a total of 5,401 private homes for sale in the first 3 quarters of this year, based on official statistics from the Urban Redevelopment Authority (URA). This is only a mere 44% of the total launches in the initial 3 quarters of 2007. In 3Q 2008, developers sold about 1,558 private homes, which was about the same figure in the previous quarter. In the first nine months of this year, developers sold a total of 3,845 private homes, which is only nearly one-third, or 29%, of the sale figures in the corresponding period in 2007. Price & Rentals According to URA, prices in the private residential property market have generally declined by 2.4% quarter-on-quarter (qoq) in 3Q 2008, steeper than earlier flash estimates that indicated a 1.8% qoq drop.S pecifically, both overall landed and non-landed properties witnessed a fall this quarter, by 1.9% qoq and 2.5% qoq respectively. Prices of non-landed homes in all regions fell during the third quarter. For the prime residential market segment (Core Central Region), prices further weakened, with a 2.7% qoq decline in 3Q 2008. Similarly, private home prices in the mid-tier (Rest of Central Region) recorded a smaller fall of 2.4% qoq this quarter. The greater fall in prices of homes in the Central Region was because of the significant capital appreciation during the past three years, led by quality homes in the prime districts. On the other hand, average prices in the mass-market private home segment are a laggard with a slower start in terms of price expansion in 2005. As such, the third quarter saw the rate of change in the mass market prices decline by a smaller 1.5% qoq. Mirroring price movements, the private leasing market has also eased when it recorded the first drop in over four years, by 0.9% qoq in 3Q 2008.D espite this, rents are still experiencing double-digit growth of 15.1% yoy. Unlike the movement in prices, rents of non-landed property in all the three regions decreased this quarter. However, rents of homes in the mass market actually fell most, by 2.7% qoq, as some of the demand for mass-market private apartments has been drawn to the HDB rental market. On the other hand, the abatement in both the prime and mid-tier rentals was slight, by 0.7% qoq and 0.5% qoq.

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1 Some possible major launches in the next 6 months Projects Tenure District Developer Location Units Marina Bay Suites 99-year 01 Cheung Kong/Hongkong Land/Keppel Land Central Boulevard 221 Residential Development 99-year 04 City Developments Ltd Sentosa Cove 228 Seascape 99-year 04 Ho Bee Group/IOI Land Sentosa Cove 151 The Peak @ Balmeg* FH 05 MCL Land Balmeg Hill 180 Urban Resort* FH 09 Capital Land Residential Limited Cairnhill Road 64 Residential Development FH 09 Heeton Holdings Grange Road 28 Paterson Road/ Paterson Suites* FH 09 Bukit Sembawang Estates Ltd 102 Lengkok Angsa The Oliv* FH 10 TG Development Pte Ltd Balmoral Road 23 Madison Residences* FH 10 Keppel Land Bukit Timah Road 56 Verdure FH 10 Bukit Sembawang Estates Ltd Holland Road 75 Latitude* FH 10 CapitaLand Ltd Jalan Mutiara 127 The Trizon FH 10 Singapore Land Ltd Ridgewood Close 247 Nathan Residences* FH 10 Tat Aik Property Pte Ltd 91 VIVA FH 11 Allgreen Properties Ltd Suffolk Road 235 Trilight FH 11 Ho Bee Investment Newton Road 152

L’VIV* FH 11 Wing Tai Asia Newton Road 100 Jalan Raja Udang/ The Arte FH 12 City Developments Ltd 336 Jalan Datoh The Mezzo FH 12 Soilbuild Group Balestier Road 82

Silversea* 99-year 15 Far East Organization Amber Road 383

Residential Development 99-year 18 Kheng Leong / UOL Simei St 4 645

The Cascadia FH 21 Allgreen Properties Ltd Bukit Timah Road 536

Residential Development 99-year 22 Frasers Centrepoint Homes Lakeside Drive 712

* Projects currently under preview. Source: Knight Frank Research

Outlook Number of Residential Transactions (2008) Going forward, it is projected that the price and rental decline is likely to Primary Sales Secondary Sales persist. It is estimated that for the entire 2008, private residential prices will Month-on-month Month-on-month see growth between 0% to -3% year-on-year (yoy). With the slowdown in the Month Number Number private residential market, it is anticipated that primary market launches will % Change % Change fall within the range of 7,200 – 7,900 units while primary market sales could possibly register between 4,900 – 5,400 units in 2008, which would be only Jun 2,058 223 8,147 7 about one-third of the primary market sales in the previous year. Jul 457 -78 6,976 -15 Aug 216 -53 5,068 -27 Hong Kong Sep 917 325 5,158 2 Market Overview Oct 382 -58 3,688 -28 The deepening global financial crisis spilled over into Hong Kong’s real economy and property market over the past few months. Chain stores Source: Knight Frank and Land Registry including U-Right, Tai Lin Radio Service and Krispy Kreme Doughnuts were forced to close their doors amid slowing consumer demand. A number of Price & Rentals small investors incurred great losses from their investment in Lehman Brothers mini-bonds. A huge amount of wealth evaporated in the stock While prospective homebuyers avoided the residential property market, market, with the Hang Seng Index dropping 18% over the third quarter and sellers were willing to offer their residential properties at good discounts. 22% in October. After falling 4.3% in September and 8.0% in the third quarter, the average luxury residential price plummeted by 23% in October, with financially Demand & Supply strapped investors rushing to exit the market. An increasing number of would-be homebuyers forfeited their deposits House 17 of Severn 8 on The Peak was reportedly sold for about HK$80 and walked away from uncompleted deals towards the end of 3Q 2008, million, just around half the price for a similar house transacted early this with declining home prices and commercial banks’ conservative attitude year. A 1,500 sq ft unit in The Waterfront, Station was sold for in valuing properties for loan purposes. An investor defaulted the sales HK$9.4 million in the month, a drop of 41.3% from the asking price set in the agreement of a 1,100 sq ft apartment in Parc Palais, Ho Man Tin, losing 4% previous month. of the property’s price or about HK$300,000 in deposit. Another investor forfeited his down payment of HK$500,000, after committing to purchase a In the leasing market, dwindling demand along with an increasing supply of 1,200 sq ft apartment in Sorrento, Kowloon Station for HK$10.4 million. rental accommodation combined to drag down residential rents over the past few months. The average luxury rent dropped by 12.1% in October, after Due to weak investment and end-user demand, market activities continued to having already declined 4.4% in the third quarter. slow. The number of primary transactions plunged about 50% in 3Q 2008 to 1,590, while the number of transactions in the second-hand market dropped Residential rents in areas where a large number of expatriates and finance by about 30% qoq to 17,202. The total residential sales volume in October professionals are concentrated saw a more significant decline. A 1,037 sq ft dropped by a further 33% month-on-month to 4,070. unit in Sorrento, Kowloon Station was leased at HK$23,000 per month in September, a drop of 32% month on month. A 2,346 sq ft apartment in Bel- Most developers were unwilling to launch their projects for sale in this weak Air on the Peak, Pokfulam was leased at HK$90,000 per month, 25% lower market. Only three major new projects, namely Le Bleu Deux in Tung Chung, than the market level. The Dynasty in and Seasons Monarch in Kam Tin, commenced sales over the four-month period ended October, providing about 900 units.

2 Outlook However, we feel that the undersupply of housing in London – which is now The market is expected to remain weak in the near future. Developers deteriorating rapidly as a result of the inactivity in the development sector are expected to adopt a more cautious stance when launching their units, – will provide a floor for prices and will prevent the more lurid 40% and with some delaying sales programs. However, a cutthroat price war among 50% price decline forecasts from happening. Investors will have a role in developers is less likely, given the limited supply in 2008 and the years calling the floor in the market and will be motivated to buy stock by rapidly ahead. improving yields. According to the government, 10,983 residential units are slated for completion in 2008, but during the first nine months of the year, only about Edinburgh 3,000 units were completed. This reflects the fact that developers have postponed their developments amid market uncertainties. Their conservative Market Overview stance is expected to linger in 2009, further limiting housing supply and help The residential market during 3Q 2008 has not improved. The issues to stabilize the market. surrounding the availability and cost of borrowing have become steadily worse the result being that trade has suffered badly. The volume of sales remains at a level in excess of 40% below 2007 and values in real terms are London now down by a good 15% with expectations that a figure nearer 20% will be more realistic by the end of this year. As has been heavily documented, the Market Overview British Government has orchestrated a major bail out of the High Street Banks The housing downturn triggered by the credit crunch came late to London, (including two of Edinburgh’s historic banking institutions namely HBOS and sparking early predictions that the capital would be immune from the decline RBS). The threat of redundancies especially within HBOS and the general seen elsewhere. It is now undeniable that the market for homes in the city is fiasco within the banking industry has seriously knocked the confidence of more challenging than at any point since the early 1990s. Indeed, on some the Edinburgh residential market. The Bank of England has re-directed their measures, the current slump is more widespread and has occurred more concerns over the threat of rising inflation to hopefully avoiding a major rapidly than in the previous trough a decade and a half ago. depression, by beginning to reduce the base rate of interest. Frustratingly, confidence in inter-bank lending is still at an all time low and subsequently Demand & Supply little or no improvement in mortgage availability or reductions in interest The RICS report that sales per surveyor are at the lowest level since they levels are being passed on to the general public. began their survey in 1978, and are lowest in London. Our own intelligence A major part of our responsibilities continues to be advising existing and reveals that sales volumes are 50% to 60% down on historic levels in prospective clients who are genuine sellers to reappraise their expectations central postcodes. Very low activity is partially explained by a continuing on what price is realistically achievable in the current market. A further lack of realism amongst vendors. Agents are reporting a growing number complication for sellers in Scotland is the introduction of the Home Report, of rejected offers, some as low as 30% below asking price, an indication of which will be a legal requirement from 1 December 2008. where purchasers expect prices to end up. It is still difficult to find the middle ground between vendors and purchasers in order to achieve a sale. The Values in Edinburgh’s traditional market are down approximately 15% on this exceptions are ‘best in class’ properties, which are still receiving something time last year whilst the New Build sector’s problems have intensified further. approaching competitive bids. 3Q 2008 coincides with the traditional end of summer and the beginning of the autumn market. This would normally be a very busy time for us. In reality Despite recent events in the City, many vendors simply do not have to sell we are busy, but deals are harder to find and much harder to keep together. at any cost. Many are opting to wait for better times, unless life changes dictate otherwise – in which case letting out the property is proving to be Despite these difficult market conditions there is some activity at the top end an attractive alternative. City-based workers have always been the engines of our residential market. By comparison Scotland’s top end rural market is of the prime market. At the moment, they are understandably pessimistic still seeing some significant sales ofE states, farms and large country houses about future prospects and have left the market. Only the wealthiest hedge (£2m - £7m) whereas the rural core market continues to struggle alongside fund managers, commodity traders and international super-rich are still Edinburgh. keen to buy. For others, the rental sector is an obvious place from where to watch and wait. Demand & Supply Tenant demand has risen as many people find themselves excluded, whether There remains a reasonable supply of high quality residential property both by accident or design, from the sales market. There is always an ongoing in the middle and top end markets in Edinburgh during 3Q 2008 but as the need for people to move home or to find accommodation in London, but this year draws to an end we can see some properties being withdrawn if they activity is manifesting itself in tenancy agreements and ‘to let’ signs, rather have not found buyers. Property is available in the traditional manner on the than mortgages and completions. ‘open market’, and some available on a strictly private basis. Interestingly, and mainly due to the shortage of buyers presently, there is no specific level Price & Rentals in value where demand is any greater than another. That said, those genuine buyers with their finances arranged and existing properties sold (if required) Prices have fallen by as much as 20% over the past year for homes in some are in an exceptional position to make an excellent purchase. parts of the capital. Even the prime locations, which until recently were still showing positive growth on an annual basis, are not immune. The best Price & Rentals properties have seen falling prices over five months and as a result are now worth noticeably less than a year ago. This is the first time that price growth Edinburgh is not immune to the downturn throughout the U.K and prices has slipped into negative territory since 2003. Only super-prime properties across the board are down by about 15% or more. The new build market is worth over £10m have maintained their prices. seeing a greater reduction in values. The main problem for all sectors of the market is not the desire to buy and sell but the inability to raise finance. Rental growth has slowed following strong growth throughout 2007, with rises of only 0.7% and 0.6% reported for the first and second quarters of In this regard not much has changed; rents are on the up as the level of the year respectively. This slowdown has been caused by the amount of demand increases. Preference is for both central property with good new stock coming on to the market, the result of ‘forced landlords’ letting infrastructure and good family accommodation in all the recognized areas out their homes, which they either cannot sell or do not wish to at current of the city. Contrary to this is the volume of buy to let property on the market prices. periphery of the city much of which is struggling to find tenants at all. It remains to be seen how rental values cope as the market becomes flooded Most rental offices now report unprecedented levels of stock as a result of with too many properties. the increasing numbers of forced landlords. The quality of accommodation on the market has also increased over recent months, a result of former Outlook homes – many of which may have been refurbished to a very high standard Our assessment is that in reality there is no less interest in moving house – becoming available for rent. Developers who are unable to sell stock are but the inability to raise finance and the concerns of not being able to find a also opting to rent out property, obtaining at least some income from their buyer for an existing home is responsible for preventing many transactions. units rather than letting them stand empty. Consequently, there is now a great deal of choice available and it is a tenants’ market. Properties need to While sale volumes are down 40% year on year, some trade is taking place be realistically priced and in good condition to let quickly, and if they are not, and there are very real opportunities right across the market. offers under asking price need to be accepted. The consensus may be negative now, but the freeing up of liquidity within the Outlook banking system and more acceptable interest rates in line with the Bank of England’s base rate could begin to make an enormous difference to people’s Prices will continue to fall through 2009, but we suspect that the bulk of confidence to get back into the market. We expect to see the market finally price falls will have been achieved in the 18 months between September 2007 bottom in 2009 with the volume of trade improving steadily as the year and March 2009. With vendors acclimatized to new conditions, transactions progresses. At the time of writing, and subject to the depth of recession we should begin to increase from the 2009 spring market. Also the banks may would hope to see prices begin to show signs of genuine recovery in 2010. well feel more confident lending against property when they believe that the cycle of price falls is nearing an end.

3 Sydney Rents rose sharply over the 2007-08 financial year. In Inner Sydney, median unit rents rose by an average of 14.0% over the 12 months to June 2008, Market Overview while house rents rose 18.1% over the same period to reach $490 and $638 While inflation remained high, inflationary pressures inA ustralia are believed per week respectively. However, over the same period the number of renters to be weakening, and although CPI forecasts for the financial year are 25 over the same period decreased by -0.2%. Concurrently the Sydney middle basis points higher than those made in May 2008, the Reserve Bank (RBA) and outer rings saw an increase in the number of renters, suggesting that the felt it had sufficient leeway to slash the cash rate target, firstly by 100 basis increases in Inner Sydney rents drove tenants to edge of city locations where points in October, followed by a further 75 basis points at November’s RBA rents were relatively cheaper - albeit rising at a faster rate. Vacancy rates meeting. The bank is clearly worried that international market conditions will across Sydney rose in the 12 months to June 2008. Since June, vacancy feed through to Australian economic growth and that the prospect of the rates have stabilized in Middle and Outer Sydney, while continuing to rise in economy slowing too quickly and following other major global economies Inner Sydney, reaching 1.5% by September 2008. into recession outweighs the marginally higher upside inflationary risk. Outlook Domestic consumer demand has slowed, and the latest national trade turnover figure released by the ABS reveal trade growth slowed to 2.32% in While growth in the Australian economy has undoubtedly slowed and is trend terms to September 2008, down considerably from the 8.3% growth forecast to slow further over the remainder of the financial year, at present seen to December 2007. Sales in NSW were amongst the hardest hit, with demand from emerging economies for Australian commodities has in part seasonally adjusted retail sales down 3% from September 2007. However, insulated against the worst effects of the global credit crisis currently while the economy as a whole appears to be weakening and treasury growth afflicting the US and Europe. While Asian demand for exports is expected forecasts have been revised downwards by 75 basis points for 2008-09 to slow over the next 12 months, continuing, albeit slower growth in to 2%, the national employment picture still appears relatively healthy, should ensure Australian exports remain relatively strong as demonstrated although unemployment is expected to rise above 5% during 2009. by September’s figures showing strong growth in the export of metal ores and minerals, and coal, coke and briquettes, by 19% and 14% respectively Demand & Supply which went someway to ensuring September’s trade balance remained Building approvals have declined according to latest figures released by positive. the ABS. In September 2008, approvals for all dwelling types in NSW were Monetary policy is expected to continue to ease following the November 75 down by 26.4% from the August total. The decline is accentuated when basis point reduction in the cash target rate as the RBA attempts to boost compared with the same period 12 months previously, as the number of flagging consumer confidence. Further easing of monetary policy is likely to dwelling units approved fell by 40.0%. The number of dwelling approvals in stimulate the lower end of the mainstream residential market. This segment NSW is currently at the lowest level for 43 years. The majority of the fall in of the market should be further boosted by the recent increase to $21,000 dwelling unit approvals can be attributed to the 49.1% decline in approvals in the value of first homeowner concessions. The shortage of housing, for apartment construction, traditionally the more volatile component of the combined with a decline in building approvals, and recently upwardly revised residential construction sector. Sydney population growth forecasts should ensure that the mainstream Private sector credit increased by 0.7% in September nationally. The 10.1% residential market does not fall much further. The Australian housing market growth rate recorded over the 12 months to September was the slowest is considerably better placed than that of the US to ride out a period of global growth in credit for 6 years. Personal lending fell over the year rose by 2.5% economic uncertainty as a result of these factors. Furthermore, the growth although has fallen for four successive months. Housing lending increased in lending in recent years has been driven by existing homeowners trading by 9.2 per cent over the past year - the weakest growth in almost 25 years. up or investing rather than as a result of additional lending to marginal September saw lending for owner occupied housing increase by 0.6% (9.9% borrowers. Underlying housing market fundamentals remain strong. annually) while lending to investors rose 0.4% (7.9% annually). While the mainstream market is expected be boosted by external stimuli, prestige property price growth will come under further pressure. Entry-level Price & Rentals prestige properties are likely to see values fall as has already been recorded The impact of the two recent cuts in interest rates has not yet been manifest in areas such as the North Shore, which are more dependent on financial in the residential housing market. The recent increase in first homeowner markets as a source of purchasers, or in suburbs such as Palm Beach where concessions to $21,000 for new build properties is expected to boost the there is a significant proportion of second home ownership.M ore established mainstream residential market, particularly the apartment market. While suburbs - particularly those with harbor views (including the Eastern Suburbs median prices nationally grew by 2.8% over the 12 months to September of Vaucluse, Rose Bay and Point Piper) – are expected to fare better, and 2008, this growth masks a decline of 1.8% observed over the last quarter, trophy properties which tick all the right boxes are expected to remain in with the decline in prices observed in Sydney equivalent to that observed strong demand, particularly with international buyers. nationally. The greatest falls in house prices were recorded in Brisbane and Canberra with growth falling by -3.3% and -2.5% respectively. Kuala Lumpur Prestige residential property price growth appears to have slowed in Sydney, with prices in the entry level segment of the prestige residential market Market Overview falling by up to 10%, most markedly in areas with a significant proportion The high-end condominium market in Kuala Lumpur is undergoing a period of holiday homes and weekend retreats. Downward pressure on prices of uncertainty attributed to the on-going global financial crisis, which has is a consequence of the falling value of executive bonuses amid financial affected market sentiments and purchasing decision. market turmoil. The prestige residential market is less interest rate sensitive than the mainstream residential market and accordingly, the recent policy Demand & Supply interest rate cuts by the RBA are expected to have little direct impact on New completions in 3Q 2008 include K Residence, Suria Stonor and The Binjai. either price growth or demand in Sydney’s prestige residential sector. The These new completions have increased KL City’s high-end condominium prestige market also slowed in terms of transaction volumes with sales of supply by some 500 units in 3Q 2008 and brought the total cumulative property in the $2 - $5 million-price bracket falling by 12.6% over the 2007- supply to 3,880 units. Our market research revealed that there was no new 08 financial year. completion of high-end residential projects located at the fringes of KL City Despite the relative malaise at the entry level end of the market, the upper during the third quarter of 2008 and supply remains at 13,170 units. end of the prestige market has continued to see price records broken with There was only a handful of new launches in Kuala Lumpur during the review the reported $47 million sale of a Vaucluse mansion in September 2008 period, namely The Binjai on The Park and Setia Sky Residences. The Binjai following on from March’s record breaking transaction of 32.4 million for on The Park is a built-then-sell development launched in August 2008. Its Point Piper’s ‘Craig-y-Mor’. International investors have remained active in launch price of RM3,000 per sq ft has breached the benchmark launch price the Sydney prestige market, as the falling value of the AU dollar increases the set by The Regent Residences (RM2,700 per sq ft) in the previous quarter. attractiveness of Australian purchases to overseas buyers. Strong demand Setia Sky Residences is SP Setia’s pioneer project in KL City. SP Setia is remains for prestige apartments in the city centre, with demand provided by a reputable award winning developer with several successful township empty nesters downsizing, and demand is high for the very best properties developments in the Klang Valley, Johor and Penang. The first phase of in Sydney’s harbour side locations with water views. Setia Sky Residences comprises 422 units, which are housed in two blocks. The RBA’s aggressive tightening of monetary policy, and the credit crisis has The developer has reported a take up of 80% for one of the tower and is had a substantial impact on Australian consumer confidence. It is too soon currently looking for an en-bloc purchaser for the second tower. to expect the recent rate cuts to have had a significant impact on theS ydney residential market. However, affordability will be improved with the reduced Price & Rentals cost of servicing mortgage debt and demand for residential property remains The current economic environment coupled with the increase in supply, have strong. Demand for rental property is boosted by the shortage of suitable led to price and rental stabilization for existing high-end condominiums as property and continued population growth in NSW. well as newly completed projects. With the pending completion of more new projects, tenants now have a wider selection as well as the advantage in negotiating better tenancy terms. We anticipate there is a possible correction in prices in the near future leading to a reverse trend in yield compression.

4 decreased by two percentage-points to 85% and 79% respectively. Pudong Asking Prices and Rentals of Existing High-End Condominiums and Puxi both saw one percent-point increase in occupancy rates in the Asking Gross Rent Asking Selling Price serviced apartment sector to 80% and 84% percent respectively. The Locality (RM psf/month) (RM psf) quarter indicated a noticeable disparity in popularity of villas in Pudong and Puxi. Ninety-one percent of leasable villas are occupied in Pudong whilst KL City 4.50 – 7.00 700 – 1,600 only 78 percent of rentable villas in Puxi are leased. Transaction volume of Shanghai’s luxury residential properties slumped by 50% in the third quarter Ampang Hilir/U-Thant 3.50 – 5.00 500 – 1,000 to approximately 265,077 sqm. Damansara Heights 3.90 – 4.80 500 – 700 Price & Rentals Kenny Hills 3.50 – 4.50 500 – 800 The mass residential market experienced a downward trend in both transaction volume and prices, partly as buyers’ were holding back. Prices Bangsar 3.00 – 5.00 450 – 900 of mass residential properties excluding budget houses fell to RMB 13,485 Mont’ Kiara 2.80 – 4.50 400 – 700 per sqm. In the luxury residential market, the sales prices of Yanlord Town and Shanghai Bay increased 16 percent and 10.9 percent respectively in this Outlook quarter whilst the prices of Gubei Maison des Artistes and Casa Lakeville decreased 4.9 percent and 4.2 percent respectively. The total average price Buyers are now adopting a ‘wait and see’ approach whilst developers growth rate of luxury residential housing declined 11.9 percentage-point in are deferring project launches amidst the current challenging economic the third quarter. Still, several properties achieved high sales and prices. environment. Subdued market sentiments are expected for the high-end Riviera Garden No.5 recorded an average price of RMB 54,300 per sqm and condominium market in the next quarter where prices and rentals will likely one unit on the 38th floor achieved a higher rate of RMB 62,791 per sqm. see corrections thereafter. Casa Lakeville still saw the highest sales price during the quarter, scoring an average price of RMB 81,400 and selling 26 units at the time of printing. Shanghai Average monthly rents of luxury residential properties decreased by 0.5 Market Overview percent to RMB 160.2 per sqm per month during 3Q 2008. Compared with 2Q 2008, rents of serviced apartments remained at similar levels at RMB The global financial crisis and the governments’ tightening measures resulted 181.2 per square meter per month and rents of villas averaged at RMB 153.1 in a market downturn both in terms of residential sales and leasing this per sqm per month. Grand Gateway Serviced Apartments was much sought quarter. In September, the government began to loosen monetary policies after among apartments in Puxi, with rents upped by 4% to RMB 156 per sqm by cutting interest rates and decreasing the deposit reserve ratio of banks per month, as Jing’an Plaza has shut down, reducing the residential stock in with the intention to stabilize the economy, encourage economic growth and the area. In addition, rents of strata Skyline Mansion has been significantly revive the property market. affected by the ongoing constructions beside the property, with rents On 27 August, the central bank announced that banks could not lend dropping 16 percent to RMB 142 per sqm per month. In addition, Belgravia to developers who had left land undeveloped for more than two years, Place at Huashan Park and Fraser Suites Top Glory offer monthly rents of and commercial property projects using rural collective land. While most RMB 35,000 and RMB 45,000-55,000 per unit respectively. developers and owners were able to manage the reduction in credit Luxury Residential Sales Volume and Average Price initially, we saw a number of developers merging or selling projects as the measures continued. Since many local developers can no longer borrow Sales Volume (LHS) Average Price (RHS) money from banks to finance ongoing development, they have been forced sq m RMB/sqm to reduce property prices to achieve faster cash returns. These declines 700,000 - - 50,000 have encouraged home purchasers to adopt a wait-and-see attitude as they 600,000 - expect further price drops till 2009, causing downward pressure on both - 40,000 price and transaction volume in the residential market. 500,000 -

- 30,000 The tightening monetary policy was eased slightly by cutting the benchmark 400,000 - lending rates and bank deposit reserve ratio on 16th September. This was 300,000 - the first time the central bank decreased interest rates since October 2004. - 20,000 After this adjustment, the one to three (inclusive) years benchmark-lending rate decreased to 7.29% and the five-year public housing fund rates were 200,000 - - 10,000 cut by 0.18% to 4.59%. Developers are anticipated to benefit from the rate 100,000 - cut, which results in lower financing cost. Homebuyers would thus bear lower monthly mortgage payments, lending support to home-buying interest. – - - – Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Although the mass residential market plummeted both in sales price and sales activity in the first quarter of this year, luxury residential properties Source: Shanghai Real Estate Exchange Trading Centre, Knight Frank Research performed steadily in sales price. The growth has however moderated. The effects of financial problems on Wall Street have spread to the leasing market, further reducing leasing interest for luxury homes. Due to the Selected Luxury Apartment Sales Transactions, 3Q 2008 weakened buying interest, individual owners prefer to continue to hold their Block/ Area Total Price Unit Price District Building homes for investment, instead of selling. Floor (sqm) (RMB) (RMB/sqm)

Demand & Supply Luwan Casa Lakeville 1/12 325 29,113,108 89,703 During the third quarter, Belgravia Place and Fraser Suites were added to the leasing market. Belgravia Place was jointly acquired by Grosvenor and Xuhui Crystal Court 2/4 512 32,132,061 62,807 German SEB Fund at a total price of RMB 1.2 billion and officially put onto Yuanzhong the leasing market in September. The 32-storey high-rise residential project Jing’an 5/5 135 6,950,463 51,546 features 120 suites ranging from 222 square meters to 250 square meters Fenghua and six suites ranging from 324 square meters to 556 square meters. Fraser Changning Prince Hills 2/19 289 15,175,204 52,553 Suites Top Glory Shanghai, managed by Fraser Hospitality Group, is situated in Lujiazui Pudong New District and adds 317 units of two to four bedroom Huangpu Gongguan 77 1/15 147 6,829,6523 46,331 suites ranging from 209 to 435 square meters in size at monthly rates of RMB 45,000 to RMB 55,000 per unit to the stock. Pudong Tomson Riviera 8/20 598 47,372,965 124,459

The luxury sales market this quarter saw the launch of Riviera Garden No 5 New Bund Hongkou 18B/5 129 5,155,749 40,026 and Rhapsody. Riviera Garden No 5 brought 414 units to stock with an asking Garden Phase III price of RMB 56,000 per square meter, and sold five units by the end of the quarter. Rhapsody was originally known as Ascott Serviced Apartments and Triumphal Putuo 1/20 273 10,305,830 37,742 was previously only available for lease. It was put onto the sales market in Palace mid September, adding 248 units of mainly one to two room suites ranging from 66 square meters to 168 square meters in size and few four bedroom Yangpu CRC Oak Bay 1/28 183 8,727,453 47,691 suites to the stock. Rhapsody sold 22 units on its launching day. Zhabei Zhuo Yue Jv 20/2 69 1,959,452 28,279 The occupancy rate of leasable residential properties declined one percentage-point to 82%. Occupancy rates in Pudong and Puxi have both Source: Shanghai Real Estate Trading Centre, Knight Frank Research

5 sales market continued to decline, with transactions experiencing sharp Selected Villa Sales Transactions, 3Q 2008 decline in this quarter. Capital value of high-end apartment stopped its Area Total Price Unit Price uptrend and decreased 1.1% qoq, to RMB 29,546 per sqm. To stimulate sales, District Building Unit (sqm) (RMB) (RMB/sqm) developers have to reduce sale prices. Unlike the previous quarter where developers gave indirect incentives in the form of giving extra parking space Qingpu Shanghai Oasis 805 389.94 20,054,614 51,430 or free management fees for a year, developers give direct discounts of the Jiang’nan Garden total housing price to some homebuyers in 3Q 2008. Phase II Outlook Minhang Greentown Rose 7 483.89 25,359,223 52,407 Considering the current weak economic situation and upcoming Christmas Garden Holidays, we estimated that the residential leasing market will enter into an Songjiang Shimao Sheshan 8 857. 30 102,004,126 118,983 off season in 4Q 2008. It is estimated that the new supply of the overall Villa Phase II residential market will amount to 5,314 units in the coming quarter. Due to the significant new supply as well as decreasing demand, the vacancy in Nanhui The Emerald 31 297.88 9,874,722 33,150 the luxury residential market is anticipated to rise and rents are likely to Phase V continue to witness an overall downward movement. Downward adjustment on sales price will likely continue in 4Q 2008. Despite the price corrections, Pudong Regency Park 318 295.98 29,223,881 98,736 current prices are still considered high and beyond the affordability of most Phase VII homebuyers. As a result, we anticipate that transaction volume will slightly decrease in the coming quarter. Baoshan Zhuyou Baoliang 16 412.83 14,982,839 36,293 Fudi Residence Fengxian Palm Beach Phase II 126 478.97 30,980,258 64,681 Bangkok

Source: Shanghai Real Estate Trading Centre, Knight Frank Research Market Overview Economic slowdown affected Bangkok condominium market, causing the Outlook decrease in new supply and slower growth in cumulative supply in 3Q 2008. The performance of the residential market was seemingly weak in 3Q 2008. Cumulative take-up units still increased qoq but at a slower growth since people The Ministry of Housing and Urban Rural Development has proposed various were more careful in spending with the current weak economic conditions. measures to the State Council aiming to stimulate the real estate sector. In 3Q 2008, the supply of serviced apartments continued to increase since Although some of the moves were to help the Chinese economy as the real there were new serviced apartment projects opened in the Sukhumvit area. estate sector accounted for a quarter of national fixed capital investment, Overall occupancy rate dropped by 1.8% yoy due to more competitors in the the property sector itself will benefit with supply and demand restored. market and a slowdown in demand. Measures suggested by the government include removing restrictions on purchasing second private property, cutting property tax and decreasing the Demand & Supply mortgage rate. The Bangkok condominium market in 3Q 2008 was affected by economic However, it takes time for approvals and implementation of these measures. slowdown. New condominium supply decreased by 23.7% qoq. As a result, As the recent easing in monetary policy is unlikely to give any immediate cumulative supply grew slower, at 5.4% qoq, compared to 2Q 2008, which result, the mass residential market is expected to remain quiet in the short increased 7.6% qoq. Most new supply launched during 3Q 2008 were middle- term, with prices and sales volume continuing to decline. Furthermore, with end condominiums, which were affordably priced. The slowdown in buying the implementation of the 70/90 policy, portfolio of new supply in next interest was a result of people who are increasingly cautious in spending, with quarter would be dominated by medium size properties. The 70/90 policy some using more time to consider buying new condominiums. Cumulative stipulates that the combined GFA of all residential units smaller than 90 take-up in 2Q 2008 grew by 11.7% qoq, followed by a 5.2% qoq increase in square meters should account for more than 70 percent of the total GFA 3Q 2008, signaling a slowdown in buying interest. of a project. The policy applied to residential developments that were given The opening of new serviced apartment projects in 3Q 2008 brought approval to commence work after 1 June 2006. cumulative supply to a total of 12,959 units. All new serviced apartments In the luxury sector, due to the recent market depression, we are expecting opened in 3Q 2008 located in Sukhumvit area, the most popular area for price and transaction volume to fall as buying interest wanes. Most individual expatriates. In 3Q 2008, Sukhumvit accounted for a 45% share of serviced owners are now holding up their properties and wait to see what the market apartments, higher than in CBD where supply share was at 33%. Average trends will go in the coming months. occupancy rate of serviced apartments in Bangkok decreased from 80.17% in 3Q 2007 to 78.7% in 3Q 2008. The continuous entry of new supply The residential leasing market is expected to remain subdued in 4Q 2008, intensified competition while demand started to be slow as a result of as the winter season will discourage business traveling to Shanghai. Due economic slowdown as well as political uncertainty. Therefore, occupancy to the global financial crisis, multinational enterprises are expected to be decreased over the third quarter of last year. increasingly cautious in hiring expatriates. List of upcoming supply in Bangkok serviced apartment Beijing market in 4Q 2008 – 2009 Market Overview Serviced Apartment Projects Location Units Beijing luxury residential market cooled soon after the close of Beijing Sathorn Vista – Marriott Suanplu 184 Olympic Games. Sharp decline on the short-term leasing demand as well as a short-term oversupply exerted upward pressure on the vacancy level The Royal Suites Serviced Apartment Sukhumvit 13 170 of serviced apartment sector. With the current weak economic conditions, many multinational companies either delayed or cancelled their planning Riverside Garden Marina New Road 260 on personnel migration, which is likely to further lower the overall leasing demand for the luxury residential market. The Royal Orchid Langsuan 536

Demand & Supply Marriott Executive Apartments Sathorn 184 Nine apartment developments are due for completion in Q3, contributing a total of 3,355 units to the market. Among these, six are serviced apartments, Bliss Residence – 78 totaling 1,817 units, namely Shama Luxe Chang An (225 units), Lanson Place Siam Kempinski Rama I 150 (105 units), Riverside Baraque Palace (160 units), Peking Inn (786 units), Yansha Class (155 units) and Modern San Francisco International Centre Pan Pacific Serviced Suites Sukhumvit 126 (386 units). Net take-up of luxury residential market recorded at 1,817 units in this quarter, Mayfair Sukhumvit Sukhumvit 24 350 representing a sharp 52.5% qoq decline. The overall vacancy rate climbed 2 percentage-points from 20.7% in 2Q 2008 to 22.7% in 3Q 2008. Somerset Rajthewee Rajthewee 225 Price & Rentals Somerset Sukhumvit Thonglor Thonglor 262 With increasing vacancy, most operators and landlords decrease their rents Somerset Amar Garden, Bangkok Sukhumvit 144 to attract tenants. As a result, average rents for the overall luxury residential market began to decline, from USD$ 21.2 per sqm per month in 2Q 2008 to Total 2,669 USD$ 20.6 per sqm per month (gross inclusive) in 3Q 2008. The serviced apartment sector was the major driver for the rental decline. The residential Source: Knight Frank Thailand

6 Price & Rentals since the previous quarter and remained constant in the range of Rs. 25,000 The selling price of Grade A condominiums averaged Baht 149,700 per sqm in - 32,500 per sq ft. The preferred residential locations in the western suburbs the 3Q 2008. Selling price of Grade A condominiums was accelerated by high like Andheri and Bandra which command average values at Rs.10,500 per price of luxury condominiums in prime areas which were sold at over Baht sq ft and Rs. 22.500 per sq ft respectively, observed a dip of approximately 100,000 per sqm. Selling price of Grade B condominiums in the third quarter 6 -12%. Meanwhile, central Mumbai locations like Parel, Sewri and Byculla of 2008 stood at Baht 86,200 per sqm while Grade C condominiums had the witnessed decline in residential prices to the tune of around 5-10%. Another average selling price of Baht 55,200 per sqm. residential market, which has been considerably affected in terms of depreciating capital values, is Vashi, the satellite township of Mumbai. Prices Average rental rate of Bangkok serviced apartments in the third quarter of in this micro-market, which are around Rs. 5,000 – 6,000 per sq ft, have 2008 was around Baht 1,230 per sqm per month. Rental rate was almost come down by about 15 -20% in the past quarter. similar to 2Q 2008 due to increasing competition, which made it more difficult to increase rentals. While some serviced apartment projects cut rentals to Outlook boost occupancy, some serviced apartment projects rather maintained rental Mumbai’s real estate future is expected to take a new turn in the forthcoming rate at the expense of lower occupancy rate in order to keep the REVPAR. months. The decision by the Supreme Court of India to allow the new Outlook development control rules is likely to change the face of the Island City. In a move that will set the pace for a major change in Mumbai and spell a The Bangkok condominium market is expected to soften in 4Q 2008, as bonanza for developers, the Supreme Court has allowed for redevelopment developers are more cautious in investment initiatives and home buying of ceased buildings in the Island City, removing the earlier restrictions. This sentiments have tightened under the current economic condition. This will is good news for big players who have plans to construct multiple buildings result in lower demand at end of this year. However, as supply will also be low for housing and not just standalone structures. Besides, there will be scope with limited new completions, the lower demand will have limited effects on the health of the condominium market. for more space to develop and more saleable space. For landowners, it will fetch better returns and for tenants, this could improve living conditions. Supply of serviced apartments is expected to continue to increase while demand will be affected by economic conditions. As many new serviced Regarding the impact of redevelopment on pricing, while there is a high apartment projects are scheduled to open at end of this year and next year, demand in Mumbai, at least a 15-20% price correction is expected in there may be a possibility of excess in supply. With increasingly competition, premium locations. However, although the decision by the court is a welcome some existing serviced apartments may possibly reduce rents to focus more development, the challenge remains in building adequate roads, power, on short-term stay guests. As a result, rents of serviced apartments are likely water and sewage facilities, to meet the density from increased residents to decrease slightly at end of this year and also in the next year. occupying the high-rise buildings that will come up. While some fear that this decision will lead to unbridled construction, congestion, and immense strain on existing infrastructure, which is already fragile, looking at the immense Mumbai space shortage faced in Mumbai and the lack of adequate reasonably priced housing, the new development control rules have been appreciated by most Market Overview quarters. The Mumbai residential market saw considerable slowdown in terms of transactions in the past quarter. While this can be attributed to the lean Meanwhile, the residential market prices in Mumbai are projected to remain period witnessed during the monsoons with the stalling of construction work, under pressure in the short term as end-users and investors adopt a wait- thereby delaying the completion of housing projects, the economic recession and-watch approach. in the country have played an important role as well. The city’s residential sector slowing down is evident from the fact that the National Capital Region number of proposals being submitted for approval has dropped drastically Market Overview during the quarter. According to the state government’s building proposal department, there has been a 50% drop in the number of proposals. Also, The impact of the global economic recession has made its effect felt on the the number of investors in the housing industry has come down significantly. Indian economy, especially on the real estate sector. Rising rates of interest, Real estate stocks have been among the worst performers in the Indian high inflation and low liquidity power have significantly affected the demand stock market, as funding concerns and the sub-prime crisis led majority in the NCR residential real estate market. Demand for residential housing is of the investors to shut out. Generally, the profits from the stock market witnessing a downturn in the region, despite the corrective measures taken are invested in the real estate industry. With the stock market fluctuating, by the Reserve Bank of India. Even with the announcement of a 0.75% cut developers, too, are experiencing a cash crunch. Besides the high prices, on home loans, the interest rate for housing loans are as high as 11-12%. A inflation and high interest rates have led to people putting off their plans to double-digit inflation rate, a shaky job market and a gloomy financial sector buy a home in the city. are enough reasons for the investors to delay their investment decisions. Demand & Supply While sales activity in the premium segment has been consistent with residential housing demand stable in markets like Jor Bagh and Golf Links in As rising interest rates and spiraling construction costs continue to Delhi, the Grade-A residential properties in mid priced markets like Gurgaon, discourage many aspiring homebuyers, real estate developers are changing Noida, Greater Noida and Ghaziabad have been adversely affected by the their strategies to keep their business going. Developers have recently spiraling interest rates. These micro-markets are witnessing a decline in been shifting their focus to develop affordable housing projects or attract investor and end-user demand, consequently leading to a negative effect high-end homebuyers, who mostly buy cash down or with limited amount on the property prices, which can be approximated at around 10% of the of borrowing. In fact, a large number of developers are opting for low-cost capital values since the last quarter. Decrease in housing demand and lower housing to play on the volume game. sales numbers are forcing developers to delay the launch of their housing Earlier this quarter, Mumbai-based developer Matheran Realty invited buyers projects. Stocks for developers like DLF and Unitech have lost considerable for 3,000 low cost homes at an upcoming township 80 km off Mumbai. The market capitalizations due to the decline in their stock values. To cope up firm plans to build 15,000 such flats in three years. This project could well with the slowdown in demand, a number of developers are trying to attract be termed as a demand-supply match for a space crunched city like Mumbai. investors by offering incentives like free parking and reduced interest rates According to the company, it sold over 45,000 applications for booking of for specific projects. the 3,000 units in a week and over 17,000 people have sought allotment of Demand & Supply the flats. In another significant development, around 500,000 inexpensive rental homes, targeted at low-income groups, are to be built within three Demand for residential units has been declining over the first three quarters years in an effort to arrest the proliferation of shanties in Mumbai. The of 2008. Investors and end-users are skeptical over their buying decisions project will be undertaken by Mumbai Metropolitan Region Development across all micro-markets of NCR. Due to the fall in demand, developers Authority (MMRDA). have come up with new strategies to boost the housing market in the NCR. Low-priced affordable housing projects have been initiated, easy payment Price & Rentals schemes in the form of a delayed EMI scheme have been promoted and Mumbai witnessed substantial dip in residential capital values all across developers are switching from building large luxury apartments to smaller the various micro-markets in the city. Several residential projects in the sized apartments, as homebuyers are increasingly cautious and sensitive city have lowered their prices in order to attract customers. This includes to prices. These active measures will help developers to be assured that the projects of developers with sprawling duplexes, lavish interiors, motion demand will remain sustainable, as upcoming supply figure for the next few sensor lighting, home theatres and walk-in wardrobes for an exclusive years will be substantial. clientele, who are finding out that the actual sales have been much lower Some of the prominent projects, which were launched during 3Q 2008, owing to the market scenario. include Express Green by the DLF Group and The Tulip Pearl by the Tulip The quarter saw prices depreciating in the range of around 5 -10% in Grade Infrastructure Pvt Ltd group. Other new projects launched include Aqua A residential properties in South Mumbai locations of Cuffe Parade, Colaba, Polis (Gurgaon), BPTP Park Floors (Faridabad), Tera housing (Noida) and etc. Residential prices in Worli, located on the Island City, did not vary much Florence Court (Gurgaon).

7 Price & Rentals Due to the decline in home buying interest in NCR, prices and rentals have seen corrections in several micro-markets of the region. Developers have in some Acknowledgement to contributors of this cases been forced to adopt distress selling. A large number of developers research report: from NCR have recently been observed to engage in infrastructure projects like modernization of airports and railway stations, reflecting developers’ SINGAPORE interest to have a diversified portfolio of projects. Nicholas Mak [email protected] The impact of the market slowdown have had varied effects on the NCR residential markets. Chanakyapuri, Jor Bagh and Golf Links, which are HONG KONG the prime locations in Delhi, continue to command capital values ranging between Rs. 40,000 -51,000 per sq ft. On the other hand, mid priced up Xavier Wong market localities like the Defence Colony and Friends Colony command capital [email protected] values of Rs. 17,000-25,000 per sq ft. Properties in New Friends colony, Greater Kailash I & II and Green Park have capital values ranging from Rs. SYDNEY 14,000 to Rs. 20,000 per sq ft. Recently developed residential colonies like Matt Whitby Ghaziabad, Noida, Greater Noida, Gurgaon and Dwarka still have properties [email protected] which are reasonably-priced, with capital values ranging from a minimum value of Rs. 2,400-2,800 per sq ft, to a maximum of Rs. 7,000-8,000 per sq LONDON ft. The quantum of supply in the pipeline in these newly developed zones has Liam Bailey kept the appreciation in capital value under control. [email protected]

Markets like Greater Noida, Noida, Dwarka (Delhi) and Indirapuram EDINBURGH (Ghaziabad) with strong residential rental markets have seen a correction in Matthew Munro rents of around 10%, despite the fact that these locations have the advantage [email protected] of proximity to the secondary business districts (SBDs) of NCR. However, there are certain locations in Delhi, which have remained stable in residential KUALA LUMPUR values despite the decrease in absorption rates. These are primarily the Sarkunan Subramaniam central Delhi locations of Prithviraj Road, Chanakyapuri, Jor Bagh, Golf [email protected] Links, etc. The value of properties in these locations is still considerably high. For example, a 3,000 sq ft property on Jor Bagh or Chanakyapuri would SHANGHAI command a rental value of about Rs. 0.45 to Rs. 0.5 million. Andrew W. Slevin Outlook [email protected]

The NCR residential market in 2008 saw a considerable drop in the demand BEIJING for housing units across all micro-markets (apart from the National Capital Nicholas Jones Territory of Delhi). A number of projects have been announced in the last [email protected] two quarters in locations like Indirapuram, Greater Noida and in new sectors of Faridabad and Gurgaon. Majority of these projects, being located in off- BANGKOK CBD locations, are available at relatively lower prices. However, to generate Phanom Kanjanathiemthao more housing demand, developers will have to adopt newer selling strategies [email protected] besides lowering prices. Distressed selling will not be a suitable option in the long run as this will lead to losses for developers. MUMBAI Presently, the residential sector is facing a downward trend from both buyers Gulam M. Zia and developers. Buyers are finding it difficult to purchase property due to [email protected] high interest rate and low market liquidity, while developers are hindered by the reducing absorption rate and credit crunch. Project financing options like Knight Frank Research provides strategic advice, consultancy services public funding are no longer a feasible option. and forecasting to a wide range of clients worldwide including developers, investors, financial and corporate institutions.A ll recognize With the economy slowing down, the purchasing power of the Indian the need for the provision of expert independent advise customized to consumer may be constrained. The housing demand in NCR is expected to their specific needs. be marginally lower for the remaining part of this year, partly due to rising

inflation and continuous increase in interest rates. on 11/2008 P rinted

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