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Malaysia’s Key Economic Indicator Penang’s Key Economic Indicator ’s economy recorded at 4.7 % in the Penang’s economy registered at 4.9% as of H1 third quarter of 2015 (Q2 2015 : 4.9%). The 2015 (H2 2014 : 7.9%) and is expected to grow by quarter-on-quarter adjusted Gross Domestic 5 plus per cent by the end of 2015. Product (GDP) increased 0.7% from 1.1% in the Being an export-oriented economy, Penang’s preceding quarter. For the three quarters of export sector is expected to improve with the 2015, GDP posted a growth of 5.1% with a val- recovery of the US economy and the weaker ring- ue of RM853 Billion. git. The private sector continues to be the key driv- er of growth for the third quarter of 2015 with However, on an overall basis, all economic sec- private investment growing by 5.5% (2Q 2015: tors are anticipated to register a slower growth. 3.9%) driven mainly by capital spending in the Services sector will surpass manufacturing sector manufacturing & services sector. marginally by less than 1% by this year end. The construction sector may experience a negative Inflation, as measured by the Consumer Price growth of a miniscule of 0.2% which will not have Index, increased to 3% in the third quarter of any adverse impact on the real estate industry. 2015 (2Q 2015 : 2.2%) reflecting the higher in- Unemployment rate stood at 1.2% as at Q3 2015 flation in food and non-alcoholic beverages. (Q4 2015 : 1.6%). The job market is still stable The transport category also contributed to the with new job openings of 13,199 as at H1 2015. higher inflation following higher domestic fuel prices. Penang’s tourism sector is on an upward trend due to the increase in the number of internation- On the supply side, growth was led by both the al tourists arrival. The total number of interna- construction and manufacturing sectors. Ser- tional arrivals at Penang International Airport vices sector registered lower growth due to the grew by 7% annually. The influx of international moderation of household spending and slower tourists arrival is mainly due to the various festi- vals held in Penang such as George Town Festival, capital market activity. Food Festival and many more. Labour market conditions remain stable with unemployment rate recorded at 3.2% (2Q The largest number of tourists growth comes from China and is expected to expand with the 2015 : 3.1%). promotion of group visa exemption for the Chi- Malaysia’s stricter lending guidelines and slow- nese from 1 October 2015 to 31 March 2016. ing economy led to higher household debts of Planning for the future, the RM27 billion Public 87.9% as of last year, the highest in Southeast Transport Master Plan project in Penang which Asia. Source : Department of Statistic, Malaysia involves developing a comprehensive public transport system will further boost Penang’s tourism with the move towards a “metropolitan” city.

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PENANG IN BRIEF Penang has many great things to offer, from street food to exotic heritage. Places of attrac- tions include beaches, hills, mysterious temples, museums and arts. A unique event not-to-be-missed is the annual George Town festival, a month long celebration of arts, music, culture, heritage and community. This festival transforms the city into a global stage, showcasing world class performances from international and local artists. Mobility around Penang had further improved Penang has the oldest and longest established with the introduction of hop-on-hop-off buses and port in Malaysia and serves as a gateway for the Central Area Transit (CAT) free shuttle buses. shippers in the northern states of Malaysia as Another to be launched EZhopper vans will be an- well as in the southern provinces of Thailand. It other option for tourists to tour the George Town is a place for the cruise ships and yachts to berth, heritage site. Bicycles are also popular now for thus making it a strategic advantage in tourism. tourists and locals to move around Penang. Trishaw, a traditional two-wheeled transportation gives much delight of having a slow and relaxing experience of enjoying and exploring the inner city of George Town. Penang is also a food paradise for locals and for- eigners. From street food to international cuisine, Penang offers great varieties of food with origins of chinese, malay, indian, thai and arabian influ- ence. With all the uniqueness about Penang, once again in October 2015, Lonely Planet named George Town, Penang as one of the Top 10 Cities in the Recently, Quantum of the Sea, the world’s se- World to Travel in 2016. This is the latest amongst cond largest cruise ship, measuring 348m had the many accolades awarded to Penang in the re- berthed at Port Swettenham. Port Swettenham cent years. will be further expanded to another 200m to handle even larger vessel.

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Penang Property Market The residential sub-sector remained the most ac- tive at 49% of the total value of property transac- The total value for the H1 2015 saw a drop from tions as at H1 2015. This figure increased slightly 6,417 million compared to 8,656 million in H1 from 43% in H1 2014. In terms of volume, there is 2014 while the volume of transactions registered only a slight drop of 1% from 70% in H1 2014 com- lower at 11,200 in H1 2015 compared to 12,522 in pared to 69% in H1 2015. H1 2014. Both value and volume decreased about 26% and 10% respectively. This trend is expected The commercial sub-sector recorded at 20% of the to remain for the rest of the year. total value in H1 2015, a drop from 25% compared to the corresponding period last year. There was Despite the slowing down of the property market, an increase of 11% in total volume as against 9% it is still expected to stay resilient mainly due to as at H1 2014. Other sub-sectors such as agricul- the demand from Penangites working abroad who tural, industrial and development showed margin- are either purchasing homes for their families or al difference. planning to return and settle down back in their hometown. The weaker ringgit has attracted Pe- Graph 1 Comparison of Value of property nangites working abroad and foreign buyers to transactions for H1 2014 and H1 2015 consider purchasing properties in Penang. Chart 1 Total Value of property transactions

Chart 2 Total volume of property transactions

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Graph 2 Comparison of Volume of property Penang Residential Market transactions for H1 2014 and H1 2015 H1 2015 saw a drop of both volume and value for the residential market with 7,743 units transacted compared to 8,808 units as at H1 2014. In terms of value, H1 2015 recorded at 3.142 million compared to 3.768 million in H1 2014.

Volume comparison in units from 2013 to H1

2013 2014 H1 2015

17,700 18,410 7,743

Value comparison in million from 2013 to H1 2015

2013 2014 H1 2015

7,093 7,579 3,142

Penang property prices are generally still sta- ble depending on the type and location of the property. The most popular are terrace houses which had proven to be the best type of prop- erty investment with compound annual Source : HB Research/JPPH growth

Chart 3 Volume and Value for Residential Sub-sector

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rate (CAGR) of almost 13% at prime locations Net household income gap has also been in- creased so that more applicants will be eligible while semi-detached and bungalows recorded for affordable housing. The net household in- between 1% to 13%. This CAGR differs with loca- come ceiling increased from RM6,000 to tion. RM8,000, from RM8,000 to RM10,000 and from RM10,000 to RM12,000 applicable for affordable There will be more landed homes built at the housing priced at RM200,000, RM300,000 and South-West District with future supply of almost RM400,000 respectively. Those with net house- to 4,000 units while about 1,200 units will be hold income of RM6,000 will be eligible for units built in the North-East District. priced at RM150,000.

Generally apartments and condominiums per- form better than landed homes with CAGR rec- Category Income Household Gap orded between 6% to 12% across the board. RM42,000 RM2,500

A total of 15,000 units will be built with future RM72,500 RM3,500 supply of about 5,100 units in the North-East District while South-West District will see new RM150,000 RM6,000 supply of about 8,900 units. RM200,000 RM8,000 Despite that Penang’s property market showed RM300,000 RM10,000 a slow-down in 2015, nevertheless most inves- tors are still optimistic that the demand for RM400,000 RM12,000 property will remain constant.

Other criteria / restrictions for affordable hous- ing: Affordable Housing  Must be a registered voter in Penang The RM499 million Tri Pinnacle by Aspen Group  Can only buy one unit is the first project to be approved by the State  Must hold it for five years from the date of Government for its 30% of the total units to be Sale & Purchase Agreement. sold to the general public who do not fulfill the affordable housing criteria.

This is a good news for Penangites who have al- ready owned properties to be eligible for afford- able housing.

This new measure allows more residents in Pe- nang to apply for affordable housing. A new RM150,000 category has also been introduced recently.

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For every 30% of the affordable units sold in Graph 4 Distribution of office space on Penang the open market, developers are required to sell it at 10% (for South-West District) and 20% (for North-East district) above the controlled price and the 10% or 20% sum will be contrib- uted back to the state government by way of affordable housing units. This pool of affordable housing units contribut- ed by the developer will be sold by the state government to a list of affordable housing qualified applicants. Alternatively, the State Government will introduce a rent-and-buy scheme to those qualified applicants who have Source : HB Research/JPPH not been able to secure loan financing.

Penang Office Market As at H1 2015, there is a total of 7.8 million sq. ft. of existing supply of office spaces onPe- nang Island. Due to the lower demand for office space, several office buildings had changed its use to commercial suites such as 118 @ Island Plaza, and Mansion One, Jalan Sul- tan Ahmad Shah.

Graph 3 Cumulative Supply of Office Space

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Penang Office Market Chart 4 Cumulative supply of shopping complex as at H1 2015. The monthly market rental of prime office space in George Town recorded at about RM3 per sq. ft. while in the South-West District, the monthly market rental is hovering around RM2 to RM3 per sq. ft.

The average occupancy rate as at H1 2015 stood at 76%.

Average market prices ranged between RM300 to RM500 per sq. ft. depending on location and condition of the building.

Penang Retail Market There is no additional supply of retail space in Penang as at to date. The eleven shopping malls are : Currently has a total of about 11 Shopping Malls million sq. ft. of retail space in shopping com- plexes while Seberang has more than 6 mil- Phase 3 lion sq. ft. of space. City Mall Bayan City

Occupancy rates hovered at 83% and 50% on Southbay Plaza Penang Island and in respectively. Penang World City

In terms of future supply, there will be an addi- Sunshine Tower tional 7.6 million sq. ft. of retail space with 11 shopping malls to be completed in the next 5 The Light Waterfront Mall years. Mall @ Southbay City The monthly market rental per sq. ft on ground The Designer Village floor of the more popular retail malls are be- tween RM20 to RM40 per sq. ft. while the higher Ikea & Ikano Power Centre floors are usually rented at between RM10 to Mall by Belleview Group RM18 per sq. ft.

Source : HB Research

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Major shopping malls on Penang Island are : Penang will see a future supply of about 2,000.

Upcoming Hotel Location   1st Avenue Jazz Hotel Seri Tanjung Pinang  Bayan Tree Teluk Bahang

The latest completed mall is , Double Tree by Hilton which was opened in August 2015. Courtyard By Marriot Jalan Macalister

Mansion One Jalan Sultan Ahmad Shah

By WHH Land Tanjung Tokong

OZO Penang Jalan Argyll

Rice Miller Hotel Weld Quay

By Bintang Holdings George Town

By Magnil Corporation George Town

Penang Hospitality Market Chart 5 Average Occupancy Rate for Hotels by The hotels on Penang Island are divided into three Classification on Penang Island types of classification, namely beach hotel, city hotel and outside city hotels. There is an estimat- ed 10,000 rooms with a total of 41 hotels.

Average occupancy rates of city hotels, beach ho- tels and outside city hotels are recorded at 73%, 66% and 52% respectively.

Average room rate is between RM200 to RM330 per night depending on the location of the hotels.

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Penang Hospitality Market Thus, the demand for hotels continue to grow in tandem with the growth of international tourists Penang’s tourism continues to grow with in- arrival in Penang. ternational visitors growing by 7.4% from 2008 to 2014 which accounts for about 720,000 tourists arrival at Penang International Airport. Penang Industrial Market They comprise of tourists from Indonesia, Sin- There is a total of approximately 8,000 acres of in- gapore and China. Indonesians accounted for dustrial land located within established industrial 40% of the total international tourists. parks in Penang as at H1 2015.

Penang offers great choices of contemporary The total completed factories in Penang was record- and traditional medical treatments. Penang is ed at about 1,500 units of which 600 units are locat- a preferred destination for affordable cos- ed in the North-East District and 900 at the South- metic and elective surgery. Penang is also West District. dubbed the “heal and holiday” destination and medical tourists can enjoy their holidays while undergoing treatment at more than 10 private Graph 5 Existing and future supply of industrial hospitals and medical centres. properties on Penang Island as at H1 2015.

The inflow of medical tourists to Malaysia is expected to grow and Penang is presently the destination for more than half of these travel- lers to Malaysia. Penang received about 300,000 tourists in 2014 for simple ailments and most of these travellers come from Indo- nesia, Singapore and Japan.

Source : HB Research/JPPH

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Penang Industrial Market Most of the industrial land are owned by Penang Development Corporation and majority are lease- hold for 60 years. The average market prices of industrial land in Penang are priced between RM30 to RM100 per sq. ft. depending on the location of the land and tenure of the lease. Penang is the third highest investment recipient with total capital investment reached RM8.16 bil- Investors who came in early have found their pot lion in 2014 of which domestic and foreign invest- of gold today. With less than 5,000 buildings ment accounted for RM3.05 billion and RM5.11 built on 260 hectares, the supply of available op- billion respectively. portunities is indeed scarce. This year, Keysight Technologies expanded its Prior to investing in pre-war heritage properties, business processes worth RM500 million while the usual factors that an investor will take into Seagate, a US-based multinational corporation consideration include location, architectural style bought a land at with investment and historical value, social value, historical ambi- sum of RM1.05 billion. ence and business potential. Source : HB Research/InvestPenang

Pre-war Heritage Property Market In Penang, many investors have taken ad- vantage of the repeal of the Rent Act and George Town’s status as the Unesco World Heritage Site in 2008 to invest in the inner city of George Town’s old pre-war heritage proper- ties. Initial interests abound with many risks and uncertainties.

Local banks were not keen to provide financing Transaction for prewar heritage properties start- while only one or two international financial ed to pick up in 1999 and since then the number institutions were prepared to take a well calcu- of transactions and prices have grown impres- lated position. sively over the years.

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2015 saw a huge jump in price appreciation The following are selected recent transactions : from RM1,800 in 2014 to RM2,300 per sq. ft. attributed mainly by the limited and scarce Location Price Per Sq. Ft.

supply of pre-war heritage properties in Love Lane RM1,600 to RM2,300 George Town. A total of 128 units were trans- acted as at Q3 2015. Muntri Street RM1,685

Church Street RM1,600 to RM2,950 There was a recent transaction recorded at RM2,950 per sq. ft. King Street RM1,900 to RM2,100

Malay Street RM1,200

Carnavon Lane RM1,100

Armenian Street RM2,100

Chulia Street RM1,200 to RM1,500

Pre-war properties located in the main tourist attraction areas usually fetch higher prices of be- tween RM1,800 to RM2,950 per sq. ft. Properties located on the secondary roads are priced be- tween RM1,000 to RM1,500 per sq. ft. depending on the condition of the properties.

Chart 6 Average price Index of Pre-war Properties from 1980 to H1 2015

Source : HB Research/JPPH

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Outlook for Penang’s Real Estate Market in 2016.

Penang is a liveable place. It has attracted local and international tourists and new residents to live, work and play. Efforts by the state government, private institutions as well as non-government or- ganizations had promoted George Town successfully as a place for art, culture, heritage and food.

Desirable property continues to be limited in supply. Property investors are adopting a wait-and-see approach although property prices are generally quite stable. Some investors are of the view that the tighter lending rules and cooling measures taken in the past are now working well and will fur- ther reduce property prices. The cooling measures taken included the cessation of the Developer- Interest-Bearing-Scheme (DIBS) and an increase of Real Property Gains Tax from 15% to 30%.

Affordable homes are now actively being promoted and developed in Penang. Half of the launches are below RM400,000 while properties priced at RM200,000 are on the rise. Bank Negara Malaysia’s strict lending guidelines have adverse impact on the lower income group and it was reported that loan rejection rate was as high as 50%.

Generally, Penang’s property market is expected to stay resilient in the coming years. Demand is expected to remain stable due to a number of factors such as a sustainable environment, lower property prices with the affordable housing scheme now being introduced, more job opportunities, availability of good schools and first-class medical hospitals.

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No representation or warranty, either expressed or implied is made as to the accuracy and reliability of the con- tents in this report. You are advised to seek independent advice.

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