Research & Forecast Report

HENRY BUTCHER MALAYSIA (PENANG) SDN. BHD. International Asset Consultants

January 2012 for internal circulation only

PENANG ISLAND REAL ESTATE MARKET 2012 Research & Forecast Report

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012 PENANG ISLAND REAL ESTATE MARKET 2012

Economic Update: Overview MARKET Economic growth in Malaysia is expected to remain stable, with projected gross SENTIMENT domestic product (GDP) of between 5% and 6% in 2012 despite the adverse INDICATORS impact of the US-Eurozone problems. Asia is expected to stay on a robust growth path. 1 RESIDENTIAL

2 RETAIL

3 INDUSTRIAL/ WAREHOUSE Source: Trading Economics / Napic

4 According to the Economic Report 2011/2012, the Malaysian economic growth OFFICE would be largely domestic driven amidst rising uncertainties in the global economy. Overall, the government expects the country's strong economic fundamentals, pragmatic macroeconomic policies and the Economic Transformation Programme 5 (ETP) to enhance domestic sources of growth. The construction sector is expected PRE-WAR/ to grow at a stronger pace of 7% in 2012 as large infrastructure projects and HERITAGE housing construction activities pick up.

2012 Budget introduced a review of the Real Property Gains Tax (RPTG) to curb speculation, whereby properties held and disposed within two years, the tax rate is 10%. For properties held and disposed within a period exceeding two years and up to ﬁve years, the rate is 5%. This is expected to help reduce property speculation and promote a more stable, healthy and orderly growth in the housing industry. To further curb speculation, Bank Negara Malaysia (BNM) has imposed a Loan to Value (LTV) ratio of 70% to borrowers for the ﬁnancing of the 3rd property and beyond.

Bank Negara Malaysia has also proposed to local Gurney Drive ﬁnancial institutions to assess income affordability based on net income instead of gross income. These measures are expected to moderate excessive investment and speculation in the property market and to ensure the affordability of homes to genuine buyers.

Some analysts concur that the property sector might see some signs of a slowdown in the sales activity due to measures by BNM to curb property speculation and the anticipated slower pace of economic growth in 2012 and its concomitant effects.

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012 Inﬂation Domestic headline inﬂation was 3.4% towards the end of 2011.

Going forward, inﬂation is expected to remain stable and moderate in 2012. In view of the prospects of weaker growth, the Central Bank is expected to loosen its monetary policy stance in 2012. Inﬂation is expected to remain at 3 – 3.5%.

Source: Trading Economics Interest Rates Bank Negara has maintained the overnight policy rate (OPR) at 3% but cautioned that international ﬁnancial developments could affect the overall growth prospects of the local economy.

Bank of America Merrill Lynch (BofAML) expects the Central Bank to cut the benchmark OPR further to 2.5%. BNM anticipates that while the domestic economy is expected to expand, unfavorable external factors could affect the overall growth prospects of the Malaysian economy.

Source: Trading Economics

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012 Unemployment Rate In 2011 the unemployment rate in Malaysia was reported at 3.3 percent.

From 1998 until 2010, Malaysia's Unemployment Rate averaged 3.43 percent reaching an historical high of 4.50 percent in March of 1999 and a record low of 2.90 percent in March of 1998.

Source: Trading Economics

The labor force is deﬁned as the number of people employed plus the number unemployed but seeking work. The non labor force includes those who are not looking for work, those who are institutionalized and those serving in the military.

Island Plaza, Tanjung Tokong

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012

RESIDENTIAL While ofﬁcial statistics on the property market from the Ministry of Finance (MOF) is expected to be available soon, we anticipate this sector to remain cautiously optimistic in 2012.

Similar to previous years, the residential sector retained the lion’s share of the property market in Penang in terms of total value and volume of transactions.

Andaman @ Quayside

Value of Property Transactions in Penang Island 2011

Source: Napic/Henry Butcher Malaysia (Penang) Research

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012

Volume of Property Transactions in Penang Island 2011

Source: Napic/Henry Butcher Malaysia (Penang) Research

While 2012 is expected to have less buzz compared to last year, conventional wisdom among the local astute investors dictate that buying properties in choice locations in Penang is still the preferred mode for wealth creation. However, compressed yields on the back of an anticipated capital growth will continue to dominate investment decisions. The euphoria in the property market in 2010 and the 1st half of 2011 is unlikely to prevail although consumer conﬁdence in Penang’s residential real estate remains high.

Sentiments are anticipated to remain cautiously optimistic whilst the general propensity for property investments is still strong for residential homes not only in the traditionally preferred locations but also for well-conceptualized homes of high quality speciﬁcation, ﬁnishes, good security features and facilities.

On the back of a good mix of euphoria and controversy, the Penang diasporas and the international community particularly from Singapore, Indonesia, Hong Kong, Japan and UK constitute signiﬁcant components of the market.

MM2H participants and retirees have identiﬁed Penang as a preferred destination of choice due to its low cost and high standards of living, widely spoken English language, the availability of an international standard health care system, political and economic stability, and is disaster free either natural or manmade. Penang Island has endeared itself as a destination for a second home and is sometimes being compared to Hua Hin of Thailand.

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012 Foreign Interest Penang property prices are amongst the lowest in the region and this has made it attractive for foreigners to invest in Penang Island properties.

Foreigners currently comprise less than 8% of the total residential property buyers in Penang. This segment of the market is expected to grow in tandem with the “new normal” of Penang endearing itself to the international community as a tourism, retirement and 2nd home paradise.

Foreign Interest in Penang Real Estate as at Q2 2011

Source: www.malaysiapropertyinc.com

Indonesia

Malaysia

Philippines

Vietnam

Thailand

Cambodia

China

Taiwan

Country Singapore

India

Japan

Hong Kong

$0 $5,000 $10,000 $15,000 $20,000 Price per. sq. m in USD

Source: Global Property Guide

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012

Recent amendments to the Housing Development (Control and Licensing) Act 1966 to prevent project abandonment will give property buyers peace of mind when they purchase real estate in Malaysia.

The majority of the current supply of residential properties in Penang Island is mostly stratiﬁed. Landed properties constitute approximately 16% of the total supply in the North East District, while in the South West District they are approximately 56%.

Penang Island Existing Residential Property Supply @Q3 2011P

Source: Napic/Henry Butcher Malaysia (Penang) Research

Future supply sees an almost similar trend. Penang Island Future Residential Property Supply @Q3 2011P

Source: Napic/Henry Butcher Malaysia (Penang) Research

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) ! JANUARY 2012

Compared to the various housing types, the best performing sub PROJECTS’ PIPELINE market is the terrace house. Prices in Penang Island have appreciated KL based property developers have significantly. This has made terrace houses the most sought after form set their sights on Penang Island and of property investment on the island. However most terrace houses this is seen as a vote of confidence for the local real estate scene. are under owner occupation. However, procuring suitable land banks in Penang remains a major challenge. Notable future projects coming on stream are as follows: • Ivory Properties Group recently previewed The Wave @ Penang Times Square • Ivory Properties Group Bhd has a joint venture with Dijaya Corporation Bhd to develop 103 acres of super-prime Bayan Mutiara sea-front land with an estimated GDV of RM10 billion. • SP Setia plans to launch four new residential projects i.e. Setia Greens in Sg Ara, 11 Brook Residences in the upmarket Jesselton enclave, Setia V Residences at Gurney Drive and the Pearl Villas in the Setia Pearl Island scheme. These projects are worth an estimated total GDV of RM546 million. Source: Napic/Henry Butcher Malaysia (Penang) Research • 2nd Phase of the Seri Tanjung Pinang Project by Eastern & Oriental Bhd with an estimated GDV of RM12 The following is a good example of a two storey terrace house located billion. in Greenlane that has appreciated by an astounding 795% over a 33 • Andaman Series by E&O Bhd with year period. The general perception is that this form of investment is majority of the units facing the sea. an excellent hedge against inflation. • IJM Land Bhd is reclaiming 103 acres of land for the development of an RM5 billion mixed development project. • By The Sea by Selangor Dredging Bhd • Shorefront by YTL • Nadayu 290 by Nadayu Properties Bhd. • Berjaya Land Bhd (BLand) has signed a conditional sale and purchase agreement (SPA) with the Penang Turf Club to acquire 57.3 acres of prime freehold land for RM459 million to be used for the development of high-end residential projects, comprising semi-detached homes, bungalows, condominiums and apartments with an expected GDV of RM1.52 billion. • Sunway Property recently launched the Sunway Aspera 2 storey terrace homes in Sungai Batu. • Southbay Plaza by Mah Sing Group.

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) ! JANUARY 2012 RETAIL In terms of market sentiments, retail investments are regarded as the best performing property sector after residential. Expected yields of retail properties in premium locations hover around 5 – 7% as tenants are prepared to pay market rents with periodical reviews. Capital growth is expected to be steady.

Straits Quay

StraitsMansion One Quay Gurney Paragon Tesco Hypermarket Resort Residences by E&O Properties, a popular and A major shopping mall located along opened another store - Tesco upmarket lifestyle retail and F&B the famed Gurney Drive will give Tanjung Pinang in July 2011. This enclave within a marina setting made consumers more choices when it hypermarket is its ﬁfth store in its debut in 2010 whilst the opens soon. Penang, adding to its current stable in Performing Arts Centre was recently Bukit Mertajam, Seberang Perai, opened. Island Plaza Sungai Dua and Jelutong; making it shopping mall with its strategic Tesco’s 41st store in Malaysia. Tesco Precinct 10 location along Jalan Tanjung Tokong Tanjung Pinang has a sales ﬂoor area F&B concept mall on Jalan Tanjung is currently undergoing major of 9,000 (m2) and a mall area of Tokong by Boon Siew Group has refurbishment with a brand new more than 10,000 m2. Rental yield is been launched recently. Food lovers look. It is expected to be opened in at 6.89%. It was recently sold for will be spoilt for choice with the wide 2012. RM134 million. variety of local and international cuisine available. HSBC Amanah Malaysia Bhd has also set up a branch there.

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) ! JANUARY 2012

Retail Demand & Supply Most of the shopping complexes are located in the North East District. Generally, the take-up rates in prime malls are high.

Property developer Belleview Group has launched the RM200-million All Seasons Place, the ﬁrst strip mall in Penang. All Seasons Place is strategically located in Bandar Baru Air Itam and has an estimated 240,000 sq ft of leasable space, a supermarket anchor tenant, and over 500 outdoor and indoor car parking bays. The rental range is from RM3 – RM12psf.

Shopping malls in choice locations has attracted institutional buyers with the acquisition of Gurney Plaza for approximately RM770 million by CapitaLand Limited in 2007. CapitaMall Malaysia Trust recently completed acquisition of Gurney Plaza extension for approximately RM156 million. At the same time, Capita Malls Asia Limited had on 01 April 2011 announced its acquisition of 90.7% of the retail strata areas and 100% of the car parks in Queensbay Mall, Penang for approximately RM660 million. Pavilion Real Estate Investment Trust (Pavilion REIT), Malaysia's largest retail real estate investment, is also seeking opportunities to expand its assets in Penang.

It was reported by Retail Group Malaysia (RGM) Sdn Bhd that retail sales growth is expected to expand by six per cent in 2012.

Malaysia Retail Industry Quarterly Growth Rate 2011

Quarter (%) growth rate

First 5.1

Second 9.1

Third 7.0

Fourth (e) 5.0

Whole year (e) 6.5 e: estimate Source: Retail Group Malaysia

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012 118118 @ @ Island Island Plaza Plaza CommeCommerrcialcial Suite Suites (Actual show units) OFFICE The general office sector outlook is expected to be challenging with supply exceeding demand. Office rentals continue to remain relatively flat. Older offices in George Town dominate the supply. No significant new office development in 2011. Offices with MSC status and Green Building certification are expected to gain better position to secure tenants.

The original Ofﬁce Tower of Island Plaza is currently undergoing major alteration and amendment works. It is being converted into 106 units of commercial suites and will be renamed 118@Island Plaza. Unit sizes range from about 500 sqft to 1,160 sqft. Each unit is equipped with a kitchenette, en-suite bathroom, built-in cupboards, air-conditioning system, and broadband points. Common facilities include a swimming pool, a Jacuzzi and a relaxing deck area. Affordably priced from only RM400,000, 118@Island Plaza is expected to be completed in mid 2012. Sales have been good with more than 70 per cent of the available units taken up.

Sunrise@Gurney is a new small office home office (SOHO) concept development located along Gurney Drive with unit sizes ranging from 794sq ft to 980sq ft. Northam Tower office suites are also currently being refurbished into suites and hotel rooms. The 31 storey building will house 277 suites and 110 hotel rooms when completed.

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012 INDUSTRIAL/ WAREHOUSES

The industrial sector is expected to hold steady in 2012 with existing supply mostly found in the South West District of Penang Island.

The RM40mil Penang SME Centre at Phase Four of the Bayan Lepas Industrial Park which is aimed at incubating and developing new local SMEs, would be ready in April this year.

Small and medium-scale (SME) operators can now apply to rent lots at the centre. For the ﬁrst year, the rental of the facility lots range from RM1.50 to RM1.80 psf. For the ﬁrst two years, the state would subsidise 80 sen psf monthly to ensure the rental was affordable for local SMEs.

Axis Real Estate Investment Trust has bought a three-storey office and warehouse in Penang from DHL Properties (Malaysia) Sdn Bhd for RM48.5 million to expand its business. At the same time, Axis will lease the property back to DHL for five years. It will have an option to renew the lease for another five years. The acquisition is accretive with an unleveraged triple net yield of 8 per cent which will have a long term benefit to the Fund. Furthermore the lease has annual built in rental growth which will enhance earnings. The property, located in Bayan Lepas, has a gross built up of some 231,940 sq ft and comes with a 60 year leasehold title which will expire in 2062.

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012 Rice Miller Hotel & Residence

HOTEL According to media reports, Penang will see the developments of six hotels in George Town and a proposed water theme park in Teluk Bahang, with gross development value (GDV) of over RM860mil.

Due to an increase in the arrival of local and foreign tourists to Penang, George Town has seen many new hotels. Some notable hotels include the upcoming avant-garde Rice Miller Hotel & Residence, and the existing Eastern & Oriental Hotel, Campbell House, Hotel Penaga, and Muntri Mews.

The medical tourism industry has created more opportunities in the hotel industry. Malaysia ranked 5th in the world. Penang accounts for 2/3 of the medical tourism industry in Malaysia.

Top 10 Ranking for International Tourist Arrivals in Penang and Malaysia

Occupancy rates generally hovers around 60 – 65% on low seasons and reaches almost full occupancy rates during holiday peak seasons. IGB Corp Bhd's St Giles Hotel and Cititel Express, RANK PENANG MALAYSIA and NT Industrial Park (M) Sdn Bhd's ﬁve-star 1 INDONESIA SINGAPORE boutique hotel, with a combined GDV totaling over 2 SINGAPORE INDONESIA RM225mil, are the latest projects approved by the 3 CHINA THAILAND Penang Municipal Council (MPPP). 4 UNITED STATES CHINA Construction work for the RM100mil NT Industrial 5 JAPAN BRUNEI DARULSALLAM Park's project on a one-acre site at Lebuh Gereja is 6 AUSTRALIA INDIA scheduled for completion in 2013. IGB's projects, 7 TAIWAN AUSTRALIA with over RM125mil GDV, are expected to be 8 UNITED KINGDOM PHILIPPINES completed in the ﬁrst quarter of 2014. 9 THAILAND UNITED KINGDOM 10 INDIA JAPAN Other notable hotel projects that will be ready by late 2012 and 2013 are the RM150mil new wing of Source: www. tourismmalaysia.com Eastern & Oriental Hotel (known as Victory Annexe) and the RM285mil Rice Miller Hotel & Residences in Lebuh China.

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012

PRE-WAR / HERITAGE HOUSES Penang with its moniker – Pearl of the Orient is a fascinating mix of the East and West. It is modern, contemporary and the same time retains its old heritage and traditions. Penang’s living cultural heritage and well preserved heritage buildings have led to George Town being accorded a UNESCO World Cultural Heritage Site in Nagore Road 2008.

The demand for pre-war properties with heritage characteristics in the inner city of George Town has outstripped supply. Wealthy local and foreign investors have made a beeline for such properties and have mostly converted them into boutique hotels cum cafes although some have been restored for dwelling purposes. For example, houses located within an established heritage enclave such as Love Lane, Armenian Street, China Street, Muntri Street, Stewart Lane etc are very much in demand.

Love Lane

Armenian Street

RESEARCH & FORECAST REPORT (FOR INTERNAL CIRCULATION ONLY) JANUARY 2012

HENRY BUTCHER MALAYSIA

(PENANG) SDN. BHD. (177498-P) 142-M, Jalan Burma, 10050 Penang, Malaysia. Tel: 604-2298 999 Fax: 604-2298 666 Email: [email protected] Website: www.henrybutcherpenang.com

PROPERTY CONSULTANCY SERVICES • Property Investments • Estate Agency • Leasing & Lettings • Property Management • Building Surveying • Asset Valuation • Research & Consultancy • Tenders/Auction Sale • Project Consultancy • Marketing Consultancy • Urban Planning

COPYRIGHT No part of this publication may be reproduced, stored in retrieval system, or transmitted in any form of by means electronic, mechanical, photocopying, recording or otherwise, without written permission of Henry Butcher Malaysia (Penang) Sdn. Bhd.

Data, information & photographs are compiled as at Q4 2011.

DISCLAIMER

The research & forecast report has been prepared without considering any objective, needs or situation of any speciﬁc person who may receive this report, and before acting or relying on this report, you should consider the appropriateness to your circumstances. You are required to seek appropriate independent advice in regards to the contents of the report.

The information in this report is merely a guide and is based on information available at the time of compilation, but no representation or warranty, either expressed or implied, is made of provided as to the accuracy, reliability or completeness of any statement made in this report. Opinions, conclusions, recommendations set forth in this report are made in good faith and it should be noted that you should obtain the latest information in regards to the details of any project from the speciﬁc developer or authority before acting on any information contained herein in this report.

We are under no obligation to, and do not update or keep current the information contained in this report. We do not accept any liability for any loss or damage arising out of the use of all or any part of this report. Any projections, assumptions, estimates, forecasts and opinions contained in this report are subject to contingencies and uncertainties. The information herein is not a reliable indicator of future performance.