Asia Pacific – facts, fictions, realities and challenges – A real estate practitioner’s perspective

Nicholas Brooke Chairman

Professional Property Services

Map of Asia

Land Area : 42.35 mil sq km Population: 3.7 billion

Size

United States

Key Figures

United Kingdom Germany

9.63 mil sq km (Land: 9.16 mil sq km) 244,820 sq km (Land: 241,590 sq km) 357,021 sq km (Land: 349,223 sq km)

Asia

44.6 mil sq km (Land: 42.35 mil sq km) Population 290.3 million 60.1 million 82.4 million 3.7 billion 10.45 trillion 1.53 trillion 2.16 trillion 16.86 trillion GDP GDP per capita US$36,300 US$25,500 US$26,200 US$4,969 Inflation 1.6% 2.1% 1.3% Labour force 141.8 million (unemployment rate: 5.8%) 29.7 million (unemployment rate: 5.2%) 41.9 million (unemployment rate: 9.8%) 1.4% 1.7 billion

Context – Asia

Accounts for over 50% of the world’s population Mix of democracies and authoritarian regimes Overall trend one of political development and greater transparency 2004 year of elections Higher growth forecasts in Asia than other regions China main engine of growth in region

Overall Economic Growth Trends

9.5

8 6.5

5 3.5

2 0.5

-1 -2.5

1999a 2000a 2001a

Malaysia Hong Kong Singapore China Vietnam Thailand Taiwan Philippines Indonesia

2002a 2003b 2004c 2005c

CHINA and SAR HONG KONG China in 2003

Total Area : 9.6 billion sq km Land Area : 9.3 billion sq km Population : 1.3 billion GDP per capita (US$ at PPP): 5,120 GDP growth : 9.1% Labour cost per hour : US$0.92

Hong Kong in 2003

Total Area : 1,092 sq km Land Area : 1,042 sq km Population : 6.9 million GDP per capita (US$ at PPP) : 27,550 GDP growth : 3.7% Labour cost per hour : US$5.40

China

Growth 2003 – 9.1% despite SARS Concern of overheating due to fixed asset investment bubble FDI 2003 – US$53.5 bn – up 15% year on year Little inflationary pressure Serious attempts to slow credit and investment growth Possibility of property market corrections in some major cities

Beijing

Shanghai, Mainland China

Hong Kong

Bounced back strongly after SARS 68 months of deflation ended July 2004 GDP growth 2004 – 7%+ Piggy-backing off China engine of growth Stability maintained despite debate over political reform Property market on the move again

Hong Kong

JAPAN Japan in 2003

Total Area : 377,835 sq km Land Area : 374,444 sq km Population : 127.2 million GDP per capita (US$ at PPP): 27,604 GDP growth : 2.1% Labour cost per hour : US$20.4

Japan

Enjoying modest economic revival Exports to China at record level Surprisingly robust private consumption Fiscal situation a concern – deficit nearing 180% of GDP 12 th year of asset deflation, but end in sight Structural weaknesses in banking sector have still to be addressed Aging population – a real worry

Tokyo

MALAYSIA Malaysia in 2003

Total Area : 329,750 sq km Land Area : 328,550 sq km Population : 25 million GDP per capita (US$ at PPP): 6,570 GDP growth : 4.8% Labour cost per hour : US$2.20

Malaysia

Successor to Dr Mahatir well installed Focused campaign on corruption and crony capitalism Currency pegged to US dollar Highly dependent on exports Relocation of administrative capital to Putrajaya

Kuala Lumpur

INDONESIA Indonesia in 2003

Total Area : 1.92 million sq km Land Area : 1.83 million sq km Population : 216.2 million GDP per capita (US$ at PPP): 3,470 GDP growth : 4.1% Labour cost per hour : US$ 0.50

Indonesia

In throes of election and no clear outcome Concerns remain over physical security Weak legal system and corporate governance issues still have not been addressed Stands to benefit from increased oil prices As economy drifts, so does property market No FDI of any significance

Jakarta

SINGAPORE Singapore in 2003

Total Area : 693 sq km Land Area : 683 sq km Population : 4.2 million GDP per capita (US$ at PPP): 27,270 GDP growth : 0.9% Labour cost per hour : US$8.0

Singapore

Singapore

Signs of economic recovery under way but weakness in SE Asia a constraint Leadership transition to Lee Hsien Loong very smooth Office and residential markets flat Take up of industrial space improving and investment market strengthening

Health of the Asian Property Sector

Global uncertainty : Terrorism, natural disasters, mobility of capital and debt Acceptance of real estate as asset class High liquidity / Low interest rates Strong investor sentiment Growing significance of REITS and other investment vehicles P P S Challenges of sustainability

Overall Economic Growth Trends

9.5

8 6.5

5 3.5

2 0.5

-1 P P S 1999a 2000a 2001a

Malaysia Hong Kong China Vietnam Thailand Taiwan Philippines Indonesia Singapore

2002a 2003b 2004c 2005c

The State of the Commercial Markets

P P S Relatively weak occupational markets Disconnect between occupational demand and investment appetite Inflexibility of existing supply Future of CBD?

“City” approach to the attraction of major space users

The State of the Residential Markets

P P S Affordability issues Higher aspirations as to quality Provision of Social Housing High rise / mixed use debate Sustainable communities Regeneration versus new build

Key Ingredients of a World Class City

Diversity Education Employment Quality of life P P S

Advent of Foreign Investor

P P S Mainland China – tightening of domestic credit. Greater dependence on foreign investment, bringing with it more discipline and more rigorous approach to asset management Regional – emergence of office and retail REITs. Entry vehicles for both retail and institutional investors Hong Kong, SAR – launch of Housing Authority Link REIT. 180 centres, 1 million sq.m., 100,000 parking spaces, US$3-4 billion. Precedent for other major privatisation exercises

Chasing the Tourism Dollar

P P S National/city approach to creating world class tourist destinations Development of family tourism – Disney Legalisation and/or growth of gaming Emergence of Macau as the Las Vegas of Asia

Macau – tourism and gaming

Sustainability

Governments now paying more than lip service to sustainable development concepts Majority of large projects now being put at least to rudimentary tests However lack of understanding as to the totality of sustainability Yet to see market recognize and reward sustainable characteristics P P S Building for obsolescence debate

West Kowloon – Aerial View

West Kowloon Cultural Hub

Brown v/and Green Debate

P P S Challenge of multiple ownership in urban areas Attraction of green field approach Ever growing demand for city living Rural to urban migration Absence of, and a reluctance to use, compulsory mechanisms Growing attention to quality of life capital Reducing pressure on existing infrastructure

Urban Regeneration Area

Holistic Approach to Development and Public Transport Planning Joined up thinking – an integrated and comprehensive approach Phasing and implementation to maximise returns to all parties Ample evidence that good transport networks enhance property values P P S Lifestyle, convenience and environmental benefits Significantly reduced land take for road and other infrastructure provision

MTRC Mission

To develop and manage a world class railway together with property and other related businesses, to enhance the quality of life in Hong Kong.

We are a company that builds and operates railways and designs and builds communities.

P P S

P P S

Facts & Figures

Total route length : 88 km Total no. of stations : 49 Daily hours of operation : 19 hours Total no. of passengers in 2003: 842M Average daily patronage : 2.3M

(with a record high of 3.1M on Christmas Eve 2002)

MTRC Portfolio by Railway Lines

Urban Lines

234,898 sq m Development 299,363 sq m 31,366 flats Management 126,490 sq m 130,367 sq m 28,729 flats

Airport Railway

Development Management 611,968 sq m 307,880 sq m Total GFA: 2.6 million sq. m.

28,896 flats 294,072 sq m Total GFA: 3.5 million sq. m.

254,190 sq m

Tseung Kwan O Line

Development

P P S

103,130 sq m 46,170 sq m 13,345 flats Total GFA: 2.3 million sq. m.

132,014 sq m 28,800 flats Legend Office Retail Residential Hotel/Service Apt

Kowloon Airport Station - MTRC

Housing the Community

The role of Government – Stabilising society – Facilitation – Financial support – Social need P P S The role of the private sector – Responding to market demand – Assisting Government with physical provision

Maximising on the Value of a Scarce Resource

Varying Dynamics: Challenge of the mega city Land often in short supply Convenience at a premium Synergy of mixed use development Attraction of bright lights The success of high rise communities P P S Prevention of urban sprawl

Public Private Partnerships

In reality, traditionally in Asia, this has away been the case given leasehold system Also many jurisdictions require foreign investor to venture with a local party or Government Department Unfortunately many deterred by shifting goal posts as politics change Now new models for large projects. Customised P P S hybrids of BOT, PPP and Private Sector Funding

Hong Kong : Home Ownership – Public Sector

HA provided 649,000 pr flats for 2,019,000 persons representing 30% of Hong Kong’s population Sold 405,500 flats through various subsidised home ownership schemes Provided over 100,000 loans for flat purchasers Built 2.26M sq m of commercial/retail space and 100,000 car parking spaces P P S

Hong Kong – Government Housing in 1970

Hong Kong – Government Housing in 1970

Hong Kong :

Wind of Change (I)

HA supply intended to complement / augment private sector but at times of high unaffordable prices HA became prime producer and competitor of private sector Up to 100,000 units per annum at peak. Sold at discount from market value, quality good Collapse of property market. Private sector now affordable. Rebellion by private sector P P S producers

P P S

Hong Kong :

Wind of Change (II)

Government now exited subsidised purchase provision and focus is to facilitate cost effective provision of quality public rental housing Also move away from physical provision to financial assistance and entrusting private sector developers with building units which are then allocated to nominated Government buyers / tenants. Voucher system rather than physical provision under serious consideration

Tin Shui Wai, Yuen Long

Hong Kong

: Home Ownership – private sector

Traditionally builds 25,000 – 35,000 units per annum Land obtained through purchase / lease modification In lead up to 1997 prices driven by speculative attitude and opportunity to make quick profit, not aspiration to own one’s home Post 1997 market collapse – values fell by some 65%. Most families in negative equity Correction lasted for best part of 6 years, now seeing market revival driven by fundamentals P P S

The Leighton Hill, Happy Valley

Thank you

Professional Property Services

P P S