COVER STORY 2

The office market relies on continuous business and economic growth. Currently, industry experts are concerned with the influx of office spaces supply outpacing demand growth and organic rental rate. Furthermore, supply of lower-grade buildings is expected to increase in the near future, especially in subprime locations, thus posing a concern for the already-declining rental rates in such areas, an issue Kuala Lumpur might face if future incoming supply is not being managed holistically.

According to NAPIC 2011 report Kuala Lumpur office spaces stand at 74.92 million square feet with 80.4% average occupancy rate (AOR). It is expected that at FY2012 a total of 4.9 million square feet of new office space will come into market.

Property consultants are of the opinion that currently annual absorption rate stands at 1.95 million square feet. They also believe that Grade-A office spaces will achieve higher AORs at 85.25% due to the limited existing supply of efficient and modern office buildings.

Notably, Menara Petronas 3, a golden triangle Grade-A tower with 840,000 square feet, is completely taken up upon completion by oil & gas related companies in the 1H2012.

Furthermore, CIMB Headquarter located at KL Sentral, a rail transit hub in the periphery of Kuala Lumpur City Centre, will be at least 70% occupied upon completion early 2013. Improved accessibility and connectivity of KL Sentral has allowed office spaces in this area to dominate the suburb lease market.

In the past few quarters, leasing demand, especially for quality buildings, has been strong, riding on corporate expansions and relocations in most Asian cities. Pacific Star, an international investment fund, observes that yields are comparatively higher in the emerging markets of Kuala Lumpur and Bangkok as compared to traditional office markets like Tokyo, Hong Kong and Singapore.

(continued next page)

Figure 1: Annual GDP Growth: Major Asia Pacific Countries

10

8

6

4

2

0

Chin

a

Indi

a

Viet

nam

Indo

nesia

Thai

land

Mal

aysia

Philip

pine

s

Hong

Kon

g

Sing

apor

e

Taiw

an

S.Ko

rea

Aust

ralia

Japa

n

Source: Economist Intelligence Unit

Legend: Avg. 2012f-2013f Avg. 2014f-2016f Avg. 1997-2011 Note: f = forecast

“Property consultants believe that Grade-A office spaces will achieve higher AORs at 85.25% due to

limited existing supply of efficient and modern

office buildings

%

Figure 2: KL City Centre and Suburban Office Space Performance

100

80

60

40

20

0

2005

2006

2007

2008

2009

2010

2011

2012

e

Occupancy rate (%)

7

6

5

4

3

2

1

0

Rental Rate(RM psf / month)

Source: Knight Frank, MPI Research

Legend: AOR KL City Centre AOR Suburban ARR KL City Centre (RHS) ARR Suburban (RHS) Note: e = estimates

DEBUNKINGFEAR OF OVERSUPPLYKuala Lumpur office market will continue to thrive

by Afiq Syarifuddin

COVER STORY 3

(from previous page)

Kuala Lumpur office market will remain resilient in FY2012 with slight improvement in the average occupancy backed by completion of quality Grade-A buildings coupled with steady rental rates. However, this tenant-favoured office market will continue to pressure rental rates and occupancy levels forcing older office buildings owners to refurbish or redevelop their towers to remain competitive.

The achieved office rental rates in both KL City Centre and KL fringe (which includes areas such as KL Sentral, Mid Valley City, Bangsar and Pantai) saw an increase in 3Q2012, to RM5.81 per sq ft (3Q2011: 5.18 per sq ft) and RM5.38 per sq ft (3Q2011 RM5.14 per sq ft) respectively. Prime Grade A offices in the KL Golden

Triangle continued to command higher average rental rates at RM9.24 per sq. ft. in 3Q2012.

Leasing enquiries are expected from the financial services, Oil & Gas and IT sectors supported by InvestKL initiative to attract 100 MNC’s to set up offices in Greater Kuala Lumpur. This will cushion the impact of incoming supply expected to come on stream within the next two years.

The impact of mega projects such as the Tun Razak Exchange, Warisan Merdeka (100-storey) and KL Metropolis will not be severe as these projects has been phased over a 10 to 20-year period.

The MyRapid Transit initiatives that will connect Sungai Buloh and Kajang to the city centre is expected to improve public

connectivity to their workplace. Addressing congestion early will prove beneficial in making Kuala Lumpur the ideal office space in the country.

The office space market will not overheat as long as there is prudent incoming supply flow that is matched by growing demand from businesses for office spaces. This can be achieved through active management by the regulators on the approval for new office space in the future.

Finally, based on expected recovery of the economy, largely due to the positive signals being sent out by the government to promote business investments, office space demand is expected to witness a positive growth of 10 per cent in 2013 and 20 per cent in 2014.

Figure 3: Selected Grade A Office Asking Rentals

Building Names Asking Gross Rental(RM psf / month)

Menara Maxis 10.50

Menara IMC 8.50

Vista Tower 9.00

G Tower 8.50

Menara Standard Chartered 6.50

Menara Citibank 6.50

Menara Etiqa Twins 6.50

Kenanga International 7.00

Menara HLA 7.00

The Icon 6.20

Platinum Sentral 8.50

Menara Prestij 7.50 - 8.50

Source: CBRE

Certificate of Real Estate Investment Finance Enrolments open for 2013

Click here for enrolment kit and subjects taught APREA and RICs members enjoy approx 20% discount on enrolment fees.

Email APREA Institute at info@apreainstitute.asia for more details

SPECIAL REPORT 4

Favourite Real Estate Investment Destinations lose their shinePopular real estate investment destinations in cities like Singapore, Hong Kong, Shanghai and Beijing have seen a decline in popularity because their Governments have been intervening furiously to cool their own property markets. Singapore’s recent seventh cooling measure since 2009, was dubbed “Not Quite in Seventh Heaven” by Kim Eng Securities. Effective 12 January 2013, the already hefty Additional Buyer’s Stamp Duty (ABSD) rates imposed on foreigners will be raised further from 10% to 15% of a property’s valuation, raising total costs including 3% Buyer’s Stamp Duty (BSD) to 18%. When the ABSD of 10% was introduced on foreigners and corporates on December 2011, Singapore experienced a sharp 78% drop in demand by foreigners in 4Q 2011, falling from 1,358 homes to only 293 homes. The new measures have immediately hit Singapore property stocks. Property analysts are portending a gloomy 25% fall in property prices.

Hong Kong home prices across 100 housing estate showed a 2% drop in the week ending December 2 softened soon after the Hong Kong government imposed 15% tax on foreign property purchases. Hong Kong also has increased stamp duty fees as much as 20% in first six months. In China, home-purchase restrictions were enacted in about 40 cities making it difficult for a home owner to qualify for a loan. Property taxes were imposed for the first time in two cities Shanghai and Chongqing and may be extended to others.

Interest shifts to South-East Asia Economic growth in S. E. Asia is showing resilience because of the strong domestic investment and commodity boom, youthful population, a maturing ASEAN

block with increased intra-trade and investments. Indonesia has been growing at 6%, Malaysia 5% and Thailand, by more than 5%. Even Shinzo Abe the new Japanese Prime Miniter’s first visit was not US nor China but SE Asia, signifying the importance attached to the vibrancy of this region’s economies.

A recent survey within Asia Pacific in July 2012 showed Malaysian residential and industrial property ranked fourth among Asian Pacific countries. For residential property, Kuala Lumpur ranked fourth ahead of developed countries Singapore and Australia as well as highly populated cities like Shanghai and Ho Chi Minh. The survey was done on 275 investors, developers, service firm and equity investment managers.

Outlook in 2013 While Malaysia has introduced measures, they have been relatively subdued compared to those in other neighboring countries. Subsequently, there have been continued price increases in all property sectors last year.

This year, demand for high-end properties is likely to soften. Elections are likely to be held, latest by June 2013 and post-election, less popular taxes like Malaysia Goods and Tax Services (GST) could be implemented. Unlike in Singapore and Hong Kong, local buyers make up 98% of properties transacted in Malaysia. GST could reduce the spending power and affordability of the local house buyer.

To make up for the softer demand from locals, property developers should tap on rising demand from foreign buyers and look to new ways to reach high net worth foreign individuals and corporate investors as Malaysia benefits from cooling measures in other countries.

To assist the developers in their endeavours, MPI has developed a pioneer product to put Malaysian property in the world’s pocket. Developers will be able to exhibit their products on this mobile application which will help developers reach new target markets internationally at a fraction of conventional marketing cost. P lease contact michael@malaysiapropertyinc.com for more information.

Figure 4: Residential (Rental) Property Buy/Hold/Sell Recommendation by City

Source: The Emerging Trends in Real Estate Asia Pacific 2013 Report, July 2012

Legend: Buy Hold Sell

by Veena Loh

“Economic trade in SEA is showing

resillience because of the strong domestic investment,

commodity boom, youthful population

and a maturing ASEAN block with increased

intra-trade and

Regional investment climate and outlook on Malaysia

ASIA

Malaysia is looking exciting In the past, Malaysia was not in the global real estate radar. Foreigners who buy real estate in Malaysia, do so for reasons such as its political stability, peaceful and safe place to reside or to escape from extreme cold climate in their countries.

This scenario is rapidly changing. With the cooling measures in popular real estate destinations, new windows of opportunities have opened as interests of foreign investors shift to SE Asia. Indonesia and Vietnam have been the beneficiaries of such interest and Malaysia, which has been overlooked because of its smaller population, has now begun to look attractive because of its fast growing metropolitan cities in Kuala Lumpur and Johore.

100

80

60

40

20

0

(%)

Jakarta Manila

China-2nd Tier

Kuala Lumpur

Ho Chi Minh

43.6

47.9

8.5

36.5

55.2

8.3

35.6

22.9

41.5

SydneyBangkok Tok

yo

Shanghai

Singapore

35.2

18.5

46.3

33.3

17.2

49.5

33.0

17.4

49.6

32.0

10.0

58.0

30.7

10.5

58.9

30.4

25.6

44.0

30.0

24.2

45.9

PULSE OFPROPERTY

INVESTOR PREFERENCES 5

#1 - Opportunities abound for Greenfield projects in fastest metropolitan cities Malaysia has a relatively larger land mass to its population size and has; in fact, relatively liberal rules regarding foreign property investment within Asia. Moreover, as the nation transits from a developing to a developed status, opportunities abound for foreign companies as many new greenfield projects are being identified for development in the fastest growing metropolitan cities in the region, from Klang Valley into Greater Kuala Lumpur (GKL) is being transformed into Asia’s most liveable cities. Foreigners are also welcomed with either a 10-year visa through Malaysia My Second Home (MM2H) programme or through special incentives such as lower tax rates under Talent Corporation for professionals with unique skillsets. Not surprisingly, the recent “Emerging Trends in Real Estate Asia Pacific 2013” report by Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC), named Kuala Lumpur as having huge potential in city development and investment prospects too.

#2 - Language and physical connectivity to the biggest, fastest and wealthiest marketsAs GKL is growing rapidly to be the new emerging business hubs of Southeast Asia (SEA). There is increasing demand from multi-national corporations as well as small-medium enterprise (SMEs) to set up their base for global operations here. This will enable them to expand their reach to some of the world’s biggest and fastest growing or wealthiest markets such as China, India and the Middle East. Malaysia’s competitive costs and relative ease of doing business is seen in its rankings; 14th in “IMD’s 2012 World Competitiveness Yearbook” and 18th ahead of Japan in 2012 respectively. In the

Economists Intelligence Unit’s 2012 report – “Hotspots: Benchmarking Global City Competitiveness”, which ranks 120 cities globally, Kuala Lumpur is in second place as the most competitive global city in SEA.

#3 - Resilient and transparentIn the latest IPD ”Research Note”, Malaysia has been ranked among the Top 5 for investment location in Asia based on growth, total return and liquidity in the REITs market. Along with this ranking, Malaysia is in the third position after Hong Kong and Singapore in the “Global Real Estate Transparency Index” by Jones Lang LaSalle. Furthermore, Malaysia is more resilient to recession and it’s not a volatile market compared to those countries. This has been proven during the financial crisis between 2008 and 2009, Malaysia House Price Index (MHPI) showed a decline in growth of -2% whereas Hong Kong and Singapore experienced more than double

digit drops in house prices of -12% and -14% respectively.

#4 - Clear statutory protectionMalaysia is also ahead in terms of property ownership and our transparent land administration system is based on Australian Torrens System. The Government of Malaysia allows 100% foreign direct ownership for all types of property (except agriculture land) with minimum foreign investment value of US$170,000 (RM500,000) and there is clear statutory protection on ownership, which tends to be vague in most of SEA countries like Vietnam, Indonesia and China.

#5 - A world-class financial district in the makingA new world-class financial district is alsobeing planned in the city of Kuala Lumpur and by 2017, plans are underway to build a High-Speed Rail (HSR) that will connect Kuala Lumpur to Singapore and cut travelling time from six hours to 90 minutes, providing access to more than 6,000 MNCs and about 16,000 SMEs in Singapore. The next step would be the ASEAN Rail Express (ARX), which will connect Kuala Lumpur with Bangkok, Vietnam, Cambodia, Laos, Myanmar and China and it will be the best bet to increase a business traveler’s traffic from SEA countries to the GKL. These efforts will generate a stream of demand in the office, retail and industrial sectors. In other words, the vision of GKL to be among the world’s top-20 cities in economic growth and livability will be achieved.

MPI matchmakes foreign investorsto real estate opportunitiesAs a conclusion, GKL is the perfect hub for MNCs, SMEs and foreign businesses to expand their businesses in SEA. To help foreigners navigate their way into Malaysian real estate, MPI connects them with the relevant parties including top Malaysian developers, Government linked companies and state players and match the appropriate opportunities to their needs. The Government of Malaysia will support foreign investors by offering various fiscal and non-fiscal incentives such as income tax exemption for period of five to ten years, including services and assistance provided by respective parties to facilitate a potential business’s operationalization and entry to the market.

This article first appeared in the Malaysia-German Chamber of Commerce & Industry (MGCCI) newsletter in January, 2013.

5 POINTS TO CONSIDER BEFORE YOU

How GKL envision it can achieve world’s Top 20 cities in terms of economic growth and livability?

INVESTIN GREATER KUALA LUMPUR

by Hazrul Izwan

“As GKL is growing rapidly to be the

new emerging business hubs

of SEA. There is increasing demand

from MNCs and SMEs to set up their base for their global operations

here

NEWSFLASH 6

The Motorsports City, which will be built on a 270-acre site near the Second Link will be jointly developed by FAStrack Autosports Pte.Ltd, a Singapore based company and UEM Land Holdings on a 70:30 JV basis.

This RM3.5 billion facility will solely cater for regional motoring enthusiasts comprising components such as showrooms, automotive retail, workshop, bonded warehouses, a 5km test track, go-kart track and other automotive related trades and activities. Interestingly, 30% of the GDV will have a residential components, mainly serviced apartment.

The track reported will be conceptualised by renowned designers, such as Hermann Tilke or Clive Bowen, will feature undulating stretches, challenging turns and a 1.2km to 1.5km straight that will allow vehicles to hit speeds in excess of 300km per hour. The facility is expected to be ready by 2016.

Project Name & Location GDV Joint-venture details Completion date

Motorsports City, Iskandar Malaysia RM3.5 billion UEM Land Holdings Bhd. (30%) and FAStrack

Autosports Pte.Ltd. (70%) 2016

One of the largest property developers in Hong Kong, New World Development Co (NWDC) Ltd, has joined hands with a local partner recently launch its maiden real estate project in Malaysia with total GDV of RM240 million.

The project - “New World Garden” is located in Southern of Peninsula Malaysia offers 96 units of bungalows and semi-detached luxury villas on the 4.86 ha of development land targeting a mix of buyers, locals and foreigners, Singaporeans and other nationalities.

According to Chen Guanzhan, executive director of NWDC, “with wide experience in property development in Hong Kong and China, NWDC is also looking for opportunities in other parts of Malaysia”.

Project Name & Location GDV Joint-venture details Completion date

New World Garden, 96 units of bungalows and semi-detached luxury villas in Plentong, Johor

RM240 millionNew World Development Ltd and Luen Yam Development (M) Sdn. Bhd. formed a subsidiary, Taipan Eagle Sdn.Bhd.

April 2014

Source: The Edge & The Star

A 270-ACRE

MOTORSPORTS CITYUNVEILEDTO BOOST INVESTMENT

Source: The Edge

HONG KONG DEVELOPER LAUNCHES A LUXURY VILLASIN MALAYSIA

POLICY 7

Year 2013 will be continuously a challenging year for most property investors in Malaysia. Since last year we have seen many improvised guidelines imposed by Bank Negara Malaysia (BNM) to rein property speculation such as loan-to-value ratio at 70% for third and subsequent property purchased and loan processing based on net income instead of gross income previously.

Starting this year onwards, the real property gains tax (RPGT) for residential property disposed within first two years from the date of purchase has been increased by 5% to 15% and from 5% to 10% for disposal between the third and fifth year. These new rates were tabled in the parliament during the Budget 2013 announcements in last October 2012 by Prime Minister Datuk Seri Mohd Najib Razak.

Basically,RPGT is a tax structure for investors who wish to dispose their property and gain profit out of it. RPGT may apply upon disposal of second property or subsequent property disposed. The tax that will be paid to Inland Revenue Board (IRB) is calculated based on net profit or the price difference between purchase and selling price. Plus, investors who are eligible under the RPGT is no longer required to pay income tax.

Since the announcement, we have heard mixed reaction from the industry players mainly developers and estate agents as well as investors. What I agree the most is the increment will not have significant impact to the property market especially to property prices. The impact is viewed as a “mild” cooling measure and most likely to have similar form of impact with the previous increment.

Within the analysis, the 30% rate caused a severe impact only for the RM500,001 and above housing segment by more than 20% decline in average price per transaction in 2007. Hence, this segment is more receptive to RPGT while below RM500,000 housing segment is forecasted will have a moderate impact on property purchase due to the bulk of the purchasers are transacted by locals.

However, factors such as increasing demand for own occupancy, less supply of affordable homes ranging between RM250,000 to RM400,000 in certain areas near central business districts (CBDs) further support this segment to be irresponsive to RPGT and continuously keep contributing to price hike too.

One key takeaway point for investors is that RPGT was imposed by the government is a policy purely to fight against excessive speculation as well as to curb price overheating in order to encourage investors to own a house and stay in Malaysia. As Malaysian property market is suitable for medium to long-term investors as it takes at least five to seven years in order to reach maturity stage.

Not many people know the good thing about Malaysian RPGT because its sound negative in the eye of investors. In fact, RPGT will give a better tax-relief option for investors instead of being taxed under income tax where the rate is much higher. Moving forward, it is safe to say that the new RPGT rate of 15% for the first two years will not have much impact on property prices especially for RM500,000 and below housing segment.

As a conclusion, RPGT is still a “liability” for investors. House buyers who wish to dispose their property should take note of the new RPGT that takes effect on January 1, 2013. By having such regulatory measures, Malaysia wanted to be recognised as a second home to foreigners rather than a playground for short-term speculators.

180

160

140

120

100

80

60

40

20

0

Index

RPGT

172.08

136.35

95.73

152.74

125.85

96.85

Figure 5: Malaysian House Price Index by Segment, 2004 - 2013f

(30%

) 200

4

(30%

) 200

5

(30%

) 200

6

(30%

) 200

7

(0%

) 200

8

(5%

) 200

9

(5%

) 201

0

(10%

) 201

1

(10%

) 201

2e

(15%

) 201

3f

Source: NAPIC, MPI Research

2004 = 100

by Hazrul Izwan

CHANGING THE

OF MINDAn analyst’s views on the impact of real property gain tax (RPGT) on Malaysian property market

STATE

“Malaysia is preferred as a

second home to foreigners rather than a playground

for short-term speculators

Legend: Overall: Avg. price / transaction Below RM500,000: Avg. price / transaction RM500,001 and above: Avg. price / transaction Note: e = estimates f = forecast

GRAPHICALLY SPEAKING 8

Average Sales Price of Industrial Units in Selected States, 3Q2012

Terrace Detach Vacant Plot (per SM)

Selangor RM600,587 RM11,384,375 RM456

Kuala Lumpur RM989,400 n/a n/a

Penang RM403,249 RM4,061,667 RM427

Johor RM477,250 RM2,878,651 RM168

Source: NAPIC & MPI Research

THE SUPPLY OF INDUSTRIAL UNITSARE REMAIN STABLEACROSS ALL TYPE OF PROPERTY FOR THE PAST 5 YEARSBETWEEN 2008 AND 2012e

KUALA LUMPUR

JOHOR

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Volume (Units)

2008

2009

2010

2011

2012

e

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Volume (Units)

2008

2009

2010

2011

2012

e

SELANGOR

PENANG

Note: e = estimatesLegend:

Terrace

30,000

25,000

20,000

15,000

10,000

5,000

450

300

150

0

Volume (Units)

2008

2009

2010

2011

2012

e

6,000

5,000

4,000

3,000

2,000

1,000

0

Volume (Units)

2008

2009

2010

2011

2012

e

Detached & Semi-detached

Flatted factory & industrial complex

Malaysia Property Incorporated (MPI) receives foreign investor queries on an ongoing basis. For any parties interested to pursue these investment requirements, please contact the MPI team at research@malaysiapropertyinc.com

CROSS-BORDER QUERIES 9

Request Client Requirement Location

2Q 2012Landbank Hiroshima, Japan Development land

less than RM 15 million for high-end condominium project

Greater KL

1Q 2012Landbank

Landbank,Development rights

Guangzhou, China

Dhaka, Bangladesh

10 - 20 acres of land for furniture mall

5 - 7 acres of land for development

Greater KL

Greater KL (Southern part)

4Q 2011Factory cum

distributor officeDubai, UAE 10,000 square feet area

Klang Valley

3Q 2011Landbank,

Development rights

Landbank,Development JV

Singapore

Singapore

10 acres and above of freehold landto built a logistic park

Mixed development with medical component, medical resort

e.g medical themed service apartments, retirement village

Klang Valley(Shah Alam, Bukit Raja)

Klang Valley, Johor, Penang

Source: MPI Research

LOOKING FOR

INVESTMENT

ABOUT USMalaysia Property Incorporated is a Government initiative set up under the Economic Planning Unit to drive investments in real estate into Malaysia. As the first port-of-call for real estate investment queries, Malaysia Property Inc. connects interested parties through an extensive network of government agencies, private sector companies, real estate firms, business councils and real estate-related associations. MPI has two core objectives; to create international awareness and to establish connections between foreign interests and Malaysian real estate industry players, ultimately contributing to real estate investments into the country.

For further information and up-to-date tracking of Malaysian real estate data, visit:www.malaysiapropertyinc.com

For further enquiry, write to:info@malaysiapropertyinc.com

Disclamer: This report contains information that is publicly-available and has been relied on by Malaysia Property Incorporated on the basis that it is accurate and complete. MPI is not liable if the case proves to be otherwise. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and the same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed.