Re vi ew of Ma la ys ia n Pr op er ty Ma rk et (0 8/ 09 )

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1 JS VAL UE RS PR OP ER TY CO NS ULT AN TS Re vi ew of Ma la ys ia n Pr op er ty Ma rk et (0 8/ 09 ) CONTENT R E V I E W O F M A L A Y S I A N E C O N O M Y Review of Malaysian Economy 2009 Budget Review 3 RM7b stimulation package Review of Malaysian Property Market Impact of the fuel price increase and global financial crisis Property Market Outlook Major Market Activities in 2008 Major Corporate Deals The Malaysian economic growth for 3Q08 moderated to 4.7%, after recording strong growths of 6.7% and 7.4% in 2Q08 and 1Q08, respectively Gross Domestic Products (GDP) The Malaysian economic growth for 3Q08 moderated to 4.7%, after recording strong growths of 7.4% and 6.7% in 1Q08 and 2Q08, respectively. The lower growth was attributed to the rising inflation, triggered by the 40% increase in the petrol price, from RM1.92 per liter to RM2.70 effective June The bankruptcy filing by Lehman Brothers in September 2008 heightened the beginning of the global financial crisis, which has led US and Europe governments to initiate multi billion bailout packages to rescue the financial institutions. The financial crisis has prompted global economic slowdown with several countries facing potential economic recession. GDP (RM million) 140, , , , , , ,000 Inflation 07-1Q 07-2Q 07-3Q 07-4Q 08-1Q 08-2Q 08-3Q GDP (RM mil) Growth (%) Growth (%) The escalating global fuel prices since 2007 have continued to push the country s inflation. Effective June 2008, the country s fuel price has been pegged against the global fuel price, which has prompted the country s fuel price to increase by about 40%, has pushed up the country inflation to 7.7% in June and about 8.5% in July and August % 7% 6% 5% 4% 3% 2% 1% 0% % change (yoy) 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan -08 Feb-08 Mar -08 The inflationary pressures eased towards the end of 2008 (to 4.4% in December 2008), encouraged by the declining global fuel prices. The global fuel price declined to below USD40 per barrel in early 2009 from the peak of USD146 per barrel in July Correspondingly, crude palm oil prices and the costs of construction materials have also declined. Interest rates Ap r-08 May -08 In February 2009, Bank Negara Malaysia (BNM) reduced the Overnight Policy Rate (OPR) by 75 basis points to 2.5% to promote economic growth amid the downside risks to economic growth. As a results, most financial institutions have reduced the Base Lending Rate (BLR) to between 5.95% and 6%. The reduction was the second reduction after a 25-basis point cut in November BNM has also reduced the Statutory Reserve Ratio (SRR) to 2% from 3.5%, effective 1st February The reduction will inject more liquidity in the banking system, allowing banks to lend more to finance economic activities. Interest rate 8% 7% 6% 5% 4% 3% 2% 1% 0% Jan-08 Feb-08 Mar-08 Apr-08 BLR May-08 Jun-08 Jul-08 Consumer Price Index Jun-08 Jul-08 Aug-08 Sep-08 Au g-08 Oct-08 Nov-08 Sep month fixed deposit Dec-08 Oct-08 Jan-09 Nov -08 Feb-09

2 Review of Malays ian Property Market (08/09) Page 2 R E V I E W O F T H E M A L A Y S I A N E C O N O M Y As a result of the reduction, the deposit rates, including the fixed deposit rates are expected to reduce. As at December 2008, the interest rates for 1-month and 12-month fixed deposits were 3% and 3.5%, respectively. Global economy The bankruptcy filing by Lehman Brothers Holdings Inc in September 2008, marked the beginning of the global financial crisis in US and Europe. The financial crisis is the consequential effect of the US sub-prime crisis, which erupted in the middle of The financial crisis has caused the global share markets to plummet. The failing of major financial institutions in US and Europe has prompted governments worldwide to introduce various bail-out and economic stimulation packages to revive the banking systems and economic progression in their countries. In spite of these packages, the negative impact is expected to trigger a slow down in the global economy in The recent military attacks by Israel on Palestine has not only created global market uncertainties, global fuel prices have also signaling an upward trend. The crude oil future was trading at USD47 per barrel from below USD40 per barrel. The increase created fear that the crude oil price may increase again. The impact of the financial crisis on the global economy is imminent. The economic growth for Singapore slowed to 1.5% in 2008 compared with 7.7% growth in In 2009, Singapore s economic growth is forecasted to be between 2% and 1%, down from the earlier forecast of 1% to 2% made in November Malaysian Economic Outlook With the anticipated reduced demand for industrial products, the country s industrial output is expected to reduce. In view of this, companies may resort to retrenchment to reduce their operational costs if the demand continues to decline. Unemployment rate is expected to increase to about 4%. Multinational companies that have announced closures or restructuring of their manufacturing plants in Malaysia include Intel, Sony Corp and Panasonic. Most companies, particularly public listed companies are expected to report lower than forecasted financial results in 2009 in view of the poor market condition. As a result, the stock market is not expected to perform favourably in 2009, especially during the first half. With the inflationary pressure eases to about 3% to 4%, the government is expected to adopt and implement measures to promote economic growth within the country. Amongst the measures announced include lowering of the BLR, expansionary 2009 Budget and RM7 billion stimulation package. With low inflation rate, Bank Negara Malaysia (BNM) is expected to reduce the overnight policy rate (OPR) again in 2009 to stimulate the country s economy. The cut will reduce the BLR further from the current 5.95%. The reduction also corresponds with the interest rate cuts by other countries. While most countries have undertaken various measures to stimulate their economies, however, no significant improvement is anticipated, especially during the first half of The economic recovery will depend greatly on the containment of the crisis and effectiveness of the stimulation packages. Ministry of Finance has revised downward its economic growth forecasts for 2008 and 2009 to 5% and 3.5% from earlier 5.7% and 5.4%, respectively. The government promises additional stimulation packages in the event that the country s economy worsens. Private analysts such as Malaysian Institute of Economic Research (MIER) and Citi Investment Research have forecasted lower GDP growths of 1.3% and 0.5%, respectively for Both analysts expects Malaysian economy to enter into a technical recession during the first half of No significant improvement is anticipated, especially in the first half of The economic progression will depend greatly on the containment of the financial crisis and effectiveness of the stimulation packages Despite the depressing economic outlook, the government maintained its growth forecast of 3.5%, promising additional stimulation packages to stimulate the economy if necessary

3 Review of Malays ian Property Market (08/09) Page B U D G E T R E V I E W The 2009 Budget is focused on enhancing the well being of all Malaysians, e.g. which was themed A Caring Government. Overall, the budget will focus on three specific strategies: Ensuring the well being of Malaysians Developing Quality Human Capital Strengthening the Nation s Resilience The budget deficit for 2008 is expected to expand to 4.8% of the Malaysian GDP, which is higher than the original 3.1% target. The government expects the fiscal deficit to reduce to 3.6% in Overall, the government allocated RM207.9 billion for the 2009 Budget, which is 5.1% higher than the revised allocation for Borrowings and use of gov assets 14.4% Export duties 1.5% Other indirect taxes 13.1% Income taxes 43.0% Various measures have been proposed to help the Malaysians, such as increase of tax rebate from RM350 to RM400 per head, reduction of the highest tax rate for individuals from 28% to 27%, reduction of import duties on selected consumer products, tax exemption on interest income and many others. Amongst the measures proposed to encourage house ownership are as follows: For purchase of medium cost houses up to RM250,000, the 50% stamp duty exemption is extended to loan agreements The fund under the Housing Credit Guarantee Scheme (SJKP) will be increased to RM100 million from RM50 million. The scheme has been rolled out to all local financial institutions To provide low cost housing, Syarikat Perumahan Negara Berhad will construct 33,000 low cost houses and a sum of RM330 million is provided to Jabatan Perumahan Negara to complete 6,500 units under Program Perumahan Rakyat The Budget 2009 is focused on enhancing the well being of all Malaysians, specifically to counter the inflationary threats affecting the people Import duties 1.1% Non-tax revenue & ot her taxes 26.9% ^ Estimated Income The government will upgrade the terms of housing loans for the civil servants In view of the increasing fuel prices, there has been pressing needs to improve the public transportation. Hence, the following has been proposed under the 2009 Budget: Social services 8.6% Economic services 13.5% Other expenditures 14.7% Security 2.0% Subsidies 16.4% General administration 1.0% Grants & transfers to state govt 2.4% Emolument 18.4% ^ Proposed Expenditures Debt service charges 6.5% Supplies & services 12.9% Pensions and gratuities 3.5% The services of RapidKL and Rapid- Penang to be improved RM35 billion will be expended during the 2009 to 2014 to enhance the capacity of existing rail services, build new rail tracks, increase the number of buses, as well as better infrastructure facilities The existing LRT system in the Klang Valley will be extended by 30 km, which is 15 km each for the Kelana Jaya and Ampang lines. The extension is scheduled for completion in 2011 (cont ) One of the key measures announced under the 2009 Budget is to improve the public transportations, which include extension and new LRT lines in Klang Valley

4 Review of Malays ian Property Market (08/09) Page B U D G E T R E V I E W Increasing the train capacity. 35 train carriages for the Kelana Jaya line has been procured and will be fully operational by early 2010 A new LRT line will be built along 42 km route from Kota Damansara to Cheras. This line is scheduled for completion in 2014 Improvement of the KL Monorail Improvement of KTM Komuter services, which includes rehabilitation works on the existing 20 Electric Multiple Units (EMU) and additional 13 EMUs will be acquired and operational by A 7.5 km Sentul-Batu Caves line is under construction and is expected to be completed by Double tracking Electric Rail for Seremban-Gemas and Ipoh-Padang Besar are expected to be completed in 2012 and 2013, respectively An integrated transport terminal is being built in Bandar Tasik Selatan, to provide facilities for inter-urban taxis and buses and will provide connectivity to the Ampang line, ERL and KTM Komuter. The terminal is expected to be operational in 2011 The government has also allocated about RM8.4 billion to improve the public amenities in the country, which large proportions of about RM6.6 billion being allocated to Sabah and Sarawak, each state receives about RM3.3 billion. The government is also committed to promote growths within the five economic corridors, which are Iskandar Malaysia, Northern Corridor Economic Region (NCER), East Coast Economic Region (ECER), Sarawak Corridor of Renewable Energy (SCORE) and Sabah Development Corridor (SDC). An additional allocation of RM300 million is provided under the Strategic Investment Fund to finance the implementation of private-public partnership projects. To promote tourism development, new investments by 4-star and 5-star hotel operators in Sabah and Sarawak will be given Pioneer Status with 100% income tax exemption or Investment Tax Allowance of 100% for 5 years. The government will also allocate RM50 million for conservation works of heritage sites in Melaka and Pulau Pinang. Under the 2009 Budget, various measures were also introduced to enhance the human capital development, ensuring public safety, promoting growth in the Venture Capital companies, maritime sector, SMEs and many others. Impacts of 2009 Budget on Malaysian Property Market Most of the measures introduced under 2009 Budget are to counter the negative effects on the Malaysians as a result of the high inflation rate and fuel prices. Specific emphasis has been placed on improving the spending power of the people, reducing the prices of consumer products as well as to improve the public transportation system. The low to medium income population as well as government servants will benefit from the partial exemption on the stamp duty, more attractive government housing loans as well as the Housing Credit Guarantee Scheme to promote house ownership by the poor. The proposed new and extension of LRT lines will create demand for properties around the new LRT lines. While the alignment of the LRT lines has yet to be finalized, several locations such as Subang Jaya, Puchong, Kota Damansara, Bandar Utama, Cheras and the surrounding areas have been identified as the potential locations of the new LRT stations. (cont ) The government is committed to promote growths within the five economic corridors in Malaysia, which are Iskandar Malaysia, Northern Corridor Economic Region (NCER), East Coast Economic Region (ECER), Sarawak Corridor of Renewable Energy (SCORE) and Sabah Development Corridor (SDC)

5 Review of Malays ian Property Market (08/09) Page B U D G E T R E V I E W Generally, there are a number of infrastructure projects being introduced under the 2009 Budget, particularly the new LRT lines, KTM double tracking, integrated bus terminal and public amenities that could promote property developments and opportunities in the surrounding areas. Notwithstanding this, the government may postpone several infrastructure projects in view of the prevailing global financial crisis. Generally, 2009 Budget is not expected to favourably improve the country s property market outlook in the short term. The high impact infrastructure projects, which will only be completed after 2010, will only promote demand for properties sited around the projects and not the market as a whole. R M 7 B I L L I O N S T I M U L A T I O N P A C K A G E S Amid the global financial crisis, the government has announced a RM7 billion fund in November 2008 to stimulate the country s economy. The stimulation package will be financed by the savings from the fuel subsidy and is not expected to increase the Budget deficit. Amongst the key measures announced are: RM1.2 billion to build 25,000 units of low and medium cost houses RM500 million to upgrade, repair and maintain police stations and quarters, and army camps and quarters RM200 million to revive abandoned housing projects RM600 million for minor public and basic infrastructure projects such as village roads, community halls and small bridges. The jobs will go to small contractors RM500 million for public amenities such as roads, schools and hospitals RM500 million for roads in rural areas and villages including Sabah and Sarawak RM200 schools million to assist non public RM300 million to set up funds for vocational training RM1.5 billion to set up an investment fund RM400 million to speed up high speed broadband project development RM200 million to fund HR development programmes RM100 million for youth development programmes RM100 million to build/upgrade business premises nationwide RM200 million to assist pre-schools in their programmes Besides the above allocations, the government also introduces the following: Foreigners and foreign entities can buy co mm er ci al re al es ta te wo rt h RM500,000 and above without any Foreign Investment Committee (FIC) approval for their own use The proposed new and extension of LRT lines will create demand for properties around the new LRT stations, in view of the growing importance of public transportation resulted from the increasing fuel prices After the upsurge of the global financial crisis, the government introduced a RM7 billion stimulation package to promote economic growth in the country RM500 million to improve the public transport system, particularly the LRT, KTMB Komuter and bus systems in urban centres Extension of housing loans for government servants from 25 years to 30 years (cont )

6 Review of Malays ian Property Market (08/09) Page 6 R M 7 B I L L I O N S T I M U L A T I O N P A C K A G E S EPF contribution by the employee has been reduced to 8% from 11% for two (2) years, effective 1st Jan 2009 Hypermarkets can extend business operations until 11 pm on weekdays and 1 am on weekends. Those in shopping complexes can seek to have 24-hour operations Import duty on cement, long iron and steel products for the construction and manufacturing sectors abolished Permits for foreign knowledge workers will be issued directly to the workers instead of employers Allow private property companies to develop some of the government s prime land under an open tender system Government, through government linked companies like Khazanah and PNB, will launch the Graduate Employability Management Scheme (GEMS) based on earlier schemes to help train 12,000 graduates in two years To speed up recruitment to fill vacancies in critical sectors in the public sector. Some 18,000 vacancies are to be filled on contract terms while permanent appointment arrangements are being made. The government has also revised downward its Gross Domestic Products (GDP) growth target for 2009 to 3.5% from its initial forecast of 5.4% as a result of the global economic slowdown. The growth forecast for 2008 also reduced to 5% from the initial 5.7%. The exports in 2009 will decline by 1.5% instead of growing at 4.6% estimated earlier while this year exports are forecast to grow at 4.7%. The revised GDP target takes into account lower domestic demand rates of 5.8% from 6% previously, while imports are likely to grow by 0.3% instead of 5.5% as previously estimated. With the global fuel prices reducing, the inflationary pressure on the country has also reduced. The inflation is expected to grow by about 3% to 4% in 2009, a significant reduction from 8.5% increase recorded in July and August The budget deficit for 2009 will remain at 4.8%, same as the Budget 2009 allocation. The RM7 billion will be funded by the savings derived from the cuts in the fuel subsidy. Review of the RM7b stimulation package Construction sector, which has large multiplying effects on country s economic growth, has received large allocation through this stimulation package. The main recipients of this fund include constructions of low cost houses, infrastructure projects, public amenities and many others. The FIC exemption is not expected to improve the demand for commercial properties as the relaxation is given to foreigners with business interests in the country and confined to commercial properties worth RM500,000 and above. Prime lands owned by the government are expected to attract biddings by private developers. These lands include government lands in Jalan Cochrane and Jalan Ampang Hilir and Rubber Research Institute Malaysia (RRIM) land in Sungai Buloh. Employee Provident Fund (EPF) is speculated to be potential bidder for the lands. Amid the global financial crisis, the government has maintained the Malaysian GDP will grow at 3.5% in The government will introduce additional stimulation package and interest cuts in the event that the country s economy deteriorated further. Conversely, introduction of addition stimulation packages could expand the Malaysian budget deficit. Amid the global financial crisis, government has revised downward its GPD growth target for 2009 to 3.5% from 5.4% projected earlier. The growth forecast for 2008 has also reduced to 5% from 5.7% projected earlier

7 Review of Malays ian Property Market (08/09) Page 7 O V E R V I E W O F M A L A Y S I A N P R O P E R T Y M A R K E T Review of Malaysian Property Market The Malaysian Property Market has started off well in the first half of 2008, inherited partly from the strong performance in The property market was severely affected by high inflations, resulted from the steep fuel price increase in June 2008, followed by the global financial crisis in September , , , , , ,000 50, Total During the first six (6) months of 2008, total 171,564 properties changed hand, indicating an increase of about 20% compared with the same period a year earlier. The favourable market situation has encouraged a number of developers to acquire land with development potential to launch new projects and to replenish their landbank. Examples include Bandar Raya Development Berhad, Mah Sing Group, Hunza Properties Berhad and Malton Berhad, to name a few. Many developers have also ventured into overseas market, of which the preferred investment destinations include Vietnam, Singapore, Middle East and Korea, to name a few. IOI Properties Bhd together with a local Singaporean company has acquired a land in Sentosa, Singapore. Selangor Dredging Berhad and YTL Corp have also ventured into the Singapore property development. Other developers that have ventured into overseas markets include WCT Engineering, Perdana Park City, Aseana Properties, Berjaya Land, Gamuda and SP Setia. Mah Sing Group and Golden Plus Holdings were also reported to be contemplating of venturing into Vietnam market % annual change H 30% 20% 10% 0% -10% -20% -30% -40% Residential property market Despite the political uncertainties after the general election in March 2008, the general market sentiments have remained relatively stable. Amongst the high-end residential projects launched include Amaya Saujana, The Oasis, The Panorama, Gaya Bangsar, Surin in Batu Feringghi Penang, First Residences in Penang and many others. There were also several en-bloc transactions involving high-end residential projects recorded. Sunway City has successfully concluded its second en-bloc sale of Sunway Pallazzio to a Middle East investor after selling en-bloc Sunway South Quay to a Korean investor earlier. Other en-bloc sales of highend condominiums include Malton s The Pearl@ KLCC, which was also reported sold to Middle East investors. Tan & Tan Development and NAZA TTDI are also contemplating to sell their projects on en-bloc basis. A number of new high-end condominiums / serviced apartments, which were launched since 2005, have been completed in The newly completed projects in Klang Valley are as follows: - Hijauan Kiara 188 units - Kiaramas Ayuria 480 units - Waldorf Tower, Plaza Damas 228 units - Taragon Luxury Condo 40 units - The Meritz 110 units - Mont Kiara Banyan 147 units - Menara Bintang Goldhill 176 units - The Orion 202 units - Cendana On Sultan Ismail 155 units - K Residence 188 units - Park Seven 105 units - Suasana Sentral Loft 600 units - Suria Stonor 138 units - Windsor Tower, Plaza Damas 446 units - Kiara units - The Binjai 171 units (cont ) During the first half of 2008, the overall property market sentiments were positive, with developers introducing new projects and acquiring land for future developments. There were also a number of local developers venturing into overseas market Many developers are selling their projects on en-bloc basis to recoup their investments in the shortest time amid the market uncertainties

8 Review of Malays ian Property Market (08/09) Page 8 O V E R V I E W O F M A L A Y S I A N P R O P E R T Y M A R K E T The increasing supply has prompted investors of high-end condominiums / serviced apartments to lower the asking rentals to attract tenants to occupy the units. Some owners have also reduced their asking prices to attract purchasers. Commercial developments There were also several large scale commercial / mixed developments being introduced in the market, namely The Paradigm by WCT Land, Lido Boulevard in Johor Bahru, Palm City Centre in Lahad Datu, Kota Kinabalu Waterfront, The Southgate by Mah Sing Group and many others. YTL Land & Development also launched its first boutique office in Sentul West and Sentul East, which have recorded favourable responses. In 2008, I-City, TM Cybercentre Complex, Mid Valley City and Bandar Utama have been awarded the Cybercentre status. All these projects have met the qualifying criteria stipulated by Multimedia Development Corporation (MDC), which includes broadband & infrastructure readiness, customer focused management with KPIs, competitive environment, talent pool availability, proximity to universities and research centres and many other criteria. Many developers have attempted to apply for cybercentre status in order to enhance the competitiveness of the commercial developments. Notwithstanding this, only limited commercial projects have successfully secured the status. Purpose built office buildings Prime office buildings that command high rental yields have been the acquisition target for institutional investors. Several existing Grade A purpose built offices were reported to have changed hand in The notable ones include Menara Citibank and Menara Standard Chartered, which were sold to IOI Corp Berhad and ING Insurance Berhad, respectively. Although constructions of Menara YNH, The Icon@Tun Razak, Menara Glomac and a 41 storey office building in Capital Square, have yet to be completed, the four (4) Grade A office buildings were reported sold. With the exception of the office building in Capital Square, all the purpose built offices were sold to Middle East investors. The office building in Capital Square was acquired by an Australian institutional fund. Hospitality sector Since Visit Malaysia Year 2007 (VMY2007) was launched, occupancy rates and average room rates for hotel accommodations have improved significantly, spurred by the increasing number of local and foreign tourists. The Majestic Melaka and first@ease hotel in Melaka and Sandakan commenced operation in There are also a number of new hotel projects being introduced, the notable ones include Four Seasons, Ritz Residences and Grand Hyatt KL around KLCC area, St Regis in KL Sentral, Casa Del Rio in Melaka, Wakaf Hotel in Terengganu, Tune Hotel in Iskandar Development Region (IDR), Allson Capital Hotel Medan Tuanku and many others. In Kota Kinabalu, Sabah, Tune Hotel opened its second limited services hotel at 1 Borneo Kota Kinabalu, comprising 168 rooms. Accor Hotel group has also introduced two (2) new hotels in Kota Kinabalu, which are Mercure Kota Kinabalu and Novotel 1 Borneo, offering 325 and 263 guest rooms and suites, respectively. To remain competitive, a number of existing hotels and resorts were being refurbished in 2008, which include Klana Resort Seremban (previously known as Alison Klana Resort), all the nine hotels under the Grand Continental brand throughout the country, Lake Kenyir Resort and Spa (previously known as Kenyir Lake View Resort) in Terengganu and Swiss Garden International Hotels, to name a few. (cont ) Existing prime purpose built office buildings that command high rental rates and occupancy rates have become the acquisition target of institutional investors Middle East investors have been aggressively acquiring purpose built office building and high-end condominium in Kuala Lumpur Four Seasons, St Regis and Grand Hyatt are expected to make their presences felt in Kuala Lumpur

9 Review of Malays ian Property Market (08/09) Page 9 O V E R V I E W O F M A L A Y S I A N P R O P E R T Y M A R K E T Retail sector Established departmental store and hypermarket operators continued to drive the development of retail sector in Malaysia. Tesco hypermarket opened several new outlets throughout the country in 2008, which include Tesco Mergong (Alor Star), Seberang Jaya Tesco Extra (Penang), Tesco Kota Bahru (Kelantan) and Tesco Extra Plentong (Johor Bahru), to name a few. The hypermarket planed to open four new stores in In 2008, AEON Co (M) Bhd opened the AEON Bukit Tinggi Shopping Centre in Klang, AEON AU2 in Setiawangsa, AEON Seberang Prai City in Penang and AEON Bukit Indah Shopping Centre in Johor Bahru. The company will continue to develop new outlets throughout the country, including the MaxValu supermarkets. In addition to the above, Carrefour, Giant and Mydin hypermarkets as well as Metrojaya department store are also setting up new outlets throughout the country. Carrefour opened new outlets in Melaka, Kuantan and Petaling Jaya. Several new outlets are also in the pipeline. Giant hypermarket opened a new outlet in Kota Damansara in November Tropicana City Mall, which is anchored by Carrefour hypermarket, was unveiled by Dijaya Corporation Berhad during the beginning of The mall forms part of the Tropicana City Business Park (previously known as Damansara Intan e-business Park) and is sited along the Damansara Link of SPRINT highway. Mesra Mall in Kerteh, Terengganu commenced operation in October The complex was developed by KLCC Holdings Sdn Bhd, a subsidiary of Petronas, which has been tasked to spearhead the East Coast Development Corridor. 1 Shamelin and Kenanga Wholesale City were unveiled in Construction works of the complexes are on-going and scheduled for completion in 2009 and 2010, respectively. There are also several shopping complexes being planned, namely new complexes in D Kayangan, Section 13 Shah Alam by Lebar Daun Development Sdn Bhd, Taman Sri Kuching by Magna Prima Bhd, Lot G, KL Sentral by Malaysian Resources Corporation Bhd (MRCB) and many others. Terminal One Shopping Centre in Seremban and Bangsar Shopping Complex in Bangsar underwent refurbishment and expansion exercises in 2008 to enhance the competitiveness of the complexes. More shopping complexes are expected to follow suit to remain competitive in the market. Industrial sector There were fewer industrial projects being introduced in the market compared with the residential and commercial property sectors. Amongst the industrial projects being launched in 2008 are Nusa Cemerlang Industrial Park in Johor Bahru, Tangkas Arena in UEP Industrial Park, Puchong Perdana and Perdana Industrial Park in Pandamaran, Klang. Most of the newly introduced industrial projects are positioned as high-technology park, offering appealing amenities and infrastructures as well as contemporary factory building design. Most of these projects are sited within established industrial areas. Agricultural sector The escalating price of crude palm oil (CPO) has increased the demand for agriculture estates, particularly the oil palm estate. At the peak of RM4,330 a tone in March 2008, investment yields for palm oil has improved significantly. Overall, up to the first half of 2008, the overall Malaysian property market has recorded strong performances. Most property market sub-sectors, have recorded positive growth, led by the residential property sector. In 2008, established departmental store and hypermarket operators continued to drive the development of retail sector in Malaysia Only few industrial projects were introduced in the market as compared with the residential and commercial projects When the CPO price was high, demand for oil palm estate increased significantly

10 Review of Malays ian Property Market (08/09) Page 10 O V E R V I E W O F M A L A Y S I A N P R O P E R T Y M A R K E T Impact of the fuel price increase and global financial crisis When the global fuel prices breached the USD140 per barrel threshold, the government increased the local fuel price to RM2.70 per liter in June The substantial increase has escalated the country s inflation to over 8% in July and August, As a result, real spending power of Malaysians reduced significantly. Costs of construction had also soared, increasing the risks of projects being abandoned. The uncertainties have prompted purchasers and investors to be cautious and adopted a wait and see attitude, causing the take up rate of projects to drop substantially. Developers continued to focus on the sales of their existing projects and have deferred their new launches until the market improves and the construction cost stablises. The eruption of the financial crisis in US in September 2008 has worsened the already weak property market sentiments (since June 2008). Sales of properties continued to moderate. Overall, as at the date of report, the 2009 Budget and RM7 billion stimulation package provided insignificant revitalization to the Malaysian property market. Notwithstanding this, 2009 Budget and RM7 billion stimulation packages provide specific financial relief to the people, especially the low in-come group. This could in turn help to restrain loan defaults by house buyers and keep the Non Performing Loans (NPLs) at a manageable level. Projects put on hold A number of developers have delayed the launches of new projects in view of the escalating construction costs when the global fuel price peaked at USD147 per barrel in July The high construction costs have not only reduced the developer s profit margins, the risks of projects being abandoned increased as many construction companies threatened to stop the construction works if the construction contract is not revised. During 3Q08, most developers have projected to launch their projects towards the end of 2008 or first half of The eruption of the global financial crisis in September 2008 with the bankruptcy filing by Lehman Brothers has triggered a global economic slowdown amid increasing unemployment rates and retrenchments across the world. The Malaysian property market was not spared by the global phenomenon. Despite the reducing construction costs towards the end of 2008, the overall market sentiments have worsened as a result of the financial crisis. With the exception of several cash-rich developers, most developers have continued to delay the project launches, anticipating poor take-up rates. Countries that have attracted a number of investments by Malaysian developers, namely Vietnam and Singapore, are also affected by the economic slowdown / recession. Developers such as SP Setia, WCT Land and Gamuda were reported to be holding back their projects in Vietnam due to the unfavourable market situation. IOI Properties has also deferred the launching of the Sentosa Seaview and The Pinnacle Collection in Singapore. Mega property deals Most property investors adopted prudent approaches when investing in properties amid the global financial crisis. In November 2008, at the height of the financial crisis, IOI Corp Berhad aborted the purchase of Menara Citibank, Jalan Ampang and lost its deposit of RM73 million. A piece of development land along Jalan Yap Kwan Seng and owned by E&O Berhad has been put back for sale after the buyer failed to make payment for the land. Sunrise Berhad and Malaysia Commercial Development Fund Pte Ltd have mutually terminated the put & call option agreement, which involved RM767 million of properties within Mont Kiara 20. (cont...) The global financial crisis, which erupted in September 2008, has worsened the already weak property market sentiments (since June 2008). In the absence of effective economic stimulation packages, take up rate of projects continued to moderate Many developers have delayed the launches of their projects, locally and abroad, in view of the poor market situation IOI Corp Bhd aborted the purchase of Menara Citibank, citing recent sudden adverse developments in the global economic environment as the reason for its decision to abort the deal

11 Review of Malays ian Property Market (08/09) Page 11 O V E R V I E W O F M A L A Y S I A N P R O P E R T Y M A R K E T Although there were a number of aborted deals, there were several cash-rich investors scouting for prime properties in the midst of the crisis. Examples include YTL Corp Berhad, which has acquired Macquire Prime Real Estate Investment Trust, which has retail lots in Wisma Atria on Orchard Road and Ngee Ann City in Singapore as well as other prime properties in China and Japan. Hap Seng Consolidated Berhad was also reported to be looking for land and buildings to grow its property portfolio. Market corrections The large number of newly completed highend condominiums and serviced apartments in 2008 did not bode well during prevailing market situation. Asking prices of selected high-end condominiums and serviced apartments in the vicinity of KLCC and Mont Kiara have reduced to attract the declining number of potential buyers. Correspondingly, rentals have also reduced. In addition to the above, selected commercial properties and agriculture oil palm estate, which had been subject to intense market speculation prior to the crisis, have started to show signs of consolidation. Transactional activities involving these properties have slowed down substantially. Property Market Outlook The following are brief reviews of Malaysian property market according to sectors. Residential sector With the supply exceeding the demand, high-end condominiums and service apartments in Klang Valley are expected to consolidate. Owners may be forced to reduce the rentals and asking prices to attract tenants and purchasers. The magnitude of the decline will depend on the country s economic performance. The market consolidation is anticipated to be momentary and will improve when the economy improves. Most of these projects are strategically located in the vicinity of KLCC, Mont Kiara, Bangsar, etc, which are well sought-after residential addresses in Klang Valley. Besides, these locations attract expatriates and affluent population and are equipped with one of the best infrastructures and public amenities. Prices of condominiums and apartments in most locations are expected to record reductions. Besides the poor economic situation, the reductions could be attributed to the oversupply situation, poor locations (for high-rise residential projects) and poor maintenance of the project. With the country s economy avoiding contraction, demand and prices of landed residential properties located within established neighbourhood are expected to remain stable. Prices of old landed residential properties as well as those sited further away from the city and town may experience marginal reduction. Commercial sector The high vacancy rates of newly completed commercial shops will persist in 2009, attributed to the low take-up rates as most business operators are not expected to expand or take up new commercial space due to poor economic situation. In the absence of rental income (when the units are vacant), the prolonged poor economic situation may force financially troubled owners to dispose their commercial properties at loss. Rentals will remain competitive to attract or retain business operators to occupy these commercial spaces. With low economic growth, the key challenge for most owners of purpose built office buildings and shopping complexes in 2009 is to ensure the existing tenants remain within their premises. Some may resort to lowering the rental or giving free rental period to the tenants. (cont...) In the midst of the crisis, several cash rich companies have been scouting for prime properties High-end condominiums & serviced apartments, selected commercial projects and oil palm estates, which had been subject to intense speculation prior to the crisis, have started to show signs of consolidation With the country s economy avoiding contraction, demand and prices of landed residential properties located within established neighbourhood are expected to remain stable

12 Review of Malays ian Property Market (08/09) Page 12 P R O P E R T Y M A R K E T O U T L O O K Rentals and prices of prime purpose built offices and shopping complexes will remain stable. Owners of secondary offices and shopping complexes may be compelled to lower down the rentals. Occupancy rates of prime shopping complexes with attractive retail mix will sustain. Institutional investors and REIT funds will drive demand for prime purpose built office buildings and shopping complexes that are able to generate attractive yields. The global financial crisis is expected to affect the demand of hotel rooms in business class hotels. The decline is in line with the expected cuts in traveling and accommodation expenses as most companies undertake various measures to cut expenditures amid the economic uncertainties. Although tourist arrivals from overseas will be affected by the global economic slow down, the number of local tourists are expected to increase as most will choose to travel locally due to reduced budget. Overall, occupancy rates for hotels are expected to remain stable, especially for hotels / resorts sited within established tourist areas. Although tourist arrivals from overseas will be affected by the global economic slowdown, the number of local tourists are expected to increase Agriculture sector With the CPO prices declined to about RM2,000 per tonne from a high of RM4,300 per tonne, the prices of agriculture lands, particularly large palm oil estates are expected to reduce. The declining yields as a result of the low CPO prices may force owners to dispose the palm oil estates. Notwithstanding this, agriculture land with development potential may become acquisition target of property developers looking towards expanding their landbanks. Hospitality sector The tourism developments are expected to drive the hospitality sector developments in the country, particularly hotels sited near to the prominent tourism areas. The inclusion of Georgetown and Melaka as the Historic Cities of Malacca Straits in the UNESCO s World Heritage List augurs well for the hospitality sector within the two states. The commencements of Four Seasons Hotel, KLCC and St Regis, KL Sentral will be new addition of luxurious hotels in Kuala Lumpur. These hotels are expected to set new benchmark for luxurious hotel in the city, in terms or room rates, service level, etc. Conclusions The Malaysian Property Market will directly benefit from the low Base Lending Rate (BLR). The low BLR is imperative to ensure competitive borrowing costs to encourage demand for property and to spare property owners from paying high interest for their loans. The reduction of Statutory Reserve Ratio (SRR) will increase liquidity in the market to stimulate economic activities, including demand for property market. With the projected economic growth of between 0.5% to 3.5% in 2009 and subject to the implementation of stimulation packages by the government, the Malaysian property market is not expected to drop significantly as in 1998, where the country s economy contracted by about 7.4% and the property transactions reduced by over 30%. Despite the tightening household expenditures, most property owners are expected to hold on to their properties. Nevertheless, prolonged economic crisis could inevitably trigger fire sales, forcing property owners to sell their properties at low price to meet their financial needs. Developers will introduce various promotions and incentives to attract purchasers to boost sales of their projects. With the stimulation packages being efficiently implemented, the Malaysian property market is expected to record improvements in the second half of 2009, encouraged by the economic recovery in Malaysia and worldwide. With the projected economic growth of between 0.5% and 3.5% in 2009, the Malaysian property market is not expected to drop significantly as in 1998, where the country s economy contracted by 7.4%

13 Review of Malays ian Property Market (08/09) Page 13 M A J O R M A R K E T A C T I V I T I E S I N Date 01-Jan Jan Jan Jan Jan Jan Jan-08 News Sara-Timur Properties Sdn Bhd opened the boutique hotel in Sandakan. The hotel is managed by Value Hospitality, which is planning to open eight more hotels in Malaysia and Asian region The Yang di-pertuan Besar of Negri Sembilan Tuanku Ja'afar ibni Al-Marhum Tuanku Abdul Rahman officiated at the grand official launch of The Legend Water Chalets in Port Dickson recently Mah Sing Group Berhad plans to develop the newly acquired acres land into Sri Pulai Perdana 2. The project is sited less than 2 km from the group's on-going development in Sri Pulai Perdana in Skudai Syarikat Perumahan Negara Bhd (SPNB) has successfully completed an abandoned project in Taman Kantan Permai, Kajang, which was awarded the certificate of fitness (CF) on Dec 19, 2007 The East Coast Economic Region (ECER) is allocating 7,400ha in Pahang to create a Pekan Rompin pineapple integrated development project Mega Mall Development Sdn Bhd is offering a 10% discount for the second batch of the Kepong Sentral condominium that it launched on December 15 SP Setia Bhd has clinched a deal to jointly build a 32ha mixed development project in Ho Chi Minh City which caters to expatriates and senior staff working in the Saigon Hi-Tech Park 05-Jan-08 Lambang Ehsan Sdn Bhd, a subsidiary of Y&Y Group, is developing its first shopping complex known as 1 Shamelin. The shopping complex, which will not have anchor tenant, is open for sale 05-Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan-08 Ecofirst Consolidated Berhad has entered into a joint venture with Johor government to develop a 1,000 acre biotechnology driven agricultural farm in Desaru, Johor Jaya Supermarket in Section 14, Petaling Jaya is scheduled to be demolished after Chinese New Year. A new seven storey retail building with a four level basement parking will be built on the site Johor Menteri Besar announced that constructions on a high tech industrial park to cater to the demands of investors in Iskandar Development Region (IDR) will begin this year and cost at least RM120 million Klana Resort Seremban, which was previously known as Alison Klana Resort, will undergo a refurbishment exercise this month. The refurbishment will be carried out in phases and will be completed by June Sunway City Bhd has concluded its second en-bloc sale of the Sunway Pallazzio Block B for an estimated RM220 million to a firm linked to a Middle Eastern fund Salient Glory City Sdn Bhd is set to redevelop Wembley Park in Penang, which was an once an amusement centre with different entertainment types such as bangsawan performances, movies and many others Malaysian Rating Corp Bhd (MARC) has downgraded the credit rating of MK Land Holdings Berhad due to the low take-up rate of its main property project, Damansara Perdana Malaysia Airports Holdings Bhd (MAHB) plans to unveil its maiden commercial property development, involving some 10,000ha of KL International Airport (KLIA) land area, in the next two to three months IOI Properties Bhd and Ho Bee Investment Ltd have bought a 2.12ha land on the resort island of Sentosa, Singapore, for S$1.097 billion (RM2.5 billion). They will build a 20-storey condominium on the site WCT Land Bhd has unveiled its first high rise commercial project dubbed "The Paradigm", which it expects to complete in six to seven years. The development, which covers 5.02ha of prime leasehold land. WCT Engineering Bhd is planning more projects in Vietnam following the approval obtained for its first commercial landmark in the suburbs of Ho Chi Minh City Work on the RM2.7 billion Lido Boulevard, the latest waterfront project within the Iskandar Development Region (IDR), is set to commence after Chinese New Year Bandar Raya Developments has bought a 10.2ha piece of land in Subang Jaya for RM million with plans to turn it into a mixed-used development featuring retail, street retail, office suites and apartments

14 Review of Malays ian Property Market (08/09) Page 14 M A J O R M A R K E T A C T I V I T I E S I N Date 12-Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan Jan-08 News Developer Kuan Choo Development Sdn Bhd, a subsidiary of public Malton Berhad, is targeting to achieve RM265.8 million of Gross Development Value (GDV) from the Amaya Saujana project Mulpha Land Bhd subsidiary Mega Readymixed Sdn Bhd (MRSB) is to build bungalows on two plots of land totalling 42,816.9 square feet that it acquired in the upscale Bukit Tunku area of Kuala Lumpur Multi Vest Resources Bhd (Mvest) is to build a corporate office on a 26,694.5 square feet site along Jalan Abdullah in Bangsar. It is acquiring the site from Pertubuhan Bible dan Risalah Watchtower YTL Land & Development Bhd's latest boutique offices at its Sentul West & Sentul East project in Kuala Lumpur was 90 per cent sold by the end of the first preview day last week BCB Bhd is projecting gross development value (GDV) of RM838mil for its Bandar Putera Indah project in Batu Pahat YNH Property Bhd is finalising the sale of the proposed 45-storey iconic Menara YNH at Kuala Lumpur's Jalan Sultan Ismail for RM1.5 billion Developer Nusmetro Venture is adopting different approach to market its latest apartment project, The Oasis. The leasehold project is sited on 2.53ha, comprising 490 units with built-up areas of 1,041 to 1,183 sq ft Crescendo Corp Bhd is developing Nusa Cemerlang Industrial Park (NCIP), which comprises 352 factories, targeting small and medium industries UEM Land launched 54 units of Arista Tropical Homes and 64 units of Vanda Cluster Homes at Seri Austin township Grand Hotels International Asia Pacific is investing about RM13mil to upgrade all its nine hotel properties under the Grand Continental brand in the country TSI Holdings Sdn Bhd is planning to launch First Residence in Kepong Baru by the middle of this year. Located along the 6th mile, the shop-cum-apartment project sits on a 10-acre leasehold land YTL Group has reopened the Majestic Hotel in Melaka after a RM30 million restoration and expansion works. A new building has been added which mirrors the architecture of the century-old mansion HICOM Properties Sdn Bhd has re-launched the Lake Kenyir Resort and Spa in Terengganu, after spending RM10 million to upgrade and refurbish the resort, previously known as Kenyir Lake View Resort Sunway University College has opened a new branch campus in Kuching, Sarawak, bringing the total number of campuses to four A RM300 million commercial centre, called Palm City Centre, will be built on 23.5ha just outside the Lahad Datu town centre in Sabah Keris Properties Sdn Bhd has launched the second phase of shophouses in Station 18 in Pengkalan, near here. It is taking advantage of the opening of the third Tesco hypermart branch in September UDA Holdings Bhd (UDA) has launched Gaya Bangsar, a serviced condominium located on Jalan Maarof, Bangsar MRCB signed a pact with Pelaburan Hartanah Bumiputera Bhd (PHBB) to set up joint-venture company to develop a retail complex on Lot G at Kuala Lumpur Sentral owned by Promising Quality Sdn Bhd (PQSB) Kuwait Finance House (M) Bhd (KFH) is providing finance for Ideal Capital Intelligence Sdn Bhd's RM500 million commercial project, known as The One, Penang Cyber City in Bayan Baru Privately held Kenanga Wholesale City Sdn Bhd is spending RM300 million to build a 1.8 million sq ft fashion wholesale mall, called the Kenanga Wholesale City at Jalan Kenanga, Pudu area Metro Kajang Holdings Bhd (Metro Kajang) launched Wang Pelangi Semenyih recently. The project is the commercial parcel of Metro Kajang's acre township, Pelangi Semenyih, Selangor