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

Nicholas BrookeNicholas BrookeChairmanChairman

Professional Property Professional Property ServicesServices

Land Area :42.35 mil sq km

Population:3.7 billion

Map of

Asia

Key FiguresKey FiguresUnited StatesUnited States United United

KingdomKingdom GermanyGermany AsiaAsia

SizeSize 9.63 mil sq km9.63 mil sq km(Land: 9.16 mil sq km)(Land: 9.16 mil sq km)

244,820 sq km244,820 sq km(Land: 241,590 sq km)(Land: 241,590 sq km)

357,021 sq km357,021 sq km(Land: 349,223 sq km)(Land: 349,223 sq km)

44.6 mil sq km44.6 mil sq km(Land: 42.35 mil sq km)(Land: 42.35 mil sq km)

PopulationPopulation 290.3 million290.3 million 60.1 million60.1 million 82.4 million82.4 million 3.7 billion3.7 billion

GDPGDP 10.45 trillion10.45 trillion 1.53 trillion1.53 trillion 2.16 trillion2.16 trillion 16.86 trillion16.86 trillion

GDP per GDP per capitacapita US$36,300US$36,300 US$25,500US$25,500 US$26,200US$26,200 US$4,969US$4,969

InflationInflation 1.6%1.6% 2.1%2.1% 1.3%1.3% 1.4%1.4%

Labour forceLabour force141.8 million141.8 million

(unemployment rate: (unemployment rate: 5.8%)5.8%)

29.7 million29.7 million(unemployment rate: (unemployment rate:

5.2%)5.2%)

41.9 million41.9 million(unemployment rate: (unemployment rate:

9.8%)9.8%)1.7 billion1.7 billion

Context – Asia Context – Asia

Accounts for over 50% of the world’s populationAccounts for over 50% of the world’s populationMix of democracies and authoritarian regimes Mix of democracies and authoritarian regimes Overall trend one of political development and Overall trend one of political development and greater transparencygreater transparency2004 year of elections2004 year of electionsHigher growth forecasts in Asia than other Higher growth forecasts in Asia than other regionsregionsChina main engine of growth in regionChina main engine of growth in region

-2.5

-1

0.5

2

3.5

5

6.5

8

9.5

1999a 2000a 2001a 2002a 2003b 2004c 2005c

Overall Economic Growth Trends

ChinaVietnamThailandHong Kong

TaiwanMalaysia

PhilippinesIndonesia

Singapore

China in 2003Total Area : 9.6 billion sq kmLand Area : 9.3 billion sq kmPopulation : 1.3 billion GDP per capita (US$ at PPP): 5,120GDP growth : 9.1%Labour cost per hour : US$0.92

Hong Kong in 2003Total Area : 1,092 sq kmLand Area : 1,042 sq kmPopulation : 6.9 million GDP per capita (US$ at PPP) : 27,550GDP growth : 3.7%Labour cost per hour : US$5.40

CHINA and SAR HONG KONG

ChinaChinaGrowth 2003 – 9.1% despite SARSGrowth 2003 – 9.1% despite SARSConcern of overheating due to fixed asset Concern of overheating due to fixed asset investment bubble investment bubble FDI 2003 – US$53.5 bn – up 15% year on yearFDI 2003 – US$53.5 bn – up 15% year on yearLittle inflationary pressureLittle inflationary pressureSerious attempts to slow credit and investment Serious attempts to slow credit and investment growthgrowthPossibility of property market corrections in Possibility of property market corrections in some major citiessome major cities

BeijingBeijing

Shanghai, Mainland China

Hong KongHong Kong

Bounced back strongly after SARSBounced back strongly after SARS68 months of deflation ended July 200468 months of deflation ended July 2004GDP growth 2004 – 7%+GDP growth 2004 – 7%+Piggy-backing off China engine of growthPiggy-backing off China engine of growthStability maintained despite debate over Stability maintained despite debate over political reformpolitical reformProperty market on the move againProperty market on the move again

Hong Kong

Japan in 2003Total Area : 377,835 sq kmLand Area : 374,444 sq kmPopulation : 127.2 millionGDP per capita (US$ at PPP): 27,604GDP growth : 2.1%Labour cost per hour : US$20.4

JAPAN

JapanJapanEnjoying modest economic revival Enjoying modest economic revival Exports to China at record levelExports to China at record levelSurprisingly robust private consumptionSurprisingly robust private consumptionFiscal situation a concern – deficit nearing 180% Fiscal situation a concern – deficit nearing 180% of GDPof GDP1212thth year of asset deflation, but end in sight year of asset deflation, but end in sightStructural weaknesses in banking sector have Structural weaknesses in banking sector have still to be addressedstill to be addressedAging population – a real worryAging population – a real worry

TokyoTokyo

Malaysia in 2003Total Area : 329,750 sq kmLand Area : 328,550 sq kmPopulation : 25 million

GDP per capita (US$ at PPP): 6,570GDP growth : 4.8% Labour cost per hour : US$2.20

MALAYSIA

MalaysiaMalaysia

Successor to Dr Mahatir well installedSuccessor to Dr Mahatir well installedFocused campaign on corruption and Focused campaign on corruption and crony capitalismcrony capitalismCurrency pegged to US dollarCurrency pegged to US dollarHighly dependent on exportsHighly dependent on exportsRelocation of administrative capital to Relocation of administrative capital to PutrajayaPutrajaya

Kuala Lumpur

Indonesia in 2003Total Area : 1.92 million sq kmLand Area : 1.83 million sq kmPopulation : 216.2 million

GDP per capita (US$ at PPP): 3,470GDP growth : 4.1%Labour cost per hour : US$ 0.50

INDONESIA

IndonesiaIndonesia

In throes of election and no clear outcomeIn throes of election and no clear outcomeConcerns remain over physical securityConcerns remain over physical securityWeak legal system and corporate Weak legal system and corporate governance issues still have not been governance issues still have not been addressedaddressedStands to benefit from increased oil pricesStands to benefit from increased oil pricesAs economy drifts, so does property As economy drifts, so does property marketmarketNo FDI of any significanceNo FDI of any significance

JakartaJakarta

Singapore in 2003Total Area : 693 sq kmLand Area : 683 sq kmPopulation : 4.2 millionGDP per capita (US$ at PPP): 27,270GDP growth : 0.9%Labour cost per hour : US$8.0

SINGAPORE

SingaporeSingapore

SingaporeSingapore

Signs of economic recovery under way but Signs of economic recovery under way but weakness in SE Asia a constraintweakness in SE Asia a constraintLeadership transition to Lee Hsien Loong Leadership transition to Lee Hsien Loong very smoothvery smoothOffice and residential markets flatOffice and residential markets flatTake up of industrial space improving and Take up of industrial space improving and investment market strengtheninginvestment market strengthening

PPPPSS

Health of the Asian Property SectorHealth of the Asian Property Sector

Global uncertainty : Terrorism, natural Global uncertainty : Terrorism, natural disasters, mobility of capital and debtdisasters, mobility of capital and debtAcceptance of real estate as asset classAcceptance of real estate as asset classHigh liquidity / Low interest ratesHigh liquidity / Low interest ratesStrong investor sentimentStrong investor sentimentGrowing significance of REITS and other Growing significance of REITS and other investment vehiclesinvestment vehiclesChallenges of sustainability Challenges of sustainability

PPPPSS -2.5

-1

0.5

2

3.5

5

6.5

8

9.5

1999a 2000a 2001a 2002a 2003b 2004c 2005c

Overall Economic Growth Trends

ChinaVietnamThailandHong Kong

TaiwanMalaysia

PhilippinesIndonesia

Singapore

PPPPSS

The State of the Commercial MarketsThe State of the Commercial Markets

Relatively weak occupational marketsRelatively weak occupational marketsDisconnect between occupational demand Disconnect between occupational demand and investment appetiteand investment appetiteInflexibility of existing supplyInflexibility of existing supplyFuture of CBD?Future of CBD?““City” approach to the attraction of major City” approach to the attraction of major space usersspace users

PPPPSS

The State of the Residential MarketsThe State of the Residential Markets

Affordability issuesAffordability issuesHigher aspirations as to qualityHigher aspirations as to qualityProvision of Social HousingProvision of Social HousingHigh rise / mixed use debateHigh rise / mixed use debateSustainable communitiesSustainable communitiesRegeneration versus new buildRegeneration versus new build

PPPPSS

Key Ingredients of a World Class CityKey Ingredients of a World Class City

DiversityDiversityEducationEducationEmploymentEmploymentQuality of lifeQuality of life

PPPPSS

Advent of Foreign InvestorAdvent of Foreign Investor

Mainland ChinaMainland China– tightening of domestic credit. Greater dependence on tightening of domestic credit. Greater dependence on

foreign investment, bringing with it more discipline foreign investment, bringing with it more discipline and more rigorous approach to asset managementand more rigorous approach to asset management

RegionalRegional– emergence of office and retail REITs. Entry vehicles emergence of office and retail REITs. Entry vehicles

for both retail and institutional investorsfor both retail and institutional investorsHong Kong, SAR Hong Kong, SAR – launch of Housing Authority Link REIT. 180 centres, launch of Housing Authority Link REIT. 180 centres,

1 million sq.m., 100,000 parking spaces, US$3-4 1 million sq.m., 100,000 parking spaces, US$3-4 billion. Precedent for other major privatisation billion. Precedent for other major privatisation exercises exercises

PPPPSS

Chasing the Tourism DollarChasing the Tourism Dollar

National/city approach to creating world National/city approach to creating world class tourist destinationsclass tourist destinationsDevelopment of family tourism – DisneyDevelopment of family tourism – DisneyLegalisation and/or growth of gamingLegalisation and/or growth of gamingEmergence of Macau as the Las Vegas of Emergence of Macau as the Las Vegas of AsiaAsia

Macau – tourism and gamingMacau – tourism and gaming

PPPPSS

SustainabilitySustainability

Governments now paying more than lip service Governments now paying more than lip service to sustainable development conceptsto sustainable development conceptsMajority of large projects now being put at least Majority of large projects now being put at least to rudimentary teststo rudimentary testsHowever lack of understanding as to the totality However lack of understanding as to the totality of sustainabilityof sustainabilityYet to see market recognize and reward Yet to see market recognize and reward sustainable characteristicssustainable characteristicsBuilding for obsolescence debateBuilding for obsolescence debate

West Kowloon – Aerial ViewWest Kowloon – Aerial View

West Kowloon Cultural HubWest Kowloon Cultural Hub

PPPPSS

Brown v/and Green DebateBrown v/and Green Debate

Challenge of multiple ownership in urban areasChallenge of multiple ownership in urban areasAttraction of green field approachAttraction of green field approachEver growing demand for city livingEver growing demand for city livingRural to urban migrationRural to urban migrationAbsence of, and a reluctance to use, compulsory Absence of, and a reluctance to use, compulsory mechanismsmechanismsGrowing attention to quality of life capitalGrowing attention to quality of life capitalReducing pressure on existing infrastructureReducing pressure on existing infrastructure

Urban Regeneration Area

PPPPSS

Holistic Approach to Development and Holistic Approach to Development and Public Transport PlanningPublic Transport Planning

Joined up thinking – an integrated and Joined up thinking – an integrated and comprehensive approachcomprehensive approachPhasing and implementation to maximise returns Phasing and implementation to maximise returns to all partiesto all partiesAmple evidence that good transport networks Ample evidence that good transport networks enhance property valuesenhance property valuesLifestyle, convenience and environmental Lifestyle, convenience and environmental benefitsbenefitsSignificantly reduced land take for road and Significantly reduced land take for road and other infrastructure provision other infrastructure provision

PPPPSS

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

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

MTRC MissionMTRC Mission

PPPPSS

Average daily patronage : Average daily patronage : 2.3M2.3M(with a record high of 3.1M on(with a record high of 3.1M onChristmas Eve 2002)Christmas Eve 2002)

Total route length : Total route length : 88 km88 km

Total no. of stations : Total no. of stations : 4949

Daily hours of operation : Daily hours of operation : 19 hours19 hours

Total no. of passengers in 2003: Total no. of passengers in 2003: 842M842M

Facts & Figures

PPPPSS

LegendOfficeRetailResidentialHotel/Service Apt

TotalTotal GFA GFA: : 2.6 million s2.6 million sq. m.q. m.

TotalTotal GFA GFA: : 33.5 .5 million smillion sq. m.q. m.

TotalTotal GFA GFA: : 2.3 million s2.3 million sq. m.q. m. Tseung Kwan O LineTseung Kwan O Line

UUrban Linesrban Lines

Airport RailwayAirport Railway

DevelopmentDevelopment

ManagementManagement

103,130 sq m 132,014 sq m 28,800 flats

254,190 sq m

307,880 sq m 28,896 flats 294,072 sq m

46,170 sq m 13,345 flats

611,968 sq m

126,490 sq m 130,367 sq m

28,729 flats

299,363 sq m 31,366 flats234,898 sq m

DevelopmentDevelopment

ManagementManagement

DevelopmentDevelopment

MTRC Portfolio by Railway LinesMTRC Portfolio by Railway Lines

Kowloon Airport Station - MTRCKowloon Airport Station - MTRC

PPPPSS

Housing the CommunityHousing the Community

The role of GovernmentThe role of Government– Stabilising society Stabilising society – Facilitation Facilitation – Financial supportFinancial support– Social needSocial need

The role of the private sectorThe role of the private sector– Responding to market demandResponding to market demand– Assisting Government with physical provisionAssisting Government with physical provision

PPPPSS

Maximising on the Value of a Maximising on the Value of a Scarce Resource Scarce Resource

Varying Dynamics:-Varying Dynamics:-Challenge of the mega cityChallenge of the mega cityLand often in short supplyLand often in short supplyConvenience at a premiumConvenience at a premiumSynergy of mixed use developmentSynergy of mixed use developmentAttraction of bright lightsAttraction of bright lightsThe success of high rise communitiesThe success of high rise communitiesPrevention of urban sprawl Prevention of urban sprawl

PPPPSS

Public Private PartnershipsPublic Private Partnerships

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

PPPPSS

Hong Kong : Hong Kong : Home Ownership – Public SectorHome Ownership – Public SectorHA provided 649,000 pr flats for 2,019,000 HA provided 649,000 pr flats for 2,019,000 persons representing 30% of Hong Kong’s persons representing 30% of Hong Kong’s populationpopulationSold 405,500 flats through various subsidised Sold 405,500 flats through various subsidised home ownership schemeshome ownership schemesProvided over 100,000 loans for flat Provided over 100,000 loans for flat purchaserspurchasersBuilt 2.26M sq m of commercial/retail space Built 2.26M sq m of commercial/retail space and 100,000 car parking spacesand 100,000 car parking spaces

Hong Kong – Government Housing in 1970

Hong Kong – Government Housing in 1970

PPPPSS

Hong Kong : Hong Kong : Wind of Change (I)Wind of Change (I)

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

PPPPSS

Hong Kong :Hong Kong :Wind of Change (II)Wind of Change (II)

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

Tin Shui Wai, Yuen Long

PPPPSS

Hong KongHong Kong : :Home Ownership – private sectorHome Ownership – private sector

Traditionally builds 25,000 – 35,000 units per Traditionally builds 25,000 – 35,000 units per annumannumLand obtained through purchase / lease Land obtained through purchase / lease modificationmodificationIn lead up to 1997 prices driven by speculative In lead up to 1997 prices driven by speculative attitude and opportunity to make quick profit, not attitude and opportunity to make quick profit, not aspiration to own one’s homeaspiration to own one’s homePost 1997 market collapse – values fell by some Post 1997 market collapse – values fell by some 65%. Most families in negative equity65%. Most families in negative equityCorrection lasted for best part of 6 years, now Correction lasted for best part of 6 years, now seeing market revival driven by fundamentalsseeing market revival driven by fundamentals

The Leighton Hill, Happy Valley

Thank youThank you

Professional Property Professional Property Services Services PPPPSS