the asian real estate market 2015 - nri.com

The Asian Real Estate Market 2015Viewpoints from Japan, China, Korea, Taiwan, Singapore and India

August 2015

Nomura Research Institute

Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan

To create a transparent real estate market in AsiaTo create a transparent real estate market in Asia,to enhance business activities among real estate firms.

This report has been produced by Nomura Research Institute solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. No warranty for representation, express or implied ismade as to the accuracy or completeness of any of the information herein and Nomura Research Institute shall not be liable to any reader of this report or any third party in any way whatsoever

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 1

to any reader of this report or any third party in any way whatsoever.

Japan Japanese Real Estate Investment Market

China China’s market entering an adjustment period

Korea Increase of liquidity within slow economic growthq y g

Taiwan Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak

India Real Estate Market in India – Residential, Office, etc.



1 Population Movements in Japan

2 Macro Fundamentals of Japan2 Macro Fundamentals of Japan

3 Overview of Real Estate Investment Market in Japan

4 Office Market

5 Residential Market

6 Retail Property Market

7 Logistics Property Market

8 Real Estate Investment Products


Population Movements in Japan

Japan’s population is aging and shrinking due to a low birth rate

Total population peaked out in 2005 The number of households is increasing for now but it is projected to decrease after 2019

Japan s population is aging and shrinking due to a low birth rate.The number of households will also be decreasing soon.

Total population peaked out in 2005. The number of households is increasing for now, but it is projected to decrease after 2019. The population of 65 years or older is expected to level off in 2025 and head downwards in 2040.

Population and Households in Japan

Forecast →←Actual60,000

120 000

140,000

Households(thousand)

Population(thousand)

40,000

50,000

80 000

100,000

120,000

0‐14

20,000

30,000

40,000

60,000

80,000 15‐64

65+

Household

0

10,000

0

20,000

0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0


Source: NRI based on National Institution of Population and Social Security Research

Note: Medium-fertility (medium-mortality) projection

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

2055

2060

Population Movements in Tokyo

Population inflow into Tokyo is expected to continue

Population continues to increase in Greater Tokyo.

Population inflow into Tokyo is expected to continue.

Net Population Inflow into Greater Tokyo

200

250


100

150

KanagawaInflow

0

50

1980 1985 1990 1995 2000 2005 2010

Chiba

Saitama

Tokyo

‐100

‐50

1980 1985 1990 1995 2000 2005 2010

Outflow


‐150Source: NRI based on Basic Resident Register Population Migration Report


In the Tokyo metropolitan area total population and number of households are projected to peak out in 2015 and 2025 respectively

Population and households are projected to decrease in Tokyo in 5 to 10 years time.

In the Tokyo metropolitan area, total population and number of households are projected to peak out in 2015 and 2025, respectively.

Population in Greater Tokyo Households in Greater Tokyo

16,000

18,000


35 000

40,000


Forecast →←Actual Forecast →←Actual

10 000

12,000

14,000

,

Chiba

Saitama

Kanagawa25,000

30,000

35,000

Chiba

Saitama

K

6,000

8,000

10,000 Kanagawa

Tokyo

10 000

15,000

20,000Kanagawa

Tokyo

0

2,000

4,000

0

5,000

10,000

70 75 80 85 0 5 00 05 0 5 0 5 0 5 40


197

197

198

198

199

199

200

200

201

201

202

202

203

203

204




Households in Tokyo are expected to increase over the medium term owing to the strength

The number of single-person households is expected to peak out in 2030

Households in Tokyo are expected to increase over the medium term owing to the strength of one-person households.

The number of single-person households is expected to peak out in 2030.

Number of Households by Family Composition

7,000


Forecast →←Actual

4 000

5,000

6,000

One‐person

Couple‐only

C l d hild( )

2,000

3,000

4,000 Couple‐and‐child(ren)

One‐parent‐and‐child(ren)

Other

0

1,000

2,000


1995 2000 2005 2010 2015 2020 2025 2030 2035




Population in Tokyo is predicted to increase over the long term only in the three wards along

Population is expected to increase in the Chuo Koto and Minato wards

Population in Tokyo is predicted to increase over the long term only in the three wards along Tokyo Bay.

Population is expected to increase in the Chuo, Koto and Minato wards. In seven wards, the population is projected to decrease by over 10% between 2010 and 2040.

Ward 2010 2015 2020 2025 2030 2035 2040

Population Trends in Tokyo (2010=100)

Ward 2010 2015 2020 2025 2030 2035 2040Chuo 100.0 112.9 115.3 116.6 116.8 116.1 114.4Koto 100.0 102.7 104.4 106.8 108.2 108.8 108.5Minato 100.0 105.0 107.0 107.9 107.8 107.0 105.2Shinjuku 100.0 103.3 104.4 104.8 104.4 103.4 101.6Nerima 100.0 103.8 105.1 105.3 104.5 102.9 100.6Sumida 100.0 100.8 101.7 102.6 102.7 102.0 100.6Arakawa 100.0 102.4 103.0 102.8 102.2 101.2 99.7Chiyoda 100.0 106.9 106.9 106.1 104.6 102.2 99.3Setagaya 100.0 102.1 102.7 102.4 101.5 100.0 97.9Shinagawa 100.0 102.4 102.9 102.7 101.7 100.0 97.8Edogawa 100.0 101.5 101.7 101.1 99.8 98.2 96.2Bunkyo 100.0 101.8 101.9 101.3 100.1 98.2 95.7Toshima 100.0 107.3 106.1 104.5 102.2 99.2 95.3Ota 100.0 101.6 101.6 100.8 99.4 97.5 95.1Itabashi 100.0 100.9 100.5 99.1 97.2 94.7 91.8M 100 0 100 8 100 2 98 8 96 8 94 1 91 1Meguro 100.0 100.8 100.2 98.8 96.8 94.1 91.1Taito 100.0 100.6 99.5 97.7 95.4 92.6 89.4Shibuya 100.0 100.3 98.8 96.6 93.9 90.9 87.4Nakano 100.0 99.4 97.7 95.5 92.9 89.8 86.2Kita 100.0 99.4 97.6 95.1 92.2 89.0 85.5Suginami 100 0 99 4 97 6 95 1 92 0 88 5 84 5


Suginami 100.0 99.4 97.6 95.1 92.0 88.5 84.5Katsushika 100.0 98.2 95.7 92.4 88.7 84.8 80.8Adachi 100.0 98.0 95.2 91.6 87.5 83.1 78.7







4 Office Market






Macro Fundamentals of Japan

Japan’s economic growth is the lowest compared to other major economies with lowJapan s economic growth is the lowest compared to other major economies with low forecasts for future growth.

IMF forecasts estimate Japan’s GDP growth rate at 1% for the next 5 years IMF forecasts estimate Japan s GDP growth rate at 1% for the next 5 years.

（％）

Real GDP growth rate of major economies

Estimate →←Actual

10.0

15.0 （％）

←Actual Estimate→

ChinaIndia

KoreaUS

5.0

JapanUKUS

0.0

‐10.0

‐5.0

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 11Source: NRI based on IMF data (2014 Oct. and 2015 Update)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019


Despite the weak growth, Japan remains one of the largest economies in the world.

Although Japan was overtaken by China and fell to the third place in world nominal GDP India Brazil and Russia will still remain behind

(Billi USD)

Although Japan was overtaken by China and fell to the third place in world nominal GDP, India, Brazil and Russia will still remain behind Japan by 2020, assuming current growth rates continue.

Nominal GDP of Major Countries

20 000

25,000 (Billion USD)

US

Forecast →←Actual

15,000

20,000 China

10,000

Japan

0

5,000 Japan


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: NRI based on IMF (2014 Oct.)

Note: Figures up to 2019 are IMF forecasts and those up to 2020 are calculated with the assumption that the CAGR from 2014 to 2018 will be maintained.


Consumer price index became less active despite the rise in price due to the consumptionConsumer price index became less active, despite the rise in price due to the consumption tax increase.

With consumer sentiment depressed due to the consumption tax increase the growth of consumer price index began to slow down With consumer sentiment depressed due to the consumption tax increase, the growth of consumer price index began to slow down.

Y Y Ch i J ’ C P i I d ( l di f h f d )

4.0 （％）

Year-on-Year Change in Japan’s Consumer Price Index (excluding fresh foods)

2.0

3.0

Inflation targetset by BOJ

0.0

1.0

‐2.0

‐1.0


‐3.0

Source: NRI based on Japan Ministry of Internal Affairs data


Yen still continues to decline.

Large-scale monetary easing the “first arrow” of Abenomics has rapidly lowered the yen from the end of 2012 Large-scale monetary easing, the first arrow of Abenomics, has rapidly lowered the yen from the end of 2012.

(USDJPY=X)

USD-JPY exchange rate

120

130

100

110

90

70

80


Source: NRI based on Bloomberg data


Trade deficit is expanding, while the current account surplus is shrinking.

Japan’s trade balance recorded deficit for four consecutive years from 2011 while the current account surplus fell to a record low in Japan s trade balance recorded deficit for four consecutive years from 2011, while the current account surplus fell to a record low in 2014.

Japan’s Current Account

(兆円)(Trillion yen)

25

30

35(兆円)(Trillion yen)

10

15

20

5

0

5

10

‐15

‐10

‐5

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 (年)

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 15Source: NRI based on Japan Ministry of Finance data

年

貿易収支サービス収支第一次所得収支第二次所得収支経常収支Trade Balance Service Balance Primary income balance Second income balance Current Account


Government debt has mounted, raising concerns about a potential financial collapse.

The IMF forecasts that Japan’s ratio of government debt to GDP will peak out but still remain high The IMF forecasts that Japan s ratio of government debt to GDP will peak out but still remain high. A surplus in the primary balance, which is one of the conditions for preventing financial collapse, is expected to be difficult to achieve at

least for the next several years.

Ratio of Government Debt to GDP Ratio of Government Primary Net Lending/Borrowing to GDP

Forecast →←Actual Forecast →←Actual

Ratio of Government Debt to GDP Ratio of Government Primary Net Lending/Borrowing to GDP

4（％）

UK250（％）

Japan

‐2

0

2

Japan

US

Germany200

Japan

‐6

‐4

2 Japan

100

150

US

12

‐10

‐850

UK

Germany

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 16Source: NRI based on IMF data (2014 Oct.)Source: NRI based on IMF data (2014 Oct.)

‐12

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

0

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019


A financial collapse is unlikely as long as domestic capital remains in Japan and continuesA financial collapse is unlikely as long as domestic capital remains in Japan and continues to circulate.

The possibility of Japanese government bonds collapsing is seen to be small since more than 90% of the bonds are held by domestic The possibility of Japanese government bonds collapsing is seen to be small since more than 90% of the bonds are held by domestic investors.

Household financial assets, which are a resource for government bond purchases, have increased due to rising stock prices in recent years.

Government Bond Investors Household’s Financial Assets in Japan

1600

1800 (Trillion yen)

80%

100%

Government Bond Investors Household s Financial Assets in Japan

1000

1200

1400

60%

80%

600

800

1000

40%

(年)0

200

400

0%

20%

Japan US UK Germany


Source: NRI based on Bank of Japan data

(年)0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Note: Figures for Japan and US are from Dec 2014; for UK and Germany, from 2014 Q3.

Source: BoJ, FRB, ONS, Bundesbank

Domestic investors Foreign investors


Tokyo continues to be the world’s largest city in terms of population and GDP.

Tokyo40,000

GDP/population estimation in 2025 (Top 30 cities of population)

2025 populationby city( in 1000’s)

Delhi

Shanghai

Beijing

30,000

35,000( in 1000 s)

j gMumbaiDhaka

Mexico CitySao Paulo

Cairo

New York

Buenos Aires15 000

20,000

25,000

Los AngelesParis

5 000

10,000

15,000

0

5,000

0 500 1000 1500 2000 25002025 GDP scaleby city（in billion USD at

）


2008 PPPs ）

Source: NRI based on PricewaterhouseCoopers and UN data


Tokyo has the second largest concentration of world-class enterprises.

Rank Company Revenue(Mil$)

23 Japan Post Holdings 152 125

Number of Fortune Global 500 companies by city (2014) Fortune Global 500 companies in Greater Tokyo (within top 200)

23 Japan Post Holdings 152,125

45 Honda Motor 118,210

51 JX Holdings 111,014

53 Nippon Telegraph & Telephone 109,054

61 Nissan Motor 104 635

Beijing, 52

61 Nissan Motor 104,635

78 Hitachi 95,988

105 Sony 77,532

108 Mitsubishi 75,755

124 Marubeni 70 429

Tokyo, 41

London, 18

Paris, 18124 Marubeni 70,429

135 Softbank 66,546

139 Tokyo Electric Power 66,194

145 Toshiba 64,907

148 AEON 64 240

New York, 17

Seoul, 14

Osaka, 8

Shanghai 8

Others, 310

148 AEON 64,240

164 Dai-ichi Life Insurance 60,340

173 Mitsui 57,302

176 Seven & I Holdings 56,572

184 Nippon Steel & Sumitomo Metal 55,062

Shanghai, 8

Houston, 7

Moscow, 7


184 Nippon Steel & Sumitomo Metal 55,062

199 Mitsubishi UFJ Financial Group 51,667

Source: NRI based on Fortune Global 500 (2014) data





4 Office Market






Overview of Real Estate Investment Market in Japan

Investors’ activities has been recovering to the 2005-2006 level.

In 2013, J-REIT, the most powerful real estate buyer in Japan, acquired assets of more than 20 billion USD. In 2014, however, J-REITIn 2013, J REIT, the most powerful real estate buyer in Japan, acquired assets of more than 20 billion USD. In 2014, however, J REIT lost its dominance to other investors such as private-REITs, high-net-worth individuals and corporations with more aggressive attitude towards acquiring assets. Other professional investors are also being ousted from the Tokyo market.

billi

Acquisitions of Securitized Real Estate

8 000

10,000

Others J‐REIT

billion yen

6 242 7 205

6,000

8,000

4,439

5,159

6,242 7,205

1 791

2,156

4,000

611 305 676 8951,772 2,031 1,679

628 439 604 7921,555

2,2372,123

2,236

3,3072,210

1,359 539

1,549

1,791

0

2,000

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 21Source: NRI based on MLIT

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Hotel deals has been increasing amongst other key segments i e office residential retail


Hotel deals has been increasing amongst other key segments, i.e. office, residential, retail and logistics properties.

Factors such as the 2020 Olympic game in Tokyo, weak JPY currency, and strong macro economy in Japan have helped to push the demand in hotels, attracting more investors to hotel investment.

Acquisitions of Securitized Real Estate by Asset ClassAllocation of Securitized Real Estate by Asset Classin 5 years (2009-2013)

8,000

Office Residential Retail Logistics Hotel Others

billion yen

Others, 16.0%

1,107 9814 000

6,000

Office, 33.8%

Logistics

Hotel, 3.3%

, %

267 686808

1,293 1,5891,321

603161404

835

790

452

788615

746

2,000

4,000

Residential, 17 1%Retail, 16.0%

Logistics, 13.8%

1,611710

1,516 1,7282,194 2,124 2,503

891 556 768 5121,092

1,501552 348

235441

406

550270 479

289252

309

0FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

N t B th tilit f iti ti th t i t l TMK i l th h t b i l d d ft 2001 B f thi th l t t l d t ill t t h ith th d t

17.1%,


Note: Because the utility of securitizations that require actual TMK is unclear, they have not been included after 2001. Because of this, the yearly totals and amounts will not match up with the documents cited for this entry.

Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism’s “Survey of the Current State of Real Estate Securitization”


Lack of assets in Tokyo is likely to cause investment money to head to other regions.

For last few years, it has been extremely difficult for investors to find investment opportunities in Tokyo. In 2014 and 2015, transactionsFor last few years, it has been extremely difficult for investors to find investment opportunities in Tokyo. In 2014 and 2015, transactions in the ex-Tokyo area are expected to increase significantly in a trend similar to the one seen in pre-global financial crisis era.

Number of Properties Securitized by Region

51.9% 13.3% 10.0% 3.7% 17.8%FY2013

Tokyo Greater Tokyo Osaka Nagoya Fukuoka Others

Number of Properties Securitized by Region

58.8%

47.9%

12.0%

15.3%

8.0%

9.5%

4.0%

5.1%

14.9%

19.9%

FY2011

FY2012

53.0%

66.0%

10.5%

11.8%

8.4%

6.9%

6.9% 17.2%

12.0%

FY2008

FY2009

FY2010

41.9%

51.9%

12.1%

12.7%

10.5%

8.8%

6.4%

5.5%

23.1%

17.4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

FY2007

FY2008


Note: not including securitization of real estate of SPCSource: NRI based on MLIT


Total return recovered to 7%, the 2005 Q1 level.

Prior to the global financial crisis, the total return reached to 7% in 2005 Q1, and hiked till 2006 Q2.Prior to the global financial crisis, the total return reached to 7% in 2005 Q1, and hiked till 2006 Q2. Total return maintained the rate over 10% until 2007 Q1.

Performance Trend in Japan

13.815 0

20.0

(%)

3.7

7.3 7.4

5.05.0

10.0

15.0

Total ReturnIncome Return

‐7.2

0.32.3

‐5.0

0.0

Capital Return

‐11.7‐15.0

‐10.0

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep

Dec

Mar Jun

Sep


2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: MSCI Real Estate IPD


Cap rates fell sharply and by 2014 most likely reached the 2007 level.

In the Tokyo market, an increasing number of real estate deals have cap rates of 3-4%. Some investors believe that arguing cap ratesIn the Tokyo market, an increasing number of real estate deals have cap rates of 3 4%. Some investors believe that arguing cap rates is futile as one can expect higher rents. Such market players consider timing and level of rent increase more important rather than cap rate compression.

C R t T d i J

7 0%

8.0%

Cap Rate Trend in Japan

6.0%

7.0%

Office Osaka CBD

4.0%

5.0%

Office Tokyo CBD

Retail Tokyo

Residential TokyoLogistics Tokyo Multi

3.0%

Oct‐03

Mar‐04

Aug‐04

Jan‐05

Jun‐05

Nov‐05

Apr‐06

Sep‐06

Feb‐07

Jul‐07

Dec‐07

May‐08

Oct‐08

Mar‐09

Aug‐09

Jan‐10

Jun‐10

Nov‐10

Apr‐11

Sep‐11

Feb‐12

Jul‐12

Dec‐12

May‐13

Oct‐13

Mar‐14

Aug‐14


Office Tokyo CBD Office Osaka CBD Retail Tokyo Residential Tokyo Logistics Tokyo Multi

Source: NRI based on Japan Real Estate Institute


Mega deals of over one billion USD have increased.

Transaction Month/Year Dec, 2013 Mar, 2014 Aug, 2014 Oct, 2014 Nov, 2014Month/Year

Asset Land next to the Hamamatsucho Station

Otemachi Tower(Ratio of Acquisition: 17% ) Meguro Gajoen Pacific Century Place

Tokyo （Office floors）GE’s Residence Portfolio（200 properties）

Property Type Land Office Office・Hotel Office Residence

Area Minato, Hamamatsucho Chiyoda, Otemachi Meguro, Meguro Chiyoda, Marunouchi All parts of the country

Seller Kokusai Kogyo Tokyo Tatemono’s SPC Lone Star Secured Capital Japan（PAG）

GE Real Estate Japan

Buyer Nippon Life InsuranceObayashi Mizuho Bank Mori Trust GIC Blackstone

TransactionAmount 800 million USD 1,782 million USD 1,300 million USD 1,700 million USD 2,000 million USD

Gross Floor 34 200㎡ 38 840㎡Gross FloorArea 7,205㎡

34,200㎡(Floor Area of Acquisition) 155,820㎡

38,840㎡(Floor Area of Acquisition) NA

Source: NRI based on Nikkei Real Estate Market Report and others


M f i t ith diff t ti h d l t t i t i d


Money from investors with different perspectives have caused real estate prices to rise and capital to diversify in various market segments.

Properties that domestic investors do not favor due to risk concerns have been purchased by foreign and non-professional (e.g. high-Properties that domestic investors do not favor due to risk concerns have been purchased by foreign and non professional (e.g. highnet-worth) investors with different goals, causing real estate prices to rise in the ex-Tokyo area. The trend is undoubtedly due primarily to the fact that such investors cannot find any good investment opportunities in Tokyo.

Transaction Month/Year Jun, 2014 Sep, 2014 Oct, 2014 Nov, 2014 Nov, 2014

Asset Shinbashi Park Place Nihonbashi TomihisaDaini Building Parel Royale Shoto Ginza Granvia Bldg 2 Seiko BldgH

Property Type Office Office Residence Retail Office・Retail

Area Minato, Shinbashi Chuo, Nihonbashi-Honcho Shibuya, Shoto Chuo, Ginza Osaka, Kita Shinchi

Seller NA Ascott NA Hulic NASeller NA Ascott NA Hulic NA

Buyer high-net-worth high-net-worth (Taiwanese) high-net-worth high-net-worth high-net-worth

TransactionAmo nt NA NA NA NA NAAmount

Gross FloorArea 2,646㎡ 1,310㎡ 2,873㎡ 1,340㎡ 3,342㎡



Because of the lack of investment opportunities at Tokyo metropolitan area


Because of the lack of investment opportunities at Tokyo metropolitan area, equity heads to the Tokyo neighboring part and ex-Tokyo area.

Many investors are seeking investment opportunities in Osaka, Nagoya and other regions other than Tokyo, repeating a similar trendMany investors are seeking investment opportunities in Osaka, Nagoya and other regions other than Tokyo, repeating a similar trend seen between 2004 and 2007. How to build good relations with regional banks is one of the key issues for real estate investors at present.

Transaction Month/Year Jul, 2014 Oct, 2014 Oct, 2014 Oct, 2014 Jan, 2015

Asset Renaissance Resort Okinawa

Shinagawa Seaside (3 properties)

Sumitomo Life Sendai Bldg Beppu Kamenoi Hotel

Maebashi Daiichi Life BldgOyama Daiichi Life Bldgy g

Property Type Resort Hotel Office Office Hotel Office

Area Okinawa Shinagawa Miyagi, Sendai Oita Mebashi, Oyama

Seller Ishin Hotel Group Japan Tabacco Sumitomo Life AZ Hotel Chain Daiichi life

Buyer Green Oak Real Estate

Idera Capital ManagementLone Star Goldman Sachs Fortress Investment

Group KAISER ASSET

Elliott Management

TransactionAmount 130 million USD 600 million USD

(for 3 properties) NA 40 million USD 8.5 million USD

Gross FloorArea 40,195㎡ 140,000㎡ 20,411㎡ 19,422㎡ 12,000㎡


Area



Fierce competition among commercial banks help boost prices.

Banks’ lending attitude toward the real estate industry is nearly the most lenient since 2000 and almost as lenient as in 2006. ManyBanks lending attitude toward the real estate industry is nearly the most lenient since 2000 and almost as lenient as in 2006. Many people in Japan believe that there are too many banks, and competition among lenders is quite fierce. Along with major banks, regional mid-size banks are trying to reduce spreads and loosen covenants. One big difference from the last peak we saw in 2006, however, is the non-participation of foreign lenders. One reason why foreign lenders are staying away from the Japanese debt market is the fact that the CMBS market has been frozen since 2009.

10

15

Financial Institutions’ Lending Attitude DI toward Real Estate Industry

Loose

‐5

0

5

Tight

‐20

‐15

‐10

‐35

‐30

‐25

0 0 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 0 1 1 2 2 3 3 4 4


Source: NRI based on BOJ

Mar‐00

Sep‐00

Mar‐01

Sep‐01

Mar‐02

Sep‐02

Mar‐03

Sep‐03

Mar‐04

Sep‐04

Mar‐05

Sep‐05

Mar‐06

Sep‐06

Mar‐07

Sep‐07

Mar‐08

Sep‐08

Mar‐09

Sep‐09

Mar‐10

Sep‐10

Mar‐11

Sep‐11

Mar‐12

Sep‐12

Mar‐13

Sep‐13

Mar‐14

Sep‐14





4 Office Market






Office Market

Tokyo Area holds 60% of Japan’s office rental market.

Japan has a stock of around 106 million ㎡ of available office rental space The Tokyo area holds an overwhelming share of the market Japan has a stock of around 106 million ㎡ of available office rental space. The Tokyo area holds an overwhelming share of the market at 64 million ㎡, comprising 60% of the total.

Office Floor Space Shares by Major City

1.7% 1.0%5.5%

3.3%2.4% 2.1% 1.6%

80%

90%

100%

(1 85 illi ㎡)(1.12million ㎡)

(5.87million ㎡)(3.57million ㎡)


(1.72million ㎡)

4.7%1.0% 1.8%

14.9%

50%

60%

70%



(1.85million ㎡)

Osaka Area17.7％

59.9%30%

40%

50%

Tokyo Metropolitan Area67.4％

12 major cities106.73million ㎡

0%

10%

20%(63.94million ㎡)


Source: NRI based on JREI As of Jan.2014The investigation focus on central area of each city.The investigation object which are smaller than 3,000 square meter are excluded

Tokyo Yokohama Saitama Chiba Osaka Kobe Kyoto Nagoya Fukuoka Sapporo Sendai Hiroshima

Office Market

There are five sub sectors in Tokyo’s Central Business District.

Tokyo’s Central Business District(CBD) has an accumulation of office buildings and is concentrated in an area of 5km wide.Tokyo s Central Business District(CBD) has an accumulation of office buildings and is concentrated in an area of 5km wide.

ItabashiAdachi

Saitama7.15 million people

ItabashiKita

Katsushika

SumidaTaito

ArakawaToshima

BunkyoNakano

Nerima

30 km

Tokyo13.22 million people

Kanagawa9.07 million people

Chiba6.15 milion people

SetagayaMinato

Edogawa

KotoShibuya

ShinjukuChiyoda

Chuo

NakanoSuginami

Setagaya

Meguro

Shinagawa

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 3230 km

Ohta

Office Market

Vacancy rates in the Tokyo office market have been improving for two consecutive years.

Retrospectively vacancy rates have been experiencing regular ups and downs Retrospectively, vacancy rates have been experiencing regular ups and downs.

Vacancy rate movement in Tokyo CBD

M thl (J 2013 J 2015)Y l (1998 2014) Monthly(Jan 2013 –Jan 2015)Yearly(1998 - 2014)

12.0%

14.0%

12.0%

14.0%

8.0%

10.0% Shinjuku

MinatoChuo

8.0%

10.0%

Chuo

Minato

Shinjuku

4.0%

6.0%

Chiyoda4.0%

6.0%

Chiyoda

Chuo

0.0%

2.0%

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Shibuya

0.0%

2.0%

13 13 13 13 14 14 14 14 15

Shibuya


Source: NRI based on Miki Shoji Co., Ltd. data

199

199

200

200

200

200

200

200

200

200

200

200

20 20 20 20 20

Jan‐1

Apr‐1

Jul‐1

Oct‐1

Jan‐1

Apr‐1

Jul‐1

Oct‐1

Jan‐1

Office Market

Although rent increase is slow, there has been a clear reversal in the rent trend.

Retrospectively the high rent period have been short making office owners’ negotiation power weaker than that of tenants Retrospectively, the high rent period have been short, making office owners negotiation power weaker than that of tenants.

Rent trends in Tokyo CBD (yen/tsubo per month)

Yen/month, tsubo Yen/month, tsubo

Monthly(Jan. 2013 – Jan. 2015)Yearly(1999 - 2014)

26,000 26,000

20,000

22,000

24,000

Chiyoda20,000

22,000

24,000

Chiyoda

14,000

16,000

18,000ChiyodaShibuyaMinatoChuo

Shinjuku 14,000

16,000

18,000 ChiyodaShibuyaMinatoChuo

Shinjuku

10,000

12,000

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

10,000

12,000 n‐13

r‐13

y‐13 l‐13

p‐13

v‐13

n‐14

r‐14

y‐14 l‐14

p‐14

v‐14

n‐15


Source: NRI based on Miki Shoji Co., Ltd. dataNote: One tsubo is 3.3 square meters

Jan

Mar

May Ju Sep

Nov Jan

Mar

May Ju Sep

Nov Jan

Office Market

The number of Tokyo’s office workers is declining at a fast rate than the published forecast.

4,500

（千人）

Trend and Forecast of Office workers in Tokyo

(1,000 people)

3,818 3,8353,660

3,4613,648 3,643 3,565 3,498

3,500

4,000

23区23 wards

3,243

2 083 2 0782,500

3,000

23区

2,020 1,988

1,884

1 467 1 474

2,083 2,078 2,035 1,998

1,5391,533 1,501 1,473

1,500

2,0005区

3区Central 3 wards

Central 5 wards(Chiyoda, Chuo, Minato, Shibuya, Shinjuku)

1,467 1,474 1,415

500

1,000

3区(Chiyoda, Chuo, Minato)


01990 1995 2000 2005 2010 2015 2020 2025

Source: NRI based on Population Census of Japan, Tokyo Metropolitan Government

Office Market

Despite the dwindle in the number of office workers, new office supply will continue to grow.

# of buildingsSupplied f loor area

(1,000 ㎡)

Office Space Supply in Tokyo’s 23 districts

183

216

175

60

70

200

250( , )

Office supply areaNumber of building supplied

100108104

114118 119

99

125 121

154

119 117

175

111110124

40

50

150

56 55

83

100 10492

74

99

36

72

9177

65

86 85

58

8896

10

20

30

50

100

0

10

0

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018


Source: NRI based from Mori Building Company’s “Mega Office Building Market Trends Survey (Preliminary figure)” dated October 22, 2014

Office Market

Cap rate has been dropping for three consecutive years since 2012.

As of March 2015 office deals with cap rates of 3-4% are commonly carried out resting on investors’ expectations for higher rent and

Tokyo office market cap rate trend

As of March 2015, office deals with cap rates of 3-4% are commonly carried out, resting on investors expectations for higher rent and NOI, henceforth.

5 5%

6.0%

6.5%

4.5%

5.0%

5.5%

ShinjukShinagaShibuya

ShinjukuShinagawa

3.5%

4.0%ShibuyaMinato(Toranomon)Chuo(Nihonbashi)Chiyoda(Marunouchi)

3.0%

Oct‐03

Apr‐04

Oct‐04

Apr‐05

Oct‐05

Apr‐06

Oct‐06

Apr‐07

Oct‐07

Apr‐08

Oct‐08

Apr‐09

Oct‐09

Apr‐10

Oct‐10

Apr‐11

Oct‐11

Apr‐12

Oct‐12

Apr‐13

Oct‐13

Apr‐14

Oct‐14

Chiyoda(Marunouchi) Chuo(Nihonbashi) Minato(Toranomon)

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 37Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey”

Shinagawa Shinjuku Shibuya

Office Market

The improvement of the vacancy rate is not leading to the recovery of rents in the ex-TokyoThe improvement of the vacancy rate is not leading to the recovery of rents in the ex Tokyo office market.

Office Vacancy Trend in ex-Tokyo Market Office Rent Trend in ex-Tokyo Market

22,000

24,000(yen/tsubo)

16.00%

18.00%

20.00%

Fukuoka

16 000

18,000

20,000

Tokyo10.00%

12.00%

14.00%SendaiNagoya

Yokohama

Sapporo Osaka

12,000

14,000

16,000

OsakaN4 00%

6.00%

8.00% Tokyo

8,000

10,000

004

005

006

007

008

009

010

011

012

013

014

NagoyaYokohamaFukuokSendaiSapporo0.00%

2.00%

4.00%

004

005

006

007

008

009

010

011

012

013

014

Fukuoka


20 20 20 20 20 20 20 20 20 20 20

Source: NRI based on Miki Shoji Co., Ltd. data

20 20 20 20 20 20 20 20 20 20 20

Office Market

Liquidity is growing as real estate prices rise in ex-Tokyo office market.

Office cap rates in most major cities have decreased due to investors’ strengthening interest in opportunities outside of Tokyo

9 0%

Office cap rates in most major cities have decreased due to investors strengthening interest in opportunities outside of Tokyo.

Ex-Tokyo Office Market Cap Rate Trend

8.0%

9.0%

6.0%

7.0%

SendaiSapporoFukuokaN

4 0%

5.0%

NagoyaYokohamaOsaka

3.0%

4.0%

t‐03

r‐04 t‐04

r‐05 t‐05

r‐06 t‐06

r‐07 t‐07

r‐08 t‐08

r‐09 t‐09

r‐10 t‐10

r‐11 t‐11

r‐12 t‐12

r‐13 t‐13

r‐14 t‐14


Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Apr

Oct

Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey”





4 Office Market






Residential Market

About 20% of all households in Japan are living in non-public rental apartments and theAbout 20% of all households in Japan are living in non public rental apartments, and the percentage is trending upwards.

Households living in non-public rental apartments (excluding wooden apartments; hereafter the same in this section) which numbered Households living in non-public rental apartments (excluding wooden apartments; hereafter the same in this section), which numbered 3.34 million in 1988, increased by about 2.6 times to 9.96 million (about 20% of all households) in 2013.

Breakdown of All Households by Housing Type (2013) Number of Households by Housing Type 1988 2013

4 4214,716

4,9895,238

18%20%

20%

25%

5,000

6,000

Ratio of Ho

Apat:10,000)Public Rental

House6%

Company Housing

2%

Breakdown of All Households by Housing Type (2013) Number of Households by Housing Type 1988 - 2013

3,7604,097

4,421

9%

12%

15%16%

18%

15%

3,000

4,000

ouseholds Livingartm

ent House ou

seho

lds (un

it

Private Rental Housing, Others9%

1,411 1,578 1,682 1,724 1,783 1,857

334 490 650 750 879 996

9%

5%

10%

1,000

2,000

g in Private Ren(non‐w

ood)

Num

ber of H

o

0%0'88 '93 '98 '03 '08 '13

ntal &

Households Living in HousingHouseholds Living in Rental HousesHo seholds Li ing in Pri ate Rental & Apartment Ho ses (non ood)

Own House63%

Private Rental House,

Apartment House (non‐

wood)20%


Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.

Households Living in Private Rental & Apartment Houses (non‐wood)Ratio of Households Living in Private Rental & Apartment Houses (non‐wood)

Residential Market

The total number of moving households has decreased but the ratio of households movingThe total number of moving households has decreased, but the ratio of households moving to non-public rental apartments is trending upwards.

The number of moving households peaked out in 1994-98 and decreased to about 77% of the peak-time level in 2009-13 . The number of households moving to non-public rental apartments is also on a decreasing trend, although its ratio to the total number

of moving households is trending upwards.

Housing Choices of Moving Households 1984 - 2013

1,186 1,2211 135

39%

45% 46% 44% 45%48%

40%

45%

50%

1 200

1,400

1,600

Ratio of HouU

nit:1

0,000)

1,103 1,1351,039

939

782884 868

778698

639557

25%

30%

35%

800

1,000

1,200 seholds Living Apartm

ent Hg Hou

seho

lds (

427532 557 502 466 447

5%

10%

15%

20%

200

400

600

in Private Renouses

mbe

r of M

oving

0%084‐88 89‐93 94‐98 99‐03 04‐08 09‐13

tal & N

um

Number of Moving Households in Past 5 YearsNumber of Households Moved into Rental Houses

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 42Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.

Number of Households Moved into Private Rental (Apartment) HousesRatio of Households Moved into Private Rental (Apartment) Houses

Residential Market

The supply of non-public rental apartment units has increased more sharply than totalThe supply of non public rental apartment units has increased more sharply than total housing stock.

The growth of rental apartments (public and non-public combined) outpaced the growth of overall housing as well as the more modest

Housing Stock by Type 1988-2013

rise of rental housing in general. As a result, the ratio of rental apartments to total rental houses increased from 60 to 70%.

Housing Growth Rates by Typeg y yp g y yp

5054

58 61

60

70

n)

130 130

140

39 44

50

30

40

50

(Unit:1 million

114

119

112112

124 120

988 = 100)

16 18 20 21 22 23

12 14 15 16

10

20

30

ousing

Stock (

100

107

114

103 108

112 112

100

110

rowth Rate (19

0 '88 '93 '98 '03 '08 '13

Ho

Number of HousesNumber of RentalHouses 80

90 Gr

Number of HousesNumber of RentalHousesNumber of Rental & Apartment Houses (non‐wood)


Source: NRI based on data from “Housing and Land Survey”, Ministry of Internal Affairs and Communications of Japan.

Number of RentalHousesNumber of Rental & Apartment Houses (non‐wood)

80 '98 '03 '08 '13

Residential Market

Construction of new rental housing declined in 2009 but is now on a recovery path.

The number of new constructions decreased in 2014 as a reaction to last minute surge in demand prior to the tax increase. The ratio of rental house has increased as the number of new rental housing has leveled off while the total number of new construction

has declined.

New Housing Supply Trend: 1991-2014 Breakdown of New Rental Housing Construction by Region

700

800

nit:1

,000)

Provincial RegionKinki RegionChuubu RegionMetropolitanRegion

40%

45%

50%

1,600

1,800

2,000

t：1,000）

New Housing Supply Trend: 1991 2014 Breakdown of New Rental Housing Construction by Region

400

500

600

tion by

Region(Un Metropolitan Region

25%

30%

35%

1,000

1,200

1,400 Ratio of Renion Starts

（Unit

200

300

400

l Housing

Construct

10%

15%

20%

400

600

800

tal Houses

er of Con

structi

0

100

200New

Rental

0%

5%

0

200

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Num

be

Own House Rental House Company House


91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14House Built for Sale Ratio of Rental House

Source: NRI based on data from “Survey of Construction Work Started”, Ministry of Land, Infrastructure, Transport and Tourism of Japan.

Residential Market

Vacancy rates are rising in all of Tokyo’s 23 wards.

Vacancy rate in the metropolitan Tokyo has continued to decline for the past decade. In the recent years, however, Tokyo has seen an upward trend of vacancy rates, especially in the 23 wards. Affected by the Great East Japan earthquake in 2011, vacancy rates in Sendai has seen a significant shrinkage.

Vacancy Rates of Rental Housing (non-wood) in Major Cities Vacancy Rates of Rental Housing in Tokyo Metropolitan Area

15

16

17

nit: %)

20%

25%

(Unit:%) '98 '03 '08 '13

Vacancy Rates of Rental Housing (non wood) in Major Cities Vacancy Rates of Rental Housing in Tokyo Metropolitan Area

13

14

15

cancy Ra

te (U

n

15%

20%

sing (non

‐woo

d)

10

11

12

al Hou

sing

Vac

All Tokyo areas

23 Tokyo districts

10%

e of Ren

tal H

ous

8

9

Jan

Mar

May Jul

Sep

Nov Jan

Mar

May Jul

Sep

Nov Jan

Mar

May Jul

Sep

Nov

Renta

Tokyo cities

Kanagawa

0%

5%

Vacancy Rat


M M M

2012 2013 2014 Source: NRI based on data from “Report on Rental Housing Market”, TAS Corp. (Analyzed by TAS

Corp. Data Supplied by At Home Co., Ltd.). Source: NRI based on data from Data from “Housing and Land Survey”, Ministry of Internal Affairs

and Communications of Japan.

Sapporo Sendai Tokyo23 Wards

Nagoya Osaka Hiroshima Fukuoka

Residential Market

The rent level of non-public rental housing continues to fall.

The rent level of non public rental housing rose steadily from 1990 to 2000 after which it gradually declined The

108 0

The rent level of non-public rental housing rose steadily from 1990 to 2000, after which it gradually declined. The rent level downward trend continued in 2013.

Rent in the Private Sector (Annual Average) – Nationwide and Central Tokyo

102 0

104.0

106.0

108.0

e Ye

ar 201

0)

96 0

98.0

100.0

102.0

Rent In

dex (Base

90 0

92.0

94.0

96.0

Annu

al Average)

86.0

88.0

90.0

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Private (A Japan

Tokyo 23 Wards


Source: NRI based on data from “Consumer Price Index”, Ministry of Internal Affairs and Communications of Japan.

Residential Market

Occupancy rates of REIT-owned and private fund-owned properties are rising while theirOccupancy rates of REIT owned and private fund owned properties are rising, while their rent levels remain stable.

Looking at the changes in the REIT-owned and private fund-owned occupancy rate and monthly rent the monthly rent level has remain Looking at the changes in the REIT-owned and private fund-owned occupancy rate and monthly rent, the monthly rent level has remain stable although the occupancy rate in Tokyo’s 3 central districts and its 23 districts has been on an uptrend since 2012.

Occupancy Rates of REIT-owned and private fund-owned Properties Monthly Rents of REIT-owned and private fund-owned Properties

98%

100%

4,000

4,500

5,000

en/m

2 )

96%

Rate (U

nit:%)

2,500

3,000

3,500

Level (Unit：Ye

92%

94%

Occup

ancy

Tokyo 3 central districtsTokyo 23 districtsNagoya cityOsakacity

1,000

1,500

2,000

Mon

thly Ren

t

Tokyo 3 central districtsTokyo 23 districtsNagoya cityOsakacity

90%

Jan

Mar

May Jul

Sep

Nov Jan

Mar

May Jul

Sep

Nov Jan

Mar

Osaka cityFukuoka city

0

500

Jan

Mar

May Jul

Sep

Nov Jan

Mar

May Jul

Sep

Nov Jan

Mar

M Osaka cityFukuoka city


Source: NRI based on data from “ARES J-REIT Property Database”, Association for Real Estate Securitization of Japan.

2012 2013 2014 2012 2013 2014





4 Office Market






Retail Property Market

Development of large-scale retail stores has started to recover since 2009.

9005,000 Floor Area Number of projects

New Retail Space Supply vs. Number of Development Projects

638

786738 731 730 750

654

584620

738705

600

700

800

3,500

4,000

4,500

Num2)

4,1784,545

3 9834,369

450500

400

500

600

2 000

2,500

3,000

, mber of projectA

rea(1000m2

2,455

3,3353,729

, 3,983

1,919 2,081 2,351 2,1932,860 2,824

100

200

300

1,000

1,500

2,000 ts(cases)Floo

r

0

100

0

500

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013


Note: The reported numbers for the fiscal years 2002 and 2008 include stores without floor space indication.Source: NRI based on data from the Ministry of Economy, Trade and Industry’s “Large-scale Retail Chain Site Expansion Report”


For shopping centers the total floor area for all stores and the floor area per store are bothFor shopping centers, the total floor area for all stores and the floor area per store are both on the rise.

Overall floor area Floor area per SC(i 1 illi 2) (i 1000 2/ t )

Overall floor area and per-store floor area for shopping centers

44 2 45.7 46.4 47.9 11.8 11 6 12.1 12.4 12.8 13.2 13.6

14.1 14.2 14.5 14.8 15.0 15.3

14

16

50

60

Floo

(in 1 million m2) Old SC Standard New SC Standard (in 1000m2/store)

30.6 30.4 31.5 33.1 34.6 36.5 38.0 42.1 42.7 44.2 11.8 11.6

8

10

12

30

40

or area per shall floor area

4

6

10

20

opping centeOvera

0

2

02001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

r


NB: In the old SC standard, only shopping malls with more than 10 retail tenants were considered.

In the new SC standard, the shopping center must have more than 10 tenants including food stalls, service centers and retail outlets.

On the same note, the shopping center must have more than 1,500 m2 retail space.

Source: NRI based on data from the Council of Shopping Centers’ “SC White Book”


Declining tendency of shopping center’s sales is mitigating.

0 51(％)

Yearly comparison of existing shopping centers’ sales

‐1.6 ‐1.7

0.3 0.30.0

‐1.5 ‐1.3

0.5

‐0.50.1

‐1

0

1

‐3.4

‐2.2‐2.1 ‐2.0

4

‐3

‐2

‐6

‐5

‐4

‐6.8

‐8

‐7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Source: NRI based on the Japan Council of Shopping Centers’ “Overall Sales Statistics Report


Compared to other areas, rent level of Ginza, Omotesando and Shinjuku are still high.

1st floor rent ranking in 13 principal business areas (yen/month/tsubo)

60,000 Ginza

Omotesando

（yen / month / tsubo）

1st floor rent ranking in 13 principal business areas (yen/month/tsubo)

40,000

50,000 Ikebukuro

Shinjuku

Shibuya

Ginza

OmotesandoShi j k

NB2

Tokyo Metropolitan

Area

30,000

Yokohama

Shinsaibashi

Oodori (Sapporo)

ShinjukuShibuyaSakaeIkebukuroNB1 NB3

NB4

10,000

20,000 Sannomiya (Kobe)

Sendai

Tenjin (Fukuoka)

Shij k hi (K )

Provincial Areas

0Late 2011 Early 2012 Late 2012 Early 2013 Late 2013 Early 2014

Shijokawaramachi (Kyoto)

Sakae (Nagoya)

NB1: Rent in Yokohama is shown to have spiked in the early half of 2012, but this can be attributed to the extremely small sample size

NB2: Rent in Shinjuku is shown to have spiked in the late half of 2012 but this can be attributed to a sample bias toward small high-rent properties


NB2: Rent in Shinjuku is shown to have spiked in the late half of 2012, but this can be attributed to a sample bias toward small, high-rent properties

NB3: Rent in Ikebukuro is shown to have dived in the early half of 2013, but this can be attributed to a sample bias toward low-rent properties in unfavorable locations

NB4:Rent in Shibuya, Sakae and Ikebukuro are shown to have spiked in the early half of 2014, which can be attributed to a sample bias towards a small number of properties with high rent

Source: NRI based on the Japan Real Estate Institute


Cap rates have been falling since 2011 In the Tokyo Metropolitan Area cap rates areCap rates have been falling since 2011. In the Tokyo Metropolitan Area, cap rates are approaching the all-time low.

8.0%

Commercial establishment cap rates (expected yield)

5.0%

6.0%

7.0% Suburban, Nagoya

Metropolitan , Metropolitan, Osaka

Suburnban, TokyoSuburban, Osaka

2 0%

3.0%

4.0% Metropolitan , GinzaMetropolitan , Omotesando

0.0%

1.0%

2.0%NB:Metropolitan high-class specialty stores:

Length of time after construction -or- large-scale repair/improvement: less than 5 years

Tenants: Mainly retailers of high-class brands.Rent system: Mainly fixed-term, variable rental schemes based on theRent system: Mainly fixed term, variable rental schemes based on the

revenue.Areas: Along Chuodoori in Ginza’s Chuo district.

Along Omotesando in Omotesando’s Shibuya district.

Suburban shopping centers:Sales floor area: around 20,000m2

Key tenants: Prominent general merchandise stores (GMS)R t t M i l fi d t fi d h t l h

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 53Source: NRI based on the Japan Real Estate Institute’s “Real Estate Investor’s Survey”

Rent system: Mainly fixed-term, fixed-charge rental schemesAreas: 1-hour Shinkansen ride along key stations to Tokyo’s Metropolitan

District

Stores for areas outside Tokyo follow similar locational conditions as above.


Accessibility and density level of commercial facilities are the important factors in selecting

In evaluating a commercial district the most heavily considered factor is its accessibility (i e inter-district factors) followed by

Accessibility and density level of commercial facilities are the important factors in selecting locations.

In evaluating a commercial district, the most heavily considered factor is its accessibility (i.e. inter-district factors), followed by quantitative aspects such as choice of items/services and number of shops/facilities within a district.

Intra-district factors are also regarded important (i.e. mobility between shops/facilities). On the other hand, exclusivity of a district is not heavily considered (i.e. presence of shops/facilities exclusive to the location, lack of similar shops/facilities around home/work).

Important Factors in Selecting Commercial Districts by General Consumers (in Metropolitan Area)

42%

22%

41%

49%

12%

21%

5%

7%

0% 20% 40% 60% 80% 100%

交通アクセスがしやすい

商品やサービスなどの選択肢が豊富である

The most heavily considered factor High accessibility

Abundant choice of items/services Quantitative aspects of

Important Factors in Selecting Commercial Districts by General Consumers (in Metropolitan Area)

22%

20%

19%

18%

49%

48%

48%

45%

21%

24%

24%

25%

7%

9%

9%

12%

商品やサなどの選択肢が豊富である

店舗や施設の数が多い

様々な用途の店舗や施設がある

店舗や施設間の回遊がしやすい

地域かな店舗施設がある

Ample shops/facilities

Wide variety of shops/facilities

High mobility between shops/facilities

Sh /f iliti l i t th l ti

Quantitative aspects of shops/facilities are considered important

16%

14%

12%

11%

42%

36%

33%

35%

28%

32%

33%

32%

14%

18%

23%

23%

その地域にしかない店舗や施設がある

公園などの休憩エリアが十分にある

自宅や就業地に近接している

自宅や就業地に同様の店舗や施設がない

Shops/facilities exclusive to the location

Bountiful resting spaces

Proximity from home/work

Lack of similar shops/facilities around home/work

Exclusivity of a district is not heavily considered

8%

7%

6%

5%

30%

26%

24%

20%

31%

34%

33%

31%

31%

33%

37%

44%

様々な年齢や職業の人が来訪している

イベントなどが数多く開催されている

企業が集積している

店舗や施設の入替や更新が多い

Presence of visitors from various occupations and age groups

High frequency of events

High density of companies

High frequency of realignment of shops/facilities

Questionnaire name：Investigation about integrated areaPractitioner：NRI


5% 20% 31% 44%店舗や施設の入替や更新が多い

とても重要である重要であるやや重要である重要でないn=41,273 Very important Important Slightly important Not important

High frequency of realignment of shops/facilities Practitioner：NRIPeriod of time：July 2014～

August2014


Large scale development of commercial buildings will proceed mainly around Tokyo station.

Total store area of commercial buildings in metropolitanTokyo

(1,000m2）

100%350

60%

80%

200

250

300

6%15%

24%

7%0%

34%

8%

36%

20%

40%

50

100

150Total area(Future plan)

Total area(Existing)

New store rate

0%0%0

Shinjuku(W

est)

Shibuya

・Marun

iouchi

urakucho

Ginza

Shinjuku(W

est)

nbashi・

Yaesu

・Kyob

ashi

・Omotesando

Ropp

ongi

NB)

S

Otemachi

・Y u S

Nihon ・

Aoyama

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 55Source：NRI based on the Sangyo-Times ”Commercial Facilities Schedule Guide”, Toyo Keizai Shinposha “National Supermarket Guide 2015”

Total area(Existing) includes department stores and specialty stores. Data as of May 2014 Total area(Future plan) is calculated via following formula: Total area(Future plan) = Site area × Floor area rate ×Commercial building rate × Shop floor rate Note that the above-calculation is based on a presupposition that floor area rate, commercial building rate and shop floor rate to be 700%, 20% and 60%, respectively.





4 Office Market






Logistics Property Market

The truck-based transport volume (in tons) which forms the bedrock of Japan’s cargoThe truck based transport volume (in tons), which forms the bedrock of Japan s cargo industry, has continued to decline in recent years.

Truck-based (automobile) transport is the primary transport method that constitutes a large share of Japan’s freight traffic

Cargo quantity by transport method (FY2012) Automobile cargo quantity movement

Truck-based (automobile) transport is the primary transport method that constitutes a large share of Japan s freight traffic. In recent years, the volume of cargo transported via automobile has declined due to the downturn in the quantity of trucks sold for

private use.

Ca go qua t ty by t a spo t et od ( 0 ) g q y

6 000

7,000 Business Personal（1 million tons）

Coastwise vessels 366,8%

Domestic aviation 1,0%

Railways

Unit: 1 million tons

4,000

5,000

6,000Railways42,1%

2,000

3,000

4,000

Motor vehicles 4,366,91%

0

1,000

,4,366,91%


NB: The chronological continuity of data from prior to 2009 could not be guaranteed due to thechanges made to the in tallying methodology in the middle of 2010.

Source: NRI based on the Ministry of Affairs’ “Transport quantity by transport method” and the Ministry of Land, Infrastructure, Transport and Tourism’s “Automobile Transport Statistics Survey”

'60 '65 '70 '75 '80 '85 '90 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13


As the movement to smaller logistics lots progresses the quantity distributed in such lotsAs the movement to smaller logistics lots progresses, the quantity distributed in such lots appears to be in upward trend based on the number of instances.

As the movement to smaller logistics lots progresses across the whole industry the quantity distributed has increased to a yearly rate of As the movement to smaller logistics lots progresses across the whole industry, the quantity distributed has increased to a yearly rate of 4.0% based on the number of reported instances.

The increased quantity of distribution in warehouses is remarkably high. This increase is propelled by the increase in distribution quantity using small lots that are less than 0.1 tons.

Industry-wide (except warehousing) distribution quantity by lot size(unit: number of instances)

Warehousing distribution quantity per lot size(number of instances)

0 500 1,000 1,500 2,000 (thousandi t )

Below 0.1t 0.1～0.5t 0.5～1t 1～5t Above 5t0 5,000 10,000 15,000 20,000 25,000 (thousand

instances)

Below 0.1t 0.1～0.5t 0.5～1t 1～5t Above 5t

CAGR

46.4%2000

instances)

64.4%2000

instances)

CAGR4.5% CAGR

7.3%

59.2%2005 69.2%2005

CAGR3.7%

CAGR12.6%

72 4%201075.3%2010

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 58Source: NRI based on the Ministry of Land, Infrastructure, Transport and Tourism’s “Logistics Census”

72.4%2010


Small-lot consignments increase due partly to the expansion of e-commerce which isSmall lot consignments increase, due partly to the expansion of e commerce, which is expected to continue growing hereafter.

Market size of Business-to-Consumer e-Commerce is expected to surpass 20 trillion yen in 2018

（兆円）

Market Size of Business-to-Consumer e-Commerce

Market size of Business-to-Consumer e-Commerce is expected to surpass 20 trillion yen in 2018.

（trillion yen）

22.5

25.125

30

12 814.4

16.218.1

20.2

15

20

9.711.7

12.8

10

0

5

2012 2013 2014 2015 2016 2017 2018 2019 2020


NB: Business –to-consumer e-commerce: sale of products and services to consumers in general via the InternetSource: NRI


While new supply has stopped dwindling facilities are growing larger due to businessesWhile new supply has stopped dwindling, facilities are growing larger due to businesses consolidating their logistics capabilities.

The number of supplied warehouse buildings fell to roughly 23% of the peak level in 1991 (12,000 buildings/year) which has stabilized in recent yearsin recent years.

The number of supplied warehouse buildings for the transport industry is dwindling at a more relaxed pace compared to the rest of the industry (see figure below left), but the floor space per building is on an upward trend (below right).

This explains the increased need for SCM support for generic enterprises and new/large-scale logistics facilities for logistics consolidation

（㎡）Entire industry Other than transport Transport industry

(Buildings)Transport industry Other than transport Transport industry share

Nationwide number of supplied warehouses including warehouses for transport and transport industry share Floor space per warehouse building

consolidation.

1,500

2,000（㎡）

20%

25%

50,000

60,000(Buildings)

1,000

1,500

15%

30,000

40,000

5005%

10%

10,000

20,000


0

'88

'89

'90

'91

'92

'93

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

0%0

'88

'89

'90

'91

'92

'93

'94

'95

'96

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourism’s “Construction Statistics”


Development of logistics real estate which had been shrinking since the Lehman shock isDevelopment of logistics real estate, which had been shrinking since the Lehman shock, is now back in full swing.

600(1 billion yen) Real estate industry Transport industry Others

Order volume for construction of warehouses/logistics facilities by ordering industry

500

600

300

400

100

200

0

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Note: Only contracts worth 5 billion yen above are includedSource: NRI based on Ministry of Land, Infrastructure, Transport and Tourism’s “Construction Order Trends, Statistics and Survey”


Vacancy rate in Tokyo area, which was on a rise, has diverted downwards.

Monthly rent offers and vacancy rates of logistics real estate

(yen / month / tsubo) Tokyo area Osaka area

Jul.20084,500

5,000

Rent offer Jul.2010Jan.2015

Jul 20084,000

4,500

Oct.2012

Jul.2008

Jul.2010Jan.20153,500

Oct.2012

3,0000.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0%


NB: Logistics facilities which have a total lot area or total floor area of 10,000m2

Source: NRI based on data from Ichigo Real Estate Information Service’s “Survey on the Logistics Facilities Rental Market”

Vacancy rates


Cap rates have been falling since 2012, with Tokyo hitting all-time low.

Single tenant Multi-tenant

Logistics real estate cap rate (expected yield)

7.0%

7.5%

7.0%

7.5%

6.5%6.5%

5.5%

6.0%

5.5%

6.0%

Tokyo(inland)

Chiba(inland)

Tokyo(inland)

Chiba(inland)

5.0%ct‐05

pr‐06

ct‐06

pr‐07

ct‐07

pr‐08

ct‐08

pr‐09

ct‐09

pr‐10

ct‐10

pr‐11

ct‐11

pr‐12

ct‐12

pr‐13

ct‐13

pr‐14

ct‐14

5.0%

ct‐05

pr‐06

ct‐06

pr‐07

ct‐07

pr‐08

ct‐08

pr‐09

ct‐09

pr‐10

ct‐10

pr‐11

ct‐11

pr‐12

ct‐12

pr‐13

ct‐13

pr‐14

ct‐14

Tokyo(bay) Tokyo(bay)


O Ap O A p O Ap O A p O Ap O A p O Ap O A p O Ap OOc

Ap Oc

Ap Oc

Ap Oc

Ap Oc

Ap Oc

Ap Oc

Ap Oc

Ap Oc

Ap Oc

NB: Single tenant: 2-3 floors; total floor area of around 10,000m2

NB: Multi-tenant: 3-4 floors; total floor area of around 50,000m2

Source: NRI based on Japan Real Estate Institute’s “Real Estate Investor’s Survey”





4 Office Market






Real Estate Investment Instruments

An overall perspective of the Japanese real estate market

Unlisted open-ended private REITs was offered in November 2010, and the size of private REITs market is growing rapidly.

20(¥tn)

Overview of the Real Estate Investment Instruments in Japan

12.7

15.1 14.4

12

16

0.9 0 4

4

8

0.4 0

Listed REIT Private Fund Private REIT RMBS CMBS

Equity Type Debt TypeEquity Type Debt Type

Listed Unlisted

Close-Ended Open-ended

ResidentialMortgage

CommercialMortgage


NB: Listed REIT figure is updated as of end of Jan 2015, private fund figure is updated as of end of Dec 2014, unlisted REIT is an estimated figure as of end of Oct 2014, RMBS/CMBS figure is updated as of end of Sept 2014.

Source: NRI based on the Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and the Japan Securities Dealers Association


The J-REIT market capitalization has reached approximately 10 trillion yen.

The J-REIT market began trading on the stock market in Sept 2001 with 2 companies traded and a market capitalization of 2.5 trillion yen.

As of the end of January 2015 there are 49 companies traded worth approximately 10 trillion yen

y y

(N f J REIT )(¥b )

As of the end of January 2015, there are 49 companies traded worth approximately 10 trillion yen.

J-REIT Market Capitalization and Number of J-REITs

40

50

10,000

12,000(No. of J‐REITs)(¥bn)

30

40

8,000

20

4,000

6,000

102,000


002001/9 2002/8 2003/7 2004/6 2005/5 2006/4 2007/3 2008/2 2009/1 2009/12 2010/11 2011/10 2012/9 2013/8 2014/7

Market Capitalization No. of J‐REITs Source: Bloomberg


Approximately 75% of J-REITs assets are located in the Tokyo Metropolitan Area and

Approximately 75% of real estate owned by J-REITs is in the Tokyo Metropolitan Area

Approximately 75% of J REITs assets are located in the Tokyo Metropolitan Area, and approximately 50% of J-REITs assets are office properties.

Approximately 75% of real estate owned by J-REITs is in the Tokyo Metropolitan Area. In recent years, J-REITs have become more diversified in type of property, and Healthcare REIT has started in November 2014.

Asset Mix of J-REITs by Area and Asset Class

Other Areas7.9% Logistics

Others3.8%

y

5 Central Wards of Tokyo

Kinki Area13.1%

Hotel3.3%

10.2%

37.8%Chubu Area4.2%

Office47.4%Retail

18.2%

Approx.12.7

trillion yen

Approx.12.7

trillion yen

23 Wards of Tokyo

Kanto Area18.9%

Residential%


Tokyo18.2% 17.0%Greater Tokyo Area

74.9%* As of the end of January 2015

Source: NRI based on ARES


The Tokyo Stock Exchange (TSE) REIT Indices have recovered from 2013.

The TSE REIT Indices has dropped sharply from its peak in May 2007, and has recovered rapidly from 2013.

y g ( )

3,000

TSE REIT Index, TOPIX, and the Listed Real Estate Industry Index

2,500

1,500

2,000

1,000

500


0 2003/3 2004/1 2004/11 2005/9 2006/7 2007/5 2008/3 2009/1 2009/11 2010/9 2011/7 2012/5 2013/3 2014/1 2014/11

TSE REIT Index TOPIX TOPIX Real Estate Sector IndexSource: NRI based on Bloomberg


J-REIT dividend yields are currently down to around 3%.

J-REIT dividend yields rapidly increased to around 8%, but are currently down to around 3%.

y y

J-REIT dividend yield and Japanese Government Bond 10-year yield

8.0%

9.0%

J-REIT dividend yield and Japanese Government Bond 10-year yield

6.0%

7.0%

4 0%

5.0%

2 0%

3.0%

4.0%

1.0%

2.0%


0.0%2002/1 2002/11 2003/9 2004/7 2005/5 2006/3 2007/1 2007/11 2008/9 2009/7 2010/5 2011/3 2012/1 2012/11 2013/9

Spread J‐REITs Dividend Yield JGB 10‐Year‐Yield

Source: NRI based on Bloomberg, TSE.


The performance recovered to positive in the capital return.

According to the index based on actual performance of core funds invested in domestic real estate, the performance of real estate investments in Japan recovered to positive in the capital return.

25%

ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI)

25%

10%

15%

20%AJPI: Total Return

AJFI: Total Return

10%

15%

20%AJPI: Income Return

AJFI: Income Return

AJPI: Capital Return

AJFI: Capital Return

0%

5%

10%

0%

5%

10% AJFI: Capital Return

‐15%

‐10%

‐5%

‐15%

‐10%

‐5%

‐25%

‐20%

2002/12 2004/8 2006/4 2007/12 2009/8 2011/4 2012/12‐25%

‐20%

2002/12 2004/8 2006/4 2007/12 2009/8 2011/4 2012/12


Source: NRI based on The Association for Real Estate Securitization (ARES) “ARES Japan Property Index” and “ARES Japan Fund Index”


CMBS issuance has decreased drastically since 2008 and at present only RMBS is issued

Most recently, about 80% of residential mortgage-backed securities were originated by the Japan Housing Finance Agency.

CMBS issuance has decreased drastically since 2008, and at present only RMBS is issued at a constant pace.

60,000(¥100m)

Asset Backed Securities Breakdown by Type of Backing and RMBS Breakdown by Originator

50,000

0% 20% 40% 60% 80% 100%

2004FY 1H2004FY 2H2005FY 1H2005FY 2H2006FY 1H2006FY 2H2007FY1H

4,370 7,418

40,000

2007FY 1H2007FY 2H2008FY 1H2008FY 2H2009FY 1H2009FY 2H2010FY 1H2010FY 2H2011FY 1H2011FY2H

6,937

7,679

8,75510,338

20,000

30,0002011FY 2H2012FY 1H2012FY 2H2013FY 1H2013FY 2H2014FY 1H

Housing Finance Agency Banks/Trust Banks Regional Banks Non‐bank Others

9,702

14,81516,935

32,31130,260

20,955

16,276 16,35212,143

7 53711,113

8,491 8 34111,132

15,064

10,742 11,148 9,741 10,760

3,511

1,994

2,038

1,701

980

341 138

413

563

1,288 140153

510,000


7,537 8,491 8,341

020041st Half

20042nd Half

20051st Half

20052nd Half

20061st Half

20062nd Half

20071st Half

20072nd Half

20081st Half

20082nd Half

20091st Half

20092nd Half

20101st Half

20102nd Half

20111st Half

20112nd Half

20121st Half

20122nd Half

20131st Half

RMBS CMBS CDO Lease Consumer Loan Shopping Credit Accounts receivable/Commercial Bills Others


1 Macro Economy and Real Estate Investment

2 China's Real Estate Investment


4 Commercial Development and Office Market

5 Movements of Chinese Real Estate Developers


China’s Macro Economy: Economic Growth

China’s GDP overtook Japan in 2010.

Japan and China’s nominal GDP

(bn USD)

12,000

8 000

10,000中国日本

6,000

8,000

4,000

0

2,000

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14


Source: IMF


Real GDP growth rate declined in 2007 and reached below 8% in 2012 and the followingReal GDP growth rate declined in 2007 and reached below 8% in 2012 and the following years.

14

16

Changes in real GDP growth rate of China and sectoral contribution

10

12

14

4

6

8

-2

0

2

-6

-4

2

00 01 02 03 04 05 06 07 08 09 10 11 12 13

純輸出投資消費実質GDP成長率Net Exports Investment Consumption Real GDP Growth Rate


Source: The National Bureau of Statistics of China


GDP per capita of Beijing Tianjin and Shanghai has reached the criteria set for high-GDP per capita of Beijing, Tianjin, and Shanghai has reached the criteria set for highincome nation, i.e. 12,616 USD.

GDP per capita (b pro ince/m nicipalit directl nder the central go ernment(2013)

120,000

(RMB)

GDP per capita (by province/municipality directly under the central government(2013)

80,000

100,000

High-income country: RMB 78,405

40,000

60,000

National average: RMB 41,908

0

20,000

京津北西ル寧林江海蘇江徽建西東南北南東西南慶南ト西粛海夏疆

北京

天津

河北

山西

内モ

ンゴ

ル

遼寧

吉林

黑龍

江

上海

江蘇

浙江

安徽

福建

江西

山東

河南

湖北

湖南

広東

広西

海南

重慶

四川

貴州

雲南

チベ

ット

陝西

甘粛

青海

寧夏

新疆

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 76Source: National Bureau of Statistics, China

Note: IMF definition of high-income country: GDP per capita ≥ USD 12,616 (about RMB 78,405 according to the rate on Friday, May 1, 2015)


Tertiary industries has been growing with its contribution to GDP growth reaching approx 50% in 2014Tertiary industries has been growing with its contribution to GDP growth reaching approx. 50% in 2014. This growth became the main factor for increasing real estate investment in urban areas.

(100 mil Yuan)

Trends of Percentage of Tertiary Industryies Aaccounting for in GDP


Source) National Bureau of Statistics of China


Beijing has the highest percentage of tertiary industrial contribution followed by Shanghai XizangBeijing has the highest percentage of tertiary industrial contribution, followed by Shanghai Xizang, Hainan, Tianjin, Guangdong, Guizhou and Zhejiang, all of which far exceed the national average.

Contribution of GDP from different industrial sectors by region in 2013



China’s Macro Economy: Population

The productive-age population is expected to peak out by 2015.g y

Prod cti e age pop lation of China and Japan

(1950=100) Peak

350

Productive-age population of China and Japan

250

300

China

Japan

150

200p

50

100

050 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50

1990's 2000's


Source: United Nations

China's macro-economic environment: Demographic changesWhen demographic dividend of China disappears in 2015, the country has to face increased financial burden decrease of labor force consumption slump etc due to decreased proportion of young

After 2015, when it is estimated China's demographic dividend disappears, the government has to face increased financial burden, decrease of labor force consumption slump and other problems due to declining birthrate and aging population

burden, decrease of labor force, consumption slump, etc due to decreased proportion of young population and high population aging rate.

decrease of labor force, consumption slump and other problems due to declining birthrate and aging population. As a countermeasure, the government announced a policy that aims to ease the one-child policy at the end of December 2013.

• The one-child policy was implemented in China in 1979. To solve the problems of aging population and decrease in labor force, the government announced an easing policy, two-child policy, which allows couples to have one more child if any one of them is the only child in their parents family at the end of December 2013child in their parents family, at the end of December 2013.

• In 2014 and after announcement of the two-child policy by the central government, local governments of Beijing, Shanghai, and Guangdong province announced detailed regulations to "allow couples to have one more child if any one of them is the only child in their parents family" and started receiving applications for approval of birth of the second child.

• It is believed the two-child policy will be implemented throughout China in the future• It is believed the two-child policy will be implemented throughout China in the future.

(%) 45.0 30.0(%)

Change in proportion of young population (<15) Change in proportion of 65+ population

30.0

35.0

40.0

15 0

20.0

25.0

15.0

20.0

25.0

5.0

10.0

15.0


10.0

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

0.0

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

Source: UN World Population Prospects: The 2012 Revision

China’s Macro Economy: Population

Urbanization has proceeded rapidly in China with its urban population ratio over 50% in 2013

China’s urbanization rate* has risen by more than 26 8% points during the past 22 years

Urbanization has proceeded rapidly in China, with its urban population ratio over 50% in 2013.It is expected that China’s permanent urban residents will reach 60% of the population by 2020.

China s urbanization rate has risen by more than 26.8% points during the past 22 years. The National New-type Urbanization Plan (2014-2020) was issued by the State Council of China on 16th March 2014. The plan highlights

that it is essential to raise the quality of urbanization that comes in line with the Chinese approach to urbanization. The plan also underlined that by 2020, permanent urban residents will reach approx. 63% of the population, while residents with city hukou will account for approx. 45% of the total population, with 100 million rural residents settling down in the urban areas.

（10,000 People ）

Population and urbanization rate in china

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 81Note） Urban population in 2020 is the target value stated in government policy Source: China Statistical Yearbook

China's macro-economic environment: Demographic changes

Urbanization is not only seen in coastal areas but also in Inner Mongolia Hubei ChongqingUrbanization is not only seen in coastal areas, but also in Inner Mongolia, Hubei, Chongqing and other cities in hinterland and northeastern China.

Urbanization rate of China by area (2013)

100 0%

70.0%

80.0%

90.0%

100.0%

30 0%

40.0%

50.0%

60.0% National average: 53.7%

0.0%

10.0%

20.0%

30.0%

京津北西ル寧林江海蘇江徽建西東南北南東西南慶川州南ト西粛海夏疆

北京

天津

河北

山西

内モ

ンゴ

ル遼

寧吉

林黑

龍江

上海

江蘇

浙江

安徽

福建

江西

山東

河南

湖北

湖南

広東

広西

海南

重慶

四川

貴州

雲南

チベ

ット

陝西

甘粛

青海

寧夏

新疆


Source: National Bureau of Statistics, China

China's macro-economic environment: Housing conditions

Between 2002 and 2011 the construction area of new houses in urban areas increased by 18%Between 2002 and 2011, the construction area of new houses in urban areas increased by 18% annually, although decreased after 2011 when the real estate suppression policy was implemented.

Changes in construction area of new houses in urban areas Changes in housing area per capita in urban areas

(100 million m2) (m2 per capita)

40%

50%

14

16

5%

6%

35

40

10%

20%

30%

8

10

12

3%

4%

15

20

25

30

-20%

-10%

0%

0

2

4

6

0%

1%

2%

0

5

10

15

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

不動産企業による新築住宅の着工面積（左目盛）伸び率（右目盛）

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

都市部の1人あたり居住面積（左目盛）伸び率（右目盛）Construction area of new houses in urban areas

Growth rate Growth rateHousing area per capita in urban areas



Macroeconomic Environment in China: Consumption Trend

Average growth rate of disposable income per capita has maintained 11% for the last 16Average growth rate of disposable income per capita has maintained 11% for the last 16 years, with this indicating robust consumer spending.

(RMB)

Disposable Income per capita and Growth Rate in Urban Areas

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 84Source) National Bureau of Statistics of China

China's macro-economic environment: Consumption trend

Population of Intermediate Wealthy has been on a rise and approx 15% of their assets are

In 2013 the Population of Intermediate in China was 11 97 million about 1% of the total population

Population of Intermediate Wealthy has been on a rise and approx. 15% of their assets are related to real estate investment.

In 2013, the Population of Intermediate in China was 11.97 million, about 1% of the total population. About 15% of the assets of the affluent population is related to real estate investment. This figure may increase in the future.

Changes of affluent population Changes of asset structure of affluent population

(10,000 people) (trillion RMB)


Note: “Population of Intermediate Wealthy" is defined as people whose disposable assets are RMB 600,000 to 6 million (which is 11.77 ~117.774 million Yen according to exchange rate as of Friday, May 1, 2015)

Source: 2014 China People Wealth White Paper (Hurun Research Institute)


More than half of the affluent population (especially whose in Pearl River Delta Guangdong)More than half of the affluent population (especially whose in Pearl River Delta, Guangdong) are willing to continue investment in real estate.

Investment targets of the population of intermediate wealthy in China

Real estate investment willingness of the population of intermediate wealthy by regionwealthy in China intermediate wealthy by region

Note: Jing jin area: Beijing and TianjinNote: Jing-jin area: Beijing and Tianjin. Yangtze River Delta: Shanghai, Jiangsu, and Zhejiang provinces. Peal River Delta: Guangdong province.


Source: 2014 China People Wealth White Paper (Hurun Research Institute)

Salary income and transfer income are 64% and 24% of average household income per capita, respectively Zhejiang and Yunnan show relatively higher property income (including real estate


respectively. Zhejiang and Yunnan show relatively higher property income (including real estate income).

Source of annual household income per capita of urban population (2013)

(RMB)

50,000 給料収入Salary Income

Source of annual household income per capita of urban population (2013)

30 000

35,000

40,000

45,000 経営収入

財産収入

転移収入

Asset Income

Transfer Income

Business Revenue

15 000

20,000

25,000

30,000

0

5,000

10,000

15,000

北京

天津

河北

山西

内モ

ンゴ

ル

遼寧

吉林

黑龍

江

上海

江蘇

浙江

安徽

福建

江西

山東

河南

湖北

湖南

広東

広西

海南

重慶

四川

貴州

雲南

チベ

ット

陝西

甘粛

青海

寧夏

新疆



Note: Salary income: wage income. Business revenue: revenue from commercial buying and selling activities. Asset income: revenue from moveables and real estate. Transfer income: income from severance pay, pension etc.

China's macro-economic environment: Consumption trend Total retail sales of consumer goods has increased by more than 4.5 times between 2001 and 2013,and the average growth rate after 2008 reached 18% which stimulated the demand for construction ofand the average growth rate after 2008 reached 18%, which stimulated the demand for construction of commerical facilities.

Total Retail Sales of Consumer Good and Its Growth Rate

(100 mil Yuan)

Total Retail Sales of Consumer Good and Its Growth Rate



China China’s real estate market has entered an adjustment period







China's Real Estate Investment

Urban fixed asset investment comprises approx 20% of the entire real estate investmentUrban fixed asset investment comprises approx. 20% of the entire real estate investment, with its growth rate reaching approx. 20% since 2000.

（億元）

Changes of Fixed Asset Investment and Real Estate Investment in Urban Areas

Growth Rate Comparison of Fixed Asset Investment and Real Estate Investment in Urban Areas



China's Real Estate InvestmentRatio of real estate investment over urban fixed asset investments has scored over 50% in Beijing followed by Hainan Zhejiang and Guangdong which far exceed the nationalBeijing followed by Hainan Zhejiang and Guangdong, which far exceed the national average.

The Ratio of Real Estate Investment in Urban Fixed Asset Investment by Region in 2013

(100 mil Yuan)

The Ratio of Real Estate Investment in Urban Fixed Asset Investment by Region in 2013

National Average （20%）



China's Real Estate InvestmentThe most vibrant region for real estate investment is Eastern Area, accounting for half of the total investment in China while the Western Area started to be vibrant as well in recenttotal investment in China, while the Western Area started to be vibrant as well in recent years.

Fixed Asset Investment and Real Estate Investment by Regionin 2013

Growth Rate of Proportion of Fixed Asset Investment in Real Estate Investment by region

(100 mil Yuan)

22%

24%

26%

16%

18%

20%

14%東部地域中部地域西部地域東北地域

2012年 2013年2012 2013

※ Eastern Area: Beijing, Tianjin, Shanghai, Hebei, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, HainanMiddle Area: Shanxi, Anhui, Jiangxi, Henan, Hubei, Hunan

Western Area : Sichuan Guizhou Yunnan Shanxi Gansu Qinghai Neimenggu Guangxi Xizang Ningxia Xinjiang Chongqing


Western Area : Sichuan, Guizhou, Yunnan, Shanxi, Gansu，Qinghai, Neimenggu, Guangxi, Xizang, Ningxia, Xinjiang, ChongqingNortheast : Heilongjiang, Jilin, Liaoning



Since the Housing Distribution System was abolished in 1998 the volume of real estateSince the Housing Distribution System was abolished in 1998, the volume of real estate investment in urban areas has increased, rigorously stimulating the country’s GDP growth.

Change in Growth Rates of GDP and of Real Estate Investment

The traditional housing distribution system was

The traditional housing distribution

distribution system was abolishedsystem was

abolished




Housing investment comprises approx. 70% of the entire real estate investment.g

The Percentage of Ho sing/Commercial/Office In estments in Real Estate In estmentThe Percentage of Housing/Commercial/Office Investments in Real Estate Investment



Land Market in China

Due to policies on restraining the real estate market the land price once decreased in 2011 followed by

Land is owned by Government in China although its management is lead by local governments As citizens are permitted to land rights

Due to policies on restraining the real estate market, the land price once decreased in 2011, followed by a gradual rise afterwards, which is a significant cause of the upsurge in property prices.

Land is owned by Government in China although its management is lead by local governments. As citizens are permitted to land rights during a certain period, they can possess the ownership of buildings for a maximum of 70 years only if they purchase its land use rights through local governments.

Except 2012 and 2013, immediately after the restraining policies being released, the residential and commercial land prices have been showing similar trends, significantly exceeding the overall average.

（RMB/㎡）（%）

Change in Land prices in urban areas of China Change in Land price appreciation rates in urban areas of China


Source :China urban land price monitoring data

China’s Real Estate Finance Market

In most cases real estate investment projects in China are financed by Real Estate

The current real estate finance market in China features of an extremely large primary market of housing loan but very small second

In most cases, real estate investment projects in China are financed by Real Estate Investment Trust through banks.

The current real estate finance market in China features of an extremely large primary market of housing loan but very small second market. i.e. securitization market of mortgage loan that supports the primary market.

Although there are almost 200 listed real estate development companies, few of them are utilizing private real estate funds or REIT. In 2010, the central government reviewed its policies on real estate market and limited direct financing from banks. As a result, real

estate investment trust and other tools became the main route for investment in real estate projectsestate investment trust and other tools became the main route for investment in real estate projects.

Real Estate Main

Investment structure of Real estate finance in China

Investor

Banks/insurance companies Asset management

Real Estate Investment Trust Private real estate fundsOther tools

Main

Few

Very few(Individuals, companies, investment organizations

products

Li d l

Other tools(Finance lease etc.) Real estate

development project

Very few

organizations etc.)

Listed real estate companiesStocks and bonds株式・債券Securitized products

Open market(stock exchange etc

Few

Trial


(ABN, REITS etc.)


The scale of Real estate investment trust in China reached RMB 1 3 billion at the end of

The proportion of investments in real estate trusts among all trusts in China reached the peak in 2011 and maintained at about 10%

The scale of Real estate investment trust in China reached RMB 1.3 billion at the end of 2014.

The proportion of investments in real estate trusts among all trusts in China reached the peak in 2011 and maintained at about 10% after 2013.

Changes in the scale of Real estate finance in China (2010~2014)

(100 million RMB)

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 97Source: China Trustee Association/CEIC Database

Proportion of investments in real estate trusts among all trusts Scale of investment in real estate trusts


By the end of 2013 the scale of private real estate funds in China was estimated to be RMB 25~30

Overseas private real estate funds basically focus on equity investment but their counterparts in China focus on debt investment in

By the end of 2013, the scale of private real estate funds in China was estimated to be RMB 25~30 million and the investment areas expanded from housing to comprehensive commercial development.

Overseas private real estate funds basically focus on equity investment, but their counterparts in China focus on debt investment in real estate companies.

Since private real estate funds in China are still in the start-up stage, in most cases they would identify investment target projects first and then recruit funds for potential LP.

In details private real estate funds are involved in land acquisition and then they work with real estate companies and establish SPC In details, private real estate funds are involved in land acquisition and then they work with real estate companies and establish SPC (project development companies). After selling of at least 80% of the real estate products, real estate development companies re-purchase stock and the fund is withdrawn. This kind of fund operation is unique and can only be seen in China.

Scale and number of private real estate funds（RMB） Main investment fields of private real estate funds（RMB）

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 98Source: Made by NRI based on 2013 private real estate funds(RMB) annual report，ＣhinaVenture


The first equity REITs was listed in May 2014 Since it was limited to a few institutional

In May 2014 China Securities Regulatory Commission (CSRC) approved a sale that was equivalent to RMB 5 2 billion REIT products

The first equity REITs was listed in May 2014. Since it was limited to a few institutional investors, it had many problems in liquidity, fairness and openness.

In May 2014, China Securities Regulatory Commission (CSRC) approved a sale that was equivalent to RMB 5.2 billion REIT products by CITICS, the largest securities company in China. The sale was targeted to qualified institutional investors for blocking trading mainly in Shenzhen Stock Exchange. Investors can obtain dividends from the lease income of two buildings (in Beijing and Shenzhen) owned by CITICS. This was the first equity REITs in China.

On September 30, 2014, the central bank and CBRC issued a "Notice for Promoting Housing Finance Service", which aimed to promoteREITs in China. In details, the policy aimed to expand market financing tools and support issuance of debt financing products by real estate companies satisfying certain conditions.

In 2015, although there are products that are similar to REITS, they have problems in liquidity, fairness, and openness. The first equity REITs in China

Special asset management plan

Low-risk oriented investors Senior debtHigh-risk oriented investors Inferior

Special asset management plan

Low-risk oriented investors Senior debtHigh-risk oriented investors Inferior

Fund management

Share of fund Owner

Private fund

Project company 1 Project company 2

Inferior creditors’ claim

Fund management

Share of fund Owner

Private fund

Project company 1 Project company 2

creditors’ claim

Shenzhen CITIC Securities BuildingBeijing CITIC Securities BuildingBuildingShenzhen CITIC Securities BuildingBeijing CITIC Securities BuildingBuilding

Value of Assets 3.511 Billion RMB

1.527 Billion RMB

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 99Source: Made by NRI Based on “Qi Hang” Special Assets Management Plan of CITIC

Expected Growth of rental income in the following 5 years

4%-6%／Year 3%-5%／Year

Expected Growth in selling income in the following 5 years

8%-11%／Year

5%-8%／Year

China's Residential Market

China’s urban housing can be classified into “commercial residence” and “low incomeChina s urban housing can be classified into commercial residence and low income housing” with the former accounting for approx. 90% of the supply.

Holiday house (Detached)eCommercial residence

(for the middle and high-income class)

Luxurycommercial residence

y ( )

Holiday house (Town house)

Luxury condominium

Sold atmarket prices

Urbanhousing

Ordinarycommercialresidence

Ordinary condominium

p

Low income housing (for the low-income class)

Affordable housing Sold at

preferential

P bli t l

Price-limitedhousing

Construction size is smallerthan ordinary condominiums

Installation requirementsof common areas as well

prices

Public rentalhousing

Low price public housing

Houses that can be freely resold

as the buildings’ finishingstandards are also slightly lower.

Leased atPreferentialprices

Houses that can be resold with


public housingconditions

Housing Policy in China

Low-income housing consists of a)resalable “Affordable” and “Price-limited” housings and

“Affordable” and “Price-limited” housings can be resold only in cases where conditions set on the resale of each housing types are met

Low income housing consists of a)resalable Affordable and Price limited housings, and b)unresalable “Public rental” and “Low price public” housings.

Affordable and Price-limited housings can be resold only in cases where conditions set on the resale of each housing types are met.

Classification Description Resalable or not

Overview of low-income housing

Affordable housing

• In order to achieve an affordable price, Government provides developers with various preferential treatments such as providing land at preferential price,diminishing their tax, contribution for urban infrastructures development and various administrative business expenses.

• Sizes are strictly controlled; e.g. medium-sized: around 80 ㎡, small-sized:d 60 ㎡around 60 ㎡.

• Families with the right to purchase are those with a household register as well as with income of 60,000 Yuan or less.

• Houses are resalable but only after five years have passed since the purchase.

• Purchaser possesses its limited ownership.• Used as one of the Government ‘s measures to control real estate

Price-limited housing

development market and to adjust the housing supply for a certain period.• State-owned companies take responsibility in its construction. • Its selling prices are determined by the government and are usually 20–25%

lower than commercial residences.

L d b G t i tit ti i it i i t l d iddlPublic rental housing

• Leased by Government or institutions in its commission to low and middle-income families at market prices

• Government provides a certain amount of housing allowance to its occupant families every month.

• Houses cannot be resold and only can be leased.

• Occupant does not possess its ownership• Leased to low-income families at the lowest lease price determined by


ownership.Low price publichousing

Leased to low income families at the lowest lease price determined by Government.

• Provided sizes: 35 ㎡ for 1LDKs, 45 ㎡ for 2LDKs, and 55 ㎡ for 3LDKs.

Housing Policy in China

Affordable housings can be provided at drastically cheaper price than ordinary commercial

It should be noted that affordable housing is sold under “Allocated land usage rights ” which does not require the payment of land grant

Affordable housings can be provided at drastically cheaper price than ordinary commercial housings as the price is set according to costs.

It should be noted that affordable housing is sold under Allocated land usage rights, which does not require the payment of land grant charges to the government, and that the percentage of profit allocated to developers from its development is politically controlled under 3% or less.

Comparison of price structure between ordinary commercial housing and affordable housing

Cost structure item Ordinary commercial housing Affordable housing

Eviction/compensation costs ○ ○

Planning/designing costs ○ ○

Construction costs for infrastructure within the housing ○ ○

Construction work costs for buildings and equipment ○ ○

SG&A ○ ○

T ○ ○Tax ○ ○

Profit Unlimited 3% or less

Land grant charge ○ ×


Land right type Land grant usage rights Allocated land usage rights

China’s Residential Market

Due to urbanization the housing demand in urban areas is hovering at a high level

Supply of commercial residences slowed down at times due to policy adjustments and fiscal tightening although the volume of both

Due to urbanization, the housing demand in urban areas is hovering at a high level, resulting in an increasing trend over the supply of commercial residences.

Supply of commercial residences slowed down at times due to policy adjustments and fiscal tightening, although the volume of both housing demand and construction area have been on the rise during recent 12 years.

(10,000 ㎡)

The area of commercial residences’ completion in China

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 104Source: China Statistical Yearbook

China’s Residential Market

7 64 million commercial units are supplied annually in China’s urban areas with this being

The number of newly completed commercial residences in China in 2013 was 7 49 million; approx 3 times larger than that of 12 years

7.64 million commercial units are supplied annually in China s urban areas, with this being 30 times larger than the number of houses built annually for sale in Japan.

The number of newly completed commercial residences in China in 2013 was 7.49 million; approx. 3 times larger than that of 12 years ago (2.14 million in 2000) and 30.9 times larger than the supply of houses built for sale in Japan( 2.47 million) in 2013.

Typical commercial houses have a layout of 2LDK or 3LDK with a completion area of approx. 110 m2.

The number of commercial residence completions and its average completion area

(10,000 House) (㎡ per house ）


Residential Market in China

Approx 90% of commercial housing is general residential property while the investmentApprox. 90% of commercial housing is general residential property while the investment towards the “Affordable housings” for low and middle income class is in extremely short supply.

Changes of the Ratio of Ho sing In estment b t pes

100%

Changes of the Ratio of Housing Investment by types

60%

80%

20%

40%

0%98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

一般商品住宅別荘、高級マンション経済適用住宅

Note: Since numbers related to affordable housing after 2010 is not provided in the China Statistical Yearbook, the data here was calculated from selling price and actual construction household


Housing market in China

To improve housing conditions of low-income population the government accelerated

In its 12th five-year planning the Chinese government plans to build 36 million new and affordable houses The purpose is to accelerate

To improve housing conditions of low income population, the government accelerated provision of affordable housing in 2011.

In its 12th five-year planning, the Chinese government plans to build 36 million new and affordable houses. The purpose is to accelerate provision of public housing. The government aims to build more low-rent houses and economically affordable houses for low-incomepopulation and increase supply of low-cost housing.

According to public data of China Index Research Institute, 60% (20.47 million) of 32 million affordable houses have been completed by September 2014. Quite an accomplishment within such a short period of time.

(10,000 houses)

Construction plan and completion of affordable housing (2011~2014)

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 107Source: China Index Research

Housing Market in China

A 30% f th ti h i l i t t d i Ch i Ti ji Sh Sh h i Ch d dApprox. 30% of the entire housing supply is concentrated in Chongqing, Tianjin, Shenyang, Shanghai, Chengdu and Beijing. The growth of second-tier cities such as Xian, Nanjing and Qingdao is also attracting attention.

Comparison of Spaces of Completed Residential Properties among Major Cities

（10 thousand ㎡）

Comparison of Spaces of Completed Residential Properties among Major Cities



Selling price of homes has risen by 2 9 times during the last 12 years with this trend beingSelling price of homes has risen by 2.9 times during the last 12 years, with this trend being especially evident among luxury properties.

Selling price of commercial residences in China

（元/㎡）


*Since sales prices of the economical housing for low-and-middle income earners in 2011 were not reported in China Statistical Yearbook 2012, the data here was calculated on the basis of data in 2010 by 110% growth rate.


Housing Market in China

Sale price of residential properties has been rising at growth rate more than 40% in the lastSale price of residential properties has been rising at growth rate more than 40% in the last 5 years with the second-tier cities demonstrating this tendency

Sale Price of Commercial Housing in Major Cities (Comparison between 2008 and 2013)

（元/㎡）



Housing price to income ratio is 12 times larger in coastal metropolis such as Shenzhen

Housing price to income ratio has risen by 6 to 8 times compared to 11 years ago

Housing price to income ratio is 12 times larger in coastal metropolis, such as Shenzhen, Hangzhou and Shanghai, significantly exceeding the national average.

Housing price to income ratio has risen by 6 to 8 times compared to 11 years ago, Ratio in metropolises has risen significantly, with Shenzhen seeing a rise from 5.8 times to 12.9 times.

(Times)

The housing selling prices to income ratio

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 111Source: Statistical material by the Ministry of Land and Resources and the National Bureau of Statistics

House supply policy of China Although the policy implemented by the government in 2009 had some effects in reducing housing price it caused increase of stock of houses and deterioration of the overall market conditions This is

Monetary easing policies implemented after the Lehman shock resulted in skyrocketing housing price in Beijing, Shanghai, and other major cities in China As a countermeasure the Chinese government implemented a series of policies that made it more difficult for

price, it caused increase of stock of houses and deterioration of the overall market conditions. This is why the government implemented easing policy in 2014.

major cities in China. As a countermeasure, the Chinese government implemented a series of policies that made it more difficult for acquisition of houses after October 2009.

However, since such policies resulted in increase of stock of houses and deterioration of the overall market conditions, the government had to cancel the housing restriction policies implemented in 43 cities (but not including Beijing, Shanghai, Shenzhen, and Sanya).

Monthly sales area of commercial housing compared with the previous year (after 2007)October 2009Implementation of housing price suppression policies Abolishment of tax incentives (real estate transaction tax and personal income tax) Implementation of differentiated housing loan policy

March ~ April 2010Purchase of house was limited in 48 cities. Higher down payment/interest of loan for the second house. Restriction of banking loan to developers

September 2014 Decrease of down payment/interest of loan for the second house by the central bank. (%)

Monthly sales area of commercial housing compared with the previous year (after 2007)

End of 2008 Economic recovery through reduction of interest rates and exemption of real estate acquisition tax etc.

loan policy

January 2011Further increase of down payment/interest of loan for the second house. Trial introduction of property tax for the third house in Shanghai

Policy for limiting house purchase was abolished in most cities. Promoted expansion of financing route and supported banks and other financial institutions for the third house in Shanghai

and Chongqing. Increase of house supply through provision of affordable houses.

to issue housing bonds and REITS.

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 112Source: National Bureau of Statistics, China

Restriction Easing Easing

Government Housing Policy in ChinaExcessive housing stock became a significant problem due to real estate suppression policy. In September 2014 the government announced a real estate easing policy and housing price plummeted

Since the issuing of the regulatory plan the property developers were lead to cut the housing prices to encourage sales and increasing

September 2014, the government announced a real estate easing policy, and housing price plummeted in many cities.

Since the issuing of the regulatory plan, the property developers were lead to cut the housing prices to encourage sales and increasing number of cities witnessed a decline of housing prices since September 2011. This demonstrates that the government’s restrictions have been effective in bringing down housing prices.

However, housing prices began to rise in more than 90% of the major cities in 2013. The growth rate is more than 20% in the four major cities, Beijing, Shanghai, Guangzhou and Shenzhen, with the rate being highest in the history. There lies an acute risk of bubbles.

After the government announced a real estate easing policy that encourages but not limits housing purchase, more and more citiesexperienced declination of housing price and worried about how to "digest" the existing housing stock.

The change of cities' number with the housing price’s deviation at the link relative ratio in the 70 major cities of China （2011-2015）


Prospects of China's housing market

Unlike the past the housing market in China in 2015 will be "consumer centered" instead of "developerUnlike the past, the housing market in China in 2015 will be consumer centered instead of developer centered", and the main stream will be provision of houses that can satisfy consumers' rigid demand.

Directions of China's housing market in 2015

Change from "investment" to "rigid

g

1Change from investment to rigid

demand"For increase of house sale

Affordable houses with high quality and habitability

Higher demand for better house that satisfy needs in higher life stage

Aging population and two-child policy result in further segmentation and

di ifi ti f h l

2

satisfy needs in higher life stage diversification of house supply market

Release of house purchase limit in tier Unlike tier 1 cities where land supplyUnlike tier 1 cities where land supply 3Release of house purchase limit in tier 1 and 2 cities

Excessive house supply in tier 3 and 4 cities

Unlike tier 1 cities where land supply is limited and tier 3 and 4 cities with

high stock of houses, tier 2 cities will become the main fighting field of

h i k t

3


citiescities housing market. housing market.

China's Commercial Development Market

Commercial development boom in large cities has started since 2008 and the supply ofCommercial development boom in large cities has started since 2008 and the supply of commercial facilities has dramatically increased.


Change In Nationwide Commercial facilities Supply



Investment for commercial development has been rapidly growing at an annual rate of 26% onInvestment for commercial development has been rapidly growing at an annual rate of 26% on average since 2000. The volume of investment in 2013 was 20 times larger than that of 2000.

Change in In estment Amo nt and Gro th Rate of Commercial Facilities

(100 mil Yuan)

Change in Investment Amount and Growth Rate of Commercial Facilities



Average unit sales price of offices in 2013 has risen by 3 times of that in 1998 and about 40% of theAverage unit sales price of offices in 2013 has risen by 3 times of that in 1998, and about 40% of the sales volume are concentrated in the eastern part of China, where it is economically developed.

Ch i S l S /U it S l P i f Ch i S l S /U it S l P i f

（10 thousand ㎡）（10 thousand ㎡）（RMB/㎡）（RMB/㎡）

Changes in Sales Spaces/Unit Sales Price of Commercial Facilities in China

Changes in Sales Spaces/Unit Sales Price of Commercial Facilities by Region (2012）

※ Eastern Area: Beijing, Tianjin, Shanghai, Hebei, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, Hainan

Middle Area: Shanxi, Anhui, Jiangxi, Henan, Hubei, HunanWestern Area : Sichuan, Guizhou, Yunnan, Shanxi, Gansu，


Qinghai, Neimenggu, Guangxi, Xizang, Ningxia, Xinjiang, ChongqingNortheast : Heilongjiang, Jilin, Liaoning

Source: China Statistical Yearbook

China’s Commercial Development Market

Commercial development in developing areas such as Henan Guizhou Xizang XinjiangCommercial development in developing areas such as Henan, Guizhou, Xizang, Xinjiang, Liaoning etc has been especially buoyant in the last 3 years.

Comparison of Sales Spaces of Commercial Facilities by Region（10 thousand ㎡）


China's Office Market

Office supply in urban areas in China has experienced a downturn after the failure ofOffice supply in urban areas in China has experienced a downturn after the failure of Lehman Brothers in 2008, however, a growing trend continues as a whole.

Change in Nation ide Office S ppl


Change in Nationwide Office Supply



Investment towards office development has been expanding at an annual growth rate ofInvestment towards office development has been expanding at an annual growth rate of more than 18% on average in the last 14 years.

（10 mil Yuan）

Changes in Investment Amount/ Growth Rate of Office Development


China’s Office Market

Average unit sales price of offices have doubled between 1998 and 2013 with more than 60% of theAverage unit sales price of offices have doubled between 1998 and 2013, with more than 60% of the office sales concentrating in the eastern part of China where economy is rapidly developing.

（RMB/㎡）（RMB/㎡）（10 thousand ㎡）（10 thousand ㎡）

Changes in Sales Spaces/Unit Sales Price of Officesin China Sales Spaces/Unit Sales Price of Offices by Area (2013)

※ Eastern Area: Beijing, Tianjin, Shanghai, Hebei, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, Hainan

Middle Area: Shanxi, Anhui, Jiangxi, Henan, Hubei, HunanWestern Area : Sichuan, Guizhou, Yunnan, Shanxi, Gansu，


, , , ,Qinghai, Neimenggu, Guangxi, Xizang, Ningxia, Xinjiang, Chongqing

Northeast : Heilongjiang, Jilin, Liaoning

Source: China Statistical Yearbook

China’s Office Market

Approx 30% of office sales in 2013 was concentrated in Yangtze River Delta Area (Shanghai JiangsuApprox. 30% of office sales in 2013 was concentrated in Yangtze River Delta Area (Shanghai, Jiangsu and Zhejiang). Office sales in regions such as Heilongjiang and Guizhou have dramatically increased.


Comparison of Office Sales Spaces by Region



Demand for offices in central Beijing has been increasing in the last 2 yearsDemand for offices in central Beijing has been increasing in the last 2 years. This has created low vacancy rate, and accordingly, the office rent has risen.

Changes in Office Rent in Each District of Central BeijingMap of Central Beijing

（RMB/㎡/Month）

Rent/Vacancy Rate of Offices in Central Beijing of Sep-Dec 2014Office Stock in Central Beijing as of Dec 2014（10 thousand ㎡）

（RMB/㎡/Month）

Rent/Vacancy Rate of Offices in Central Beijing of Sep Dec 2014j g

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 124Source) Made by NRI based on the published data of DTZ (Debenham, Tewson & Chinnocks)


Vacancy rate is low in 3 districts of Shanghai Jingan Huangpu and Puding where the high-Vacancy rate is low in 3 districts of Shanghai, Jingan, Huangpu and Puding where the highrise office buildings are concentrated and the rent is high.

（RMB/㎡/Month）

Changes in Office Rent in Each District of Central ShanghaiMap of Central Shanghai（RMB/㎡/Month）

Rent/Vacancy Rate of Offices in Central Shanghai of Sep-Dec 2014Office Stock in Central Shanghai as of September 2013（万㎡）

（RMB/㎡/Month）

Rent/Vacancy Rate of Offices in Central Shanghai of Sep Dec 2014g p

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 125Source) Made by NRI based on the published data of DTZ

Commercial property market in China: Trend of large-scale comprehensive development

Large scale and comprehensive development of commercial properties was seen in many cities inLarge-scale and comprehensive development of commercial properties was seen in many cities in China in recent years, particularly in tier 2 and inland cities. There is a risk of excessive construction.

In recent years there was a fast development of "urban complex" which is a large-scale commercial building that includes houses In recent years, there was a fast development of urban complex , which is a large-scale commercial building that includes houses, stores, offices, hotels, and entertainment facilities, in many cities in China. Chengdu, Shenyang, and Chongqing are top three cities in terms of existing and future development volume.

D l t f b l i j iti i Chi D l t f b l i j iti i ChiDevelopment of urban complexes in major cities in China (as of end of 2013)

Development of urban complexes in major cities in China (Estimated development volume from 2014 to 2016)


Source: Public information of Qianzhan Industry Research Institute. Note: The label number is the number of urban complexes.

Prospects of commercial real estate market in China

In 2015 there will be higher needs for high-quality and efficient commercial facilitiesIn 2015, there will be higher needs for high quality and efficient commercial facilities, including E-business, which goes beyond comprehensive and large-scale complexes.

Directions of China's real estate market in 2015

U b i ti d d l t f th thi d i d t1

Urbanization and development of the third industry result in higher needs for improved urban service

functions

Instead of traditional commercial facilities, high-efficiency, high-quality commercial facilities are

highly needed.

Higher influence of E-business on consumers Higher needs for change of business category and introduction of E-business in commercial facilities

due to the increasing popularity of Internet

2

due to the increasing popularity of Internet shopping

3Higher risk of development of large-scale

commercial facilities due to high vacancy rate and difficulties in attracting tenants

Higher needs for medium-scale street-type commercial facilities (but not large-scale ones)

3


Movements of Chinese Real Estate Developers

Despite of the housing suppression policy top 10 players in housing development in tier 1Despite of the housing suppression policy, top 10 players in housing development in tier 1 and 2, and even tier 3 and 4 cities grew significantly and are enjoying higher market share.

Comparison of Developers Top 10(2010～2014）

Rank

2010 2011 2012 2013 2014

Company NameTotal Sales

(100 mil Yuan)


(100 mil Yuan)


(100 mil Yuan)


(100 mil Yuan)


(100 mil Yuan)

1 Vanke Group 1,026 Vanke Group 1,215 Vanke Group 1,452 Vanke Group 1,776 Vanke Group 2,120

2 Poly Group 660 Dalian Wanda Group 953 Poly Group 1020Shanghai Greenland

Group 1,625 Shanghai Greenland Group 2,080

3 Shanghai Greenland Group 650 Evergrande Group 804 Shanghai

Greenland Group 1013 Poly Group 1,251 DalianWanda Group 1,501

4 China Overseas Land 578 Shanghai

Greenland Group 770 China Overseas Land 945 China Overseas

Land 1,103 Evergrande Group 1,376Land Greenland Group Land Land

5 Evergrande Group 527 Poly Group 732 Dalian Wanda Group 938 Evergrande Group 1,073 Poly Group 1,362

6 China Greentown 522 China Overseas Land 708 Evergrande Group 925 Country Garden 1,068 Country Garden 1,250

Dalian Wanda China Overseas 7 Dalian Wanda

Group 369 Country Garden 432 China Greentown 547Dalian Wanda Group 844 Land 1,152

8 Longfor Group 336 Longfor Group 383 Crland China 505 Crland China 688 Shimao Property Holdings 708

9 Country Garden 330 China Greentown 353 Country Garden 491 Shimao Property Holdings 683 Crland China 700 Holdings

10 R&F Properties 321 Crland China 330 Shimao Property Holdings 461 China Greentown 660 Sunac China 658

Total Sales of Developers Top 10 5,319 6,680 8,297 10,771 12,907

The Percentage of Developers Top 10 10.1% 11.3% 12.9% 13.3% 16.9%


Forge Ahead Cities（Average of Developers Top 10

30.6Cites 40.5Cities 53.1Cites 67.2Cites 73.7Cites

Source) Made on the data of Each company’s Homepage


Most major real estate developers in China have switched from house development to commercialMost major real estate developers in China have switched from house development to commercial complex development and are conducting diversified businesses in silver industry, culture, tourism etc.

• 2011: Commercial development and house development for the silver population.• 2011: Commercial development and house development for the silver population.2011: Commercial development and house development for the silver population. • 2013: The "80% residential + 20% commercial" strategy. Entry in overseas real estate markets in the US, Hong Kong, Singapore, etc. • 2014: Started "real estate + network" business through cooperation with information service providers. • Real estate developers aimed to become urban service providers and implemented "asset-light" strategy.

2011: Commercial development and house development for the silver population. • 2013: The "80% residential + 20% commercial" strategy. Entry in overseas real estate markets in the US, Hong Kong, Singapore, etc. • 2014: Started "real estate + network" business through cooperation with information service providers. • Real estate developers aimed to become urban service providers and implemented "asset-light" strategy.

VankeVanke(No.1) (No.1)

• 2012: Started business in overseas real estate market.

• 2013: Expanded commercial property business. The target was "more than 50% commercial property by 2015".

• 2014: Started subway business.

• 2015:Accelerated business activities in overseas markets (including Japan).

• 2012: Started business in overseas real estate market.

• 2013: Expanded commercial property business. The target was "more than 50% commercial property by 2015".

• 2014: Started subway business.

• 2015:Accelerated business activities in overseas markets (including Japan).

Green LandGreen Land(No.2) (No.2)

• 2007: Established Wanda Department Store. The target was to "open 110 stores and become the largest department store chain inChina by 2015".

• 2009: Culture and tourism industry was positioned as the next major business area. • 2011: Established a film-making company. • 2014: Introduced E-business in operation of commercial facilities.

2015: New policy: "35% real estate business and 65% service business by 2020" Also the company aimed to make the proportion

• 2007: Established Wanda Department Store. The target was to "open 110 stores and become the largest department store chain inChina by 2015".

• 2009: Culture and tourism industry was positioned as the next major business area. • 2011: Established a film-making company. • 2014: Introduced E-business in operation of commercial facilities.

2015: New policy: "35% real estate business and 65% service business by 2020" Also the company aimed to make the proportion

WandaWanda(No.3) (No.3)

• 2015: New policy: "35% real estate business and 65% service business by 2020". Also, the company aimed to make the proportion of overseas business to be higher than 20% by 2020.

• 2015: New policy: "35% real estate business and 65% service business by 2020". Also, the company aimed to make the proportion of overseas business to be higher than 20% by 2020.

HengdaHengda(No 4)

• 2010: Started commercial property business. • 2013: Started consumer goods businesses such as mineral water, cooking oil, and diary products. • 2014: Started retail business such as department store and super market

• 2010: Started commercial property business. • 2013: Started consumer goods businesses such as mineral water, cooking oil, and diary products. • 2014: Started retail business such as department store and super market(No.4)

PolyPoly(No 5)

• 2014: Started retail business such as department store and super market. • 2015: Started financing business. • 2014: Started retail business such as department store and super market. • 2015: Started financing business.

• 2011: Started resort development and house development for the silver population. • 2012: "70% residential and 30% commercial" strategy. • 2011: Started resort development and house development for the silver population. • 2012: "70% residential and 30% commercial" strategy.

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 130Note: Numbers in parentheses are sales ranking of real estate companies in 2014.

(No.5) gy• 2014: Expanded overseas real estate investment and promoted silver, tourism, and commercial property businesses.

gy• 2014: Expanded overseas real estate investment and promoted silver, tourism, and commercial property businesses.

Movements of Chinese Real Estate Developers: Overseas investment

Real estate is the third popular overseas business for Chinese companies Other two are

Looking at large-scale overseas investment projects (USD 100 million above) of Chinese companies from 2005 to 2013 it is able to see

Real estate is the third popular overseas business for Chinese companies. Other two are energy and mining businesses.

Looking at large-scale overseas investment projects (USD 100 million above) of Chinese companies from 2005 to 2013, it is able to see that 12.3% (67) of 545 projects were related to real estate development. The figure was 30.1% for energy and 22.8% for miningindustry.

Although insurance companies, commercial banks, and investment funds were also investing in overseas real estate. Major Chinese real estate developers are main players.

Most Chinese investors focus on overseas commercial properties, but not residential properties.

Overseas real estate investment of Chinese companies(2003-2013)

Overseas investment of China’s real estate companies (2003-2013)


Source: NRI analysis of open information.

Movements of Chinese Real Estate Developers: Overseas investment

Major Chinese Real Estate Developers started overseas investment in 2012 Popular destinations are

In 2012 major Chinese Real Estate Developers such as Vanke Green Land Wand and Poly started investment in overseas real

Major Chinese Real Estate Developers started overseas investment in 2012. Popular destinations are North America and Europe where markets are mature and legal environment is well established.

In 2012, major Chinese Real Estate Developers such as Vanke, Green Land, Wand, and Poly started investment in overseas real estate markets.

Popular destination of overseas investment are North America and Europe where markets are mature and legal environment is well established. In Asia, popular destination of investment are Taiwan, Singapore, Korea, and Japan recently.

O b i f j Chi l t t i ( ti l d t )

Overseas investment area Chinese real estate developers

New York (US) SOHO, Xinyuan,Wantong, Wanda

Overseas businesses of major Chinese real estate companies (partial data)

North America

San Francisco (US) Vanke, Green Land

Los Angeles (US) Vanke, Poly, Wangtong, Green Land, Zhongkun

Toronto (Canada) Green Land

Europe

France Shouchuang, Green LandFrankfurt (Germany) Green Land

EuropeIceland Zhongkun

London (UK) Wanda, COHL

Asia

Taiwan Vanke, WantongSingapore Vanke, HuashanMalaysia Country Garden

Jeju Island (Korea) Green Land, GuangyaoTokyo (Japan) Fuxing

Sri Lanka AVIC

Others

Barcelona (Spain) Green LandMadrid (Spain) Green Land

North Caucasus Wanda, Fanhai Lianhe


,North Africa Poly

Sydney (Australia) Green Land, YiheSource: NRI analysis of open information.


Future prospects of Chinese Real Estate Developers

Future prospects of Chinese Real Estate Developers

Reduction of profit rate of real estate Rapid growth in real estate business

p p p

1Reduction of profit rate of real estate

business Increased investment risk

Rapid growth in real estate business requires business review for strengthening

expertise etc.

Rapid growth in non-real estate businesses results in model change for diversified Cross-industry cooperation and inter-

company acquisition

2

gbusiness operation

company acquisition

3Higher pressure in return of fund of existing

businesses Discovery of new revenue/business

models (asset-light)

3


Korea Increase of liquidity within slow economic growth

1 Business trends and Office Market Trends

1-1 Business Trends

1-2 Office Market Trend

2 Household Economy and Housing market trendsy g

3 Hotel Market trends

4 Indirect Investment Market Trends


Business trends

Slow economic growth is expected to linger in Korea Economic growth rate of Korea isSlow economic growth is expected to linger in Korea. Economic growth rate of Korea is estimated as 3%.

The trend and forecast of GDP and economic growth rate in KoreaThe trend and forecast of GDP and economic growth rate in Korea

(unit: trillion KRW) (%)

GDP CAGR in 90s

6.2%

GDP CAGR in 00s

4.2%

expected GDP CAGR after 2011

3.5%

9.7 8.8 8.9

10.7

8.8

12.0

16.0

1 200

1,400

1,600

5.8 6.3 7.2

5.8

4.0

7.2

2.8

4.6 4.0 5.2 5.1

2.3

6.3

3.7

2.0 2.8

3.7 3.3 3.8 3.7 3.7 3.7 4.0

8.0

800

1,000

1,200

5 7

0.3

4 0

0.0

400

600

-5.7

-8.0

-4.0

0

200

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

d l l h 경제성장


Source: NRI based on IMF, OECD, The Bank of Korea, Media Research

Gross Domestic Products (Real GDP) Real GDP Growth Rate 경제성장률(OECD)Economic Growth(OECD)

Business trends

Total industry revenue in Korea is 2 290 trillion KRW with manufacturing industryTotal industry revenue in Korea is 2,290 trillion KRW, with manufacturing industry comprising 55% of the total. Growth rate in all industries have been slowing down.

T t l d ti i d t l (’11 ’13)Total domestic industry sales (’11-’13)

Non-manufacturing

manufacturing

(unit: trillion KRW, %)

2,262 2,2902 103

AllManu-

facturingNon-manu-facturing

1,600814

983(43%)

1,030(45%)

1,849

907(43%)

2,103’09～’13 9% 10% 9%

737(46%)

(44%)

1 2601 2791 196

’11～’13 4% 3% 7%

864(54%)

1,036(56%)

1,260(55%)

1,279(57%)

1,196(57%)

’12～’13 1% -2% 5%


2009 2010 2011 2012 2013

Source: NRI based on National Statistical Office(KOSTAT)

Business trends

Sales of Electronic components and communication equipment comprises 26% of totalSales of Electronic components and communication equipment comprises 26% of total manufacturing industry revenue.

Sales of Domestic Manufacturing Industries (’11-’13)

11% 5% 6% 11%19%

11% 8% 8%19%

Sales of Domestic Manufacturing Industries ( 11 13)

CAGR(’11-’13)(unit: trillion KRW, %)

11% 5% 2%-5% -8% -2%

6% 11%-4% 0% -4%

11%2% 3% 8%

-13%

8%

-17%

2011 2012 2013 Total sales of Domestic Manufacturing Industries(Average)

325.8 CAGR(‘11-’13):+3%

22%

26%

190.6

156.4 150.2

115.0

76.1 48.8 37.1 33.2

20.3 19.7 17.5 13.6 11.8 11.6 8.8 5.2 3.9 3.7 2.5

Electronic components

and CarChemical products

Refined petroleum Primary

metal

Other Transportat

ionFood

productsElectrical

equipment

Other machine

and

Nonmetallic mineral Clothing

Rubber, Plastic Metal

goods Medicine Paper products Beverage

Textile goods

Medical precision optical

Leather, bag and Furniture


communication equipment

products metal ion equipment

products equipment and equipment products products goods products optical

instrument shoes

Source: NRI based on National Statistical Office(KOSTAT)

Business trends

Sales of Distribution industry is 317 trillion KRW comprising 30% of total sales of non-Sales of Distribution industry is 317 trillion KRW, comprising 30% of total sales of nonmanufacturing industry.

Sales of Domestic non-manufacturing industries (’11-’13)Sales of Domestic non manufacturing industries ( 11 13)

11% 12% 7% 12% 15%8%

19% 20%

CAGR(’11-’13)(unit: trillion KRW, %)

2011 2012 2013 Total sales of Domestic Non-manufacturing Industries(Average)

4%11% 12%

3% 7% 3%12%

2% -2%8%

2% -5%

316.7

CAGR(‘11-’13):+6.5%

161.8 146.1

107.1 101 8101.8 76.7

41.5 22.0 21.1 18.9

4.8 3.4 1.7 1.7 1.3

Wholesale El t i itPublishing, b d t/

Sewerage, t d


Wholesale and retail

(distribution industry)

Electricity, gas, and

steam supply Construction Transpor-tation

broadcast/Communica-

tion and information

service

Real estate and leasing

service

Expert, technique

and service

Business support service

Leisure and related service

Accommodation and food

service

Educational service

waste, and environmental restoration

service

Fishery Mining industry Agriculture

Source: NRI based on National Statistical Office(KOSTAT))

Business trendsIn terms of aggregate market value of listed companies, information and communication, and semi-conductor industry accounts for the highest That of healthcare industry in past 3 years demonstratesconductor industry accounts for the highest. That of healthcare industry in past 3 years demonstrates the highest growth rate at approx. 27%.

Aggregate Market Value by industry (KRX, ’11-’14)Aggregate Market Value by industry (KRX, 11 14)

15% 15%9%

27%

11% 10% 8% 6% 7%

Growth rate of aggregate market value of all industries: 4%CAGR(’11-’14)

(unit: trillion KRW, %)

-4%2%

9% 10%

-15%

8%

-18%

-6%-13%

0%6%

1%7%

Healthcarehighest growth rate of aggregate market value

242

320

250

319

237

330

240 2011

120

179

92 113

97

70

132

89 75 72

108

74 79

2012

2013

2014

29 11

31

57

11

39 20

36 56 65 66

17

46 30

14 33

67

13 37

22 38

55 67 70

19

48 40 17

40 62

12 28

18 41

51 75 72

16

53 31

17

47

74

23 24 25 20

46 61 65

79

18

56

자동차 소비자유통 레저 미디어/통신 필수소비재 헬스케어 정보통신 반도체 건설 운송 조선 철강 에너지/화학 은행 비은행금융 증권 보험

Car Distribution LeisureMedia/Telecommunica Consumer Health care ICT Semicon- Construc- Transpor- Ship

steelEnergy/ banking Non-bank Stock insurance


Source: NRI based on Financial Supervisory Service

Car Distribution Leisure communication goods Health care ICT ductor tion tation building steel

gychemical

banking financial Stock insurance

Business trends

5 Major construction companies’ sales and operating profit margin ratio have slightly risen5 Major construction companies sales and operating profit margin ratio have slightly risen, but cannot be expected to grow at a year-on-year basis.

Sales and Profit margin ratio of Korean 5 Major Construction CompaniesCAGR

(’04 ’14)

Portion

(‘14)Sales and Profit margin ratio of Korean 5 Major Construction Companies

Daewoo 7.5% 16%

7.9% 7.4% 7.6% 7.4% 6.1% 5.3%2.3%

4.8% 4.0%-0.4%

2.8%

(’04-’14) (‘14)

Total 10.5% 100%

9 9

61 GS 8.9% 16%

Profit margin ratio of 5 major construction companies

7 9

9.5

7 08.2

8.8

9.9

3336

3840

4549

Samsung 11.7% 24%(unit: trillion KRW)

9.3

6 86.0 7.2 7.3

8.9 13.4

14.9

5 6 5 7 6.0 6.9 7.4

7.9 8.5 8.5

7.9

4.8 5.1 5.7 6.1

6.6 7.1

6.7 7.0

22 24 26 28

33

Daerim 8.6% 15%

4.6 4.3 5.1 5.6 7.3 9.3 10.0 10.1 10.4 10.6 17.4

4.1 4.3 4.3 4.9 5.9

6.3 6.2 7.2 9.0 8.4 4.9 5.0 5.3 5.2

6.8 4.0 5.6 5.7

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Hyundai 14.1% 29%


Source: NRI based on Financial Supervisory Service

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Business trends

Investment in construction and facilities and its ratio to GDP has topped out in 2011.

Investment on Construction and Facilities, and its ratio to GDP

26.1%24.7%

25.9% 25.2% 25.4% 25.4% 24.6%22.7%

19 7% 19 3%

Since 1991, wane in construction and facilities investment Especially, falling rate of construction investment is high

19.7%18.1% 18.5% 18.3%

19.3% 18.7% 18.0% 17.2% 16.6% 15.7% 16.2%14.7%

13.5% 12.9% 13.5%13.1%11 3%10 8%

11.8%12.8% 13.1%

11 3% 10 8%

Construction Investment Ratio to GDP(Real)

Facilities Investment Ration to GDP(Real)

11.3%10.8% 10.2%11.3%

7.1%8.9%

10.8%9.5% 9.6% 9.2% 9.1% 9.2% 9.5% 9.8% 9.5%

8.6%10.1% 10.1% 9.7% 9.3% 9.5%

Construction Investment Facilities Investment

105 106 118 125 137 147 150 131 126 126 133 142 154 156 155 156 158 154 159 153 146 143 153 154

58 69 76 69 5775 69 74 73 76 80 86 94 93 84

106 109 107 106 112

(unit: trillion KRW)

46 46 46 58 41

57

'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14


Source: NRI based on The Bank of Korea, National Statistical Office(KOSTAT))

Business trends

Though foreign direct investment has dramatically soared since 2006 its total size of investmentThough foreign direct investment has dramatically soared since 2006, its total size of investment and average amount per investment has been reduced.

Size of Foreign Direct Investment

5.8 5 2

Size of Foreign Direct Investment

Average amount per investment

(unit: million USD)

2.2 2.2 2 1 2.2 2.2

3.5

2 0 1 92.5

3.5 4.1 4.2

5.2 4.5 4.3 Rapid increase in foreign direct

investment since 2006

2.2 1.4 1.4

2.1 2.0 1.6 1.6 1.4 1.2 1.2 1.1

1.9

30

37

3134

46

39

35 35

19

30 31

overseas direct investment

(Unit: billion USD)

2 2 2 4 5 7 6 6 5 6 6 7 6

9 10


'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: NRI based on National Statistical Office(KOSTAT))

Business trends

Interest rate consistently dropped to 1% after the bankruptcy of Lehman Brothers in 2008 LowInterest rate consistently dropped to 1% after the bankruptcy of Lehman Brothers in 2008. Low interest rate is expected to lead increment on liquidity.

Korea Interest Rate (‘97-’14)Korea Interest Rate ( 97- 14)

(단위: %)16

10yr Treasury Bond(average)

3yr Corporate Bond(average)

CD 91days

(단위: %)

12

14 CD 91days

Call Rate(1day,average)

Base Rate



8

10 5yr Treasury Bond(average)

Consistent downturn in benchmark rate since 1998

4.755.25

4 4.253 75 3 75

4.554

6

4 3.753.25

3.753

22.5

3.252.75 2.5

2 1.75

0

2

'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15


Source: NRI based on The Bank of Korea

Business trends

Both employment and unemployment rate has been improved since 2009 This is derivedBoth employment and unemployment rate has been improved since 2009. This is derived from increase in employment of middle-aged/elderly workers over their 50s.

Employment Rate and Unemployment Rate in Korea Employment Rate by AgeEmployment Rate and Unemployment Rate in Korea Employment Rate by Age

4 4

5.061

(unit: %)

59.859.5

59 159.4 59.5

60.2

60 3,500

(unit: population(million)) (unit: %)Improvement

in Employment Rate

60.0

59.859 7 59 7

59.8

60.2

4.4

4.0

3.3

3.63.7 3.7

3.5

3 2 3 2

3.63.7

3.43 2

3.53.5

4.0

4.5

60

26 274 289 311 329 349

58.6 58.759.1

58 2,500

3,000

Number

59.0

59.3

59.7 59.7

59.5

59.1

59.459.5

3.2 3.2 3.23.1

2.5

3.0

3.5

59

60

648 655 652 655 661 662 664 668

409 430 450 479 508 535 561 585

262 264 269 274 289

54

56

1,500

2,000

Number of

employeeover 50s(36.5%)

58.5

59.0

58.658.7

1 0

1.5

2.0

59 604 601 584 583 579 576 574 571

652 655 661 662 664 668

52 500

1,000

0.0

0.5

1.0

58

58

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Employment Rate

Unemployment Rate

399 389 378 371 365 361 357 363

50 0

'07 '08 '09 '10 '11 '12 '13 '14

10s 20s 30s 40s 50s over 60s Employment rate


Source: NRI based on National Statistical Office(KOSTAT)Note: Employment Rate=(employee/population over age 15)x100, Unemployment Rate=(The Unemployed/Economically Active Population)x100

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14



1-1 Business Trends






Office Market TrendOffice market in Seoul consists of 3 districts: CBD where government offices and corporate headquarters are located; CBD as a financial district; and GBD where IT related industry isheadquarters are located; CBD as a financial district; and GBD where IT-related industry is concentrated.

Office Market in Seoul by Business DistrictOffice Market in Seoul by Business District

CBD(Central Business District)

• Largest office district with the longest history in Seoul

• Formed in 1960s and is equipped with all basic infrastructure

• Highest rent cost

YBD(Yeouido Business District)

• Developed since late 1980s• Lower rent cost comparing to CBD or

GBD • Concentrated by Headquarters of

financial companies such as bank or

• Densely occupied by corporate headquarters, Korean(Seoul)branches of foreign firms, insurance/security firms, government offices, embassies and etc.

Seoul City hall

securities firms

GBD(Gangnam Business District)

• Formed after mid-1980s• Lower vacancy level comparing to

other districts due to less suppliesIT, Densely occupied by large Korean companies and global companies


Source: NRI Analysis

Office Market Trend

Office supply in Korea has been concentrated in CBD and YBD since 2010 and will expandOffice supply in Korea has been concentrated in CBD and YBD since 2010 and will expand to GBD after 2015.

Office Supply in SeoulOffice Supply in Seoul

CBD Centered (‘70~’86) GBD Centered(‘87~’09) ( )

CBD(‘10-’11)( )

YBD(‘12-’13)

GBD(‘14-)

120

140

160CBD GBD YBD

(unit: ten thousand ㎡)

80

100

120

40

60

80

0

20

40


Source: NRI based on Analyst Report

'70 '72 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

Office Market Trend

Large amount of prime office space supply resulted in approx 9% of office vacancy rate andLarge amount of prime office space supply resulted in approx. 9% of office vacancy rate and 85,000 KRW/3.3㎡ of rental fee.

Vacancy Rate of Prime Office Space in Seoul Rental Fee of Prime Office in SeoulVacancy Rate of Prime Office Space in Seoul Rental Fee of Prime Office in Seoul

14 0%

16.0%

Total CBD GBD YBD

total 110 000

120,000

Total CBD GBD YBD

(unit: KRW/3.3㎡/Month)

12.0%

14.0% total

100,000

110,000

8.0%

10.0%

80,000

90,000

4.0%

6.0%

60,000

70,000

0.0%

2.0%

40,000

50,000



'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14,

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Office Market Trend

The number of major office transaction in Seoul was 51 in 2014 Transaction of large-sizedThe number of major office transaction in Seoul was 51 in 2014. Transaction of large sized buildings contributed to the increase in total transaction value reaching 7 trillion KRW.

Number of Office Transaction and Total Transaction Value in SeoulNumber of Office Transaction and Total Transaction Value in Seoul

7 0770

CBD GBD YBD Oth (S l) BBD T t l T ti V l

(unit: trillion KRW)(Unit: Number of Transaction)

57

52 53

48

57 5859

515.5 5.6

6.0

7.0

5

6

50

60

CBD GBD YBD Other (Seoul) BBD Total Transaction Value

35

42 4139 38

48

4.1 4.2

4.8 4.6

4

5

40

50

2526

1.7 1 9

2.6

2.2

2.8 2.6

2

3

20

30

80.4

1.9

1.2

0

1

0

10



'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Office Market Trend

Sales price of office is approx. 4,600,000 KRW/㎡ and Cap. Rate is 5.9%.p pp p

Transacted Gross Area by Business District and Sales Price of Office Space per ㎡ in SeoulTransacted Gross Area by Business District and Sales Price of Office Space per ㎡ in Seoul

7000140CBD GBD YBD Other (Seoul) BBD Sales price per ㎡ Cap Rate

(unit: 10 thousand ㎡) (unit : thousand KRW)

4 632 5000

6000

100

120

( ) Sales price per ㎡

9.2%

p

2 818

3,658 4,034

3,513 3,760

4,103 4,284 4,297

4,632

4000807.9%

7.3%

6 7% 6.8%

2,344 2,488 2,818

2000

3000

40

606.7%

6.2% 6.3%6.6%

6.8%

6.0%

5.4%

5.9%

0

1000

0

20



'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Office Market Trend

Investment by foreign institutions induced the rise of average sales price of office spaceInvestment by foreign institutions induced the rise of average sales price of office space. Average sales size is approx. 10,000 per 3.3㎡ and sale price is 15.3 million KRW/3.3㎡.

Sales Price of Office Space in Seoul per Unit Area by Business District(Transaction in 2014)Sales Price of Office Space in Seoul per Unit Area by Business District(Transaction in 2014)

30003000

(Sale Price: per 3.3㎡ 10thousand KRW/3.3㎡) (unit: 10 thousand KRW/3.3㎡)

Wategate State towerAverage Area of Transaction28 900(m2)

2500 2500

1,896 thousand KRW

gbuilding

State-towerNamsan

Gran Seoul(A-dong)

Fine AvenueA

28,900(m )

YG T

1500

2000

1500

2000

1,822 thousand KRW

1 339 thousand KRW

JamsilHyang-gunTower

Average Sales Price of Transaction: 1,530 (10 thousand KRW / 3.3m2)

Olive TowerYG Tower

Dongyanglifebuilding

1000 1000

1,339 thousand KRWTower

0

500

0

500

CBD

Acquisition by Foreign Investment Company

Acquisition by Domestic Investment Company


Note: Analyzed 33 Office Transaction mainly made at CBD, GBD and YBD in 2014 / Final Consumption Expenditure=Household Final Consumption Expenditure + General Government Final Consumption Expenditure / **Expected Figure is Reported by IMF


- 20,000 40,000 60,000 80,000 100,000 120,000 CBD GBD YBDArea of Transaction(㎡)

Office Market Trend

Cap Rate of office market in 2014 is around 5 9% Its spread with treasury bond is nearlyCap. Rate of office market in 2014 is around 5.9%. Its spread with treasury bond is nearly 3%.

Cap Rate of Office in Seoul and Trend of Treasury BondCap. Rate of Office in Seoul and Trend of Treasury Bond

16% SpreadCap. Rate

(단위: % )

11.9%11.1%12%

14% Treasury Bond(5 year)

9.8% 9.7%9.2%

7.9%7.3%

6.7%6 2% 6 3% 6.6% 6.8%

8.7%

6 2% 6 3%

8%

10%

6.2% 6.3% 6.0%5.4%

5.9%6.2% 6.3%

4.8%4.4% 4.5%

5.0% 5.3% 5.4%

4.6%

4.3%3.9%

3.2% 3.0% 2.8%4%

6%

0%

2%


Source: NRI based on Media Research

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14



1-1 Business Trends






Household Economy and Housing market trends

Population in Korea as well as in capital area is expected to downturn from 2018.

Population in Nationwide Population in Metropolitan AreaPopulation in Nationwide

(unit: household(thousand)) (unit: population(thousand))2018

Population in Metropolitan Area

(unit: population

(thousand))

비수도권인구 수도권인구 수도권비중Population in non-

Population in capital

ratio of capital

49500

50000

50500

17000

19000

21000 Household

population

2018 (thousand))

49.3%49.7%

50.0% 50.2% 50.2%

50%

51%

50 000

60,000

capital area

area area

47500

48000

48500

49000

13000

15000

46.3%

48.2%

47%

48%

49%

30 000

40,000

50,000

46000

46500

47000

47500

7000

9000

11000 45.3%

44%

45%

46%

10,000

20,000

30,000

45500

46000

5000

'00 '05 '10 '15 '20 '25 '3042%

43%

-

,

1995 2000 2005 2010 2015 2020 2025 2030


Source: NRI based on National Statistical OfficeNote: Data is estimated based on Population statistics of 2005 / Employees includes people who did searching activities for job for more than 4wekks


Due to gradual increase in single person/two person households elderly households with financialDue to gradual increase in single person/two person households, elderly households with financial compatibility will become the most significant consumer group in real estate market.

Ratio of Household per number of membersRatio of Household per number of members

90%

100%

60%

70%

80%

40%

50%

60%

10%

20%

30%Increase of 1~2person household(41%)

0%

2000 2005 2010 2015 2020 2025 2030 2035

Single person household 2 person household 3 person household 4 person household Over 5 person household

(41%)


Source: NRI based on National Statistical Office(KOSTAT)Note: Predicted Data is estimated on the basis of Census in 2005


Valorization Policy maintains Consumer Price Index at approximately 1%.y y

Changes in Consumer Price Index(CPI) Year-on-year Ratio

15.3

6 CPI

CPI for living necessities

Changes in Consumer Price Index(CPI) Year on year Ratio

(Unit : Year-on-Year, %)

4.7

3 7

5.1

4

4.9

4

4.4

4

5

4.1

3.5 3.6

3

4

3.7

2.5

3.1 3.23.4

3

4

2.3

2.8 2.8

2.22.5

2.83

2.2

2.1

1.7

0 8

2

1.3 1.30.7 0.8

0

1

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14


00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Source: NRI based on The Bank of Korea, Media Reserch

Note: CPI indicates monthly weighted average of 481product categories which standardizes year 2010 as 100CPI for living necessities indicates weighted average of 142 product categories out of 481 which are designated as daily necessities or purchased frequently

Business trends

Benchmark interest rate default rate on household debt and credit card default rateBenchmark interest rate, default rate on household debt, and credit card default rate somewhat fluctuates but continuously descends.

Default rate on household debit in Korea

10.81210

Default rate on household debit in Korea

(default rate, unit: %)(benchmark interest rate, unit: %)

7.5 7.3

10

8

108

5.2 6

4

6

2.5

1.61.9

2.2 21.3

0.8 0.7 0.7 0.6 0.8 0.8 1 0.8 0.7

2.8

21.7

2.21.8 1.7

2.3 2.4 2.2 2.2

2

4

2

00

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

The Bank of Korea’s benchmark interest rate(year-end) default rate on household debt credit card default rate


(y )

Source: NRI based on The Bank of Korea, Financial Supervisory Service, IMFNote: Benchmark Interest Rate from The Bank of Korea / Default Rate on Household Debt and Credit Card Default Rate from Financial Supervisory Service (Seasonal Adjustment, Year-End) and IMF


Land Price Index and land transaction volume shows gradual upward trend.g

Land Transaction Volume and Land Price Index1)

98 2100.2

Land Transaction Volume and Land Price Index1)

(Lot unit: 10 thousand number of case )

90.0 93.5 93.2 94.1 95.1 96.2 97.1 98.2

264 264

Land Price Index1)

CAGR264

224 229 223207

233

204224

26413.8%

Land TransactionVolume

(unit: Number of Lot)

3928 26 23 17 19 16 20 26 National

Seoul

CAGR27.5%


Note: Based on Land Price Index: 2014.12.1 = 100Source: NRI based on Real Estate Official Statistics Network (http://www.r-one.co.kr)

'06 '07 '08 '09 '10 '11 '12 '13 '14

Housing transaction volume reached its peak in 2006. Though it had showed general declining Household Economy and Housing market trends

Housing Transaction Volume(National)

g p g g gtrend since 2007, it recently started to bounce back.

Housing Transaction Volume(National)

1,082,453800,0001,200,000

Nationwide Capital Area Seoul Rural Areas (unit: number of transaction) Transaction volume of capital area

accounts for 43% of that of nationwide

(unit: number of transaction)

1,082,453

867,933893,790 870,353

799,864

981,238

851,850

1,005,173

697,676

608 424600,000

700,0001,000,000

,735,414

482,533

449,867

462,111443,923

475,075517,361

608,424

463,459488,757

543,062

400,000

500,000

600,000

800,000

395,278

282,503

372,814

271,955

363,093

263,599

384,777 385,400

200,000

300,000400,000

159,396 147,023 138,016

88,737114,315

83,257111,889

148,266

0

100,000

0

200,000


Source: NRI based on data from Onnara Real Estates (http://www.onnara.go.kr)

'06 '07 '08 '09 '10 '11 '12 '13 '14


Total supply of housing units is 730 000 units Supply of Apartment and Officetel increasedTotal supply of housing units is 730,000 units. Supply of Apartment and Officetel increased, whereas that of urban-type housing and multi-unit dwelling is on the decline.

Housing Supply By types of housingHousing Supply By types of housing

804 019

854,095 800,000 900,000 Total Apartment Multi-unit dwelling Officetel Urban-type housing

(unit: number of housing supply (unit: number of house)

644,512

804,019

658,025

726,726

600,000

700,000

700,000

800,000

544,909

459,887 468,642 504,481

412,891 476,462

356,762 376,086 347,687 400,000

500,000

400 000

500,000

600,000

263,153 297,183 276,989 278,739

106 251

152,042 219 823

349,661 340,477

277,594 274,869

124 000200,000

300,000

200,000

300,000

400,000

106,251 186,637

163,357

219,823

25,767 16,008 10,097 8,102 7,669 13,596 13,532 32,692 41,170

84,000 124,000

69,000 63,000

-

100,000

-

100,000

,


Source: NRI based on data from Onnara Real Estates (http://www.onnara.go.kr)

'06 '07 '08 '09 '10 '11 '12 '13 '14

Household Economy and Housing market trendsAverage Housing Price Index has slightly increased. Housing Price index in Seoul capital area recovered from decrease to stagnation and that of in rural areas maintains itsarea recovered from decrease to stagnation, and that of in rural areas maintains its upswing.

Housing Price Index1) (10 years) Housing Price Index1) (3years)Housing Price Index1) (10 years) Housing Price Index ) (3years)

120

(unit: index)

110.0

(unit: index)

110

103.4

104.8 105.0

90

100

100.5

102.4

100.4

100.1 100.0

80 National Average

Seoul capital Area

97.6

95.0 National Average

Seoul capital Area

60

70 Seoul

Rural Area 90.0

'12 '12 '12 '12 '13 '13 '13 '13 '14 '14 '14 '14

Seoul

Rural Area


Note: Standard of National Housing Price Index: March in 2013 = 100Source: NRI based on KB Bank

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q


Size of auctioned assets has increased by 3 5 times in recent 10 yearsSize of auctioned assets has increased by 3.5 times in recent 10 years. Ration of sale value recovered to 70% in 2014.

Size of Auctioned Assets1) and ratio of sale value2)

70 8% 71.8%70 4%

73.2%71.8%

70 3% 70 4%

Size of Auctioned Assets1) and ratio of sale value2)

(Unit: trillion KRW)

70.8%

67.0% 66.8%

70.4% 69.6%67.7%

70.3%67.8% 68.1%

70.4%Ratio of sale value2)

21.5

0 8 0.8 0 9 1 0

1.2 1.3

1 21.0 1.0 0.9 0.9

1.1 1.1 3.6 3.3

5.7 4.9 4.7 4.9

5.7 4.6 ApartmentSingle/Multi Household House

Row House/Multiplex

4 95.4

5.4 5.0 4.1 4.1 3.8

1.9

2.3 2.3 2.4 2.7

4.0 3.6 3.6 3.5 4.2 4.5

1.7

2.1 1.9

1.0 0.7

0.8 0.9 1.0

0 6 0.7

1.2

1.4 1.2

1.0 0.8

0 71.6

2.8 2.6 3.4

Land/Forest/Field

Shopping Area/Office-tel/Neighboring Facilities6.4

1.6 2.0 2.8 3.6 3.4 2.4 2.4 3.9 4.6 4.6 5.1 6.2 6.2 1.9 1.9

2.7 4.2 4.9

4.5 4.0 1.2 1.4

1.9 0.4

0.7 0.6 0.7

ETC.


Note: 1) Size of Auctioned Assets is based on Assessed Value, 2) Ratio of sale value = (Sale value / Appraised Value) * 100Source: NRI based on Auction Statistics of Supreme Court

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14


House lease index has consistently illustrated upward trend In particular house lease indexHouse lease index has consistently illustrated upward trend. In particular, house lease index in capital area is higher than nationwide average.

House Lease Index of Nationwide/capital Area (3 years) House Lease Index of Nationwide/capital Area (3 years)House Lease Index of Nationwide/capital Area (3 years) House Lease Index of Nationwide/capital Area (3 years)

(unit: index (unit: index)

115 120

108.4

110.5

109.9 110

100

110

105.8

100

105

90

100

96.3

97.4

95.2 95

100

National Average

Seoul capital Area

l

80 National Average

Seoul capital Area

l

90 '12

1Q

'12

2Q

'12

3Q

'12

4Q

'13

1Q

'13

2Q

'13

3Q

'13

4Q

'14

1Q

'14

2Q

'14

3Q

'14

4Q

Seoul

Rural Area

60

70

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Seoul

Rural Area


Note: Based on National House Lease Index: October in 2012 = 100Source: NRI based on Korea Appraisal Board

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q05 06 07 08 09 10 11 12 13 14


Leasing cost is 62% of National Housing Price and 60% for Seoul capital area.g g

National Leasing Cost to Housing PriceNational Leasing Cost to Housing Price

70

(unit: %)

CAGR

50

60 Nationwide1.0%

30

40

10

20

0

'11 3Q '11 4Q '12 1Q '12 2Q '12 3Q '12 4Q '13 1Q '13 2Q '13 3Q '13 4Q '14 1Q '14 2Q '14 3Q '14 4Q

Nationwide Capital area Seoul Rural area


Source: NRI based on Economic Statistics Bureau in the Bank of Korea, IMF(Global Financial Stability Report, 2013) Report

Nationwide Capital area Seoul Rural area


Monthly lease index in Seoul capital area has declined since 2013 Deposit (Jeonsei)-to-Monthly lease index in Seoul capital area has declined since 2013. Deposit (Jeonsei) toMonthly-Rent Conversion Rate also led to the decline of profitability.

Monthly Leasing Index and Deposit(Jeonsei) to Monthly Rent Conversion RateMonthly Leasing Index and Deposit(Jeonsei)-to-Monthly-Rent Conversion Rate

9.1 9.1 9 0 9 0 9 0 8 9Deposit(Chonsei)-to-Monthly-Rent Conversion Rate (%)

(unit: index)

9.0 9.0 9.0 8.9 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.7 8.6 8.5 8.4 8.3 8.3 8.3 8.3 8.3 8.3 8.2 8.2 8.1 8.1 8.0 7.9 7.8 7.7

105

100 100 100

105

98

96 95 95

N i l A C i l A S l 5 li i i

90

'12 '12 '12 '12 '12 '12 '12 '12 '13 '13 '13 '13 '13 '13 '13 '13 '13 '13 '13 '13 '14 '14 '14 '14 '14 '14 '14 '14 '14 '14 '14 '14

National Average Capital Area Seoul 5 metropolitan cities


Source: NRI based on Korea Appraisal Board

05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12 01 02 03 04 05 06 07 08 09 10 11 12


2015 Housing Policy trend is expected to continue supporting vitalization of housing sales2015 Housing Policy trend is expected to continue supporting vitalization of housing sales and stabilization of housing lease.

Current 2 Years’ Trend of Housing Policy (Since Park Gunhye cabinet started)Current 2 Years Trend of Housing Policy (Since Park Gunhye cabinet started)

20142013 2015

Stagnation in Seoul capital area, Upturn Stagnation in Seoul capital area was Recovery of sales volume

Abolition of heavy imposition of Amelioration of regulation on house Extension of sharing type of

Market SituationStagnation in Seoul capital area, Upturn in Non-Seoul capital area Acceleration in aggravation of shortage

of Jeonsei and Monthly-Rent-Conversion

Stagnation in Seoul capital area was slightly ameliorated,. Upturn in Non-Seoul capital area was slowed Persistence of aggravation of shortage

of Jeonsei and Monthly-Rent-Conversion

Recovery of sales volumeoverall stagnation is expected to liger Aggravation of shortage of Jeonsei and

Monthly-Rent-Conversion is expected to persist

Vitalization of Sales Market

Abolition of heavy imposition of transfer tax on owners of more than one houseReduction of acquisition tax Introduction of sharing type of

mortgage

Amelioration of regulation on house reconstruction permit on vertical extension reconstruction Promotion of housing purchase by improvement

of housing subscription system Interest rate reduction for fist time housing buyers

Extension of sharing type of mortgage (1.27)

Policy for Vitalizationof Sales Market

Support of Jeonsei loan E di t f l

Interest rate reduction for fist-time housing buyersRelaxation of Price ceiling regulation on the new

apartment price

Support for rental housing REITs Support for rental business ti (1 13)

will be continued

Vitalization of Leasing Market

Expanding support for lease business operator Support for Semi-public rental

housing by National Housing Fund Launching of Housing choice

voucher program

Change tax system of rent from deduction to tax creditRelaxation of regulation and tax support

for Rental housing/Semi-rental housing Support for rental business corporation

corporation(1.13)

Policy for Stabilization of Lease Market will be

continued


Source: NRI based on 국토교통부 정책자료

p g Introduction of loan system for monthly

lease

continued



1-1 Business Trends






Hotel Market trends

The number of tourists visiting Korea has been growing reaching annual average of 10% ItThe number of tourists visiting Korea has been growing, reaching annual average of 10%. It exceeded 14 million with Chinese and Japanese tourists consisting 60% of total.

Numbers of International Tourists Visiting Korea and ExpectationNumbers of International Tourists Visiting Korea and Expectation

58.1%59.2%

60.0%2,500

Percentage of Chineseand Japanese tourists

(unit: 10 thousand people, % )

52.3% 52.5%51.2% 51.5%

56.2% 55.7% 56.2%57.1%

55.0%

2,000

and Japanese touristswithin Total International Tourists

45.0%

50.0%

1,500

1,114 1,218 1,420

1,547 1,726

1,927 40.0%

1,000

602 616 645 689 782 880 980 1,114

30.0%

35.0%

-

500

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15(E) '16(E) '17(E)


Source: NRI based on Tourism Knowledge and Information System, Media Research

05 06 07 08 09 10 11 12 13 14 15(E) 16(E) 17(E)

Hotel Market trendsEconomic growth led to an upsurge of Chinese tourists. They account for the largest percentage since 2013 The number of Japanese Tourist has been diminishing owing to diplomatic matters and change in2013. The number of Japanese Tourist has been diminishing owing to diplomatic matters and change in exchange rate since 2012.

Number of Japanese Tourists Visiting KoreaNumber of Chinese Tourists Visiting Korea Number of Japanese Tourists Visiting KoreaNumber of Chinese Tourists Visiting Korea

6,9597,572

8,000700

1,800

2,000 700

(unit: 10 thousand people)

The number of Chinese tourists is related with

(unit: 10 thousand people)

The number of Chinese tourists is highly associated

5,429

6,194

6,000

7,000

500

600

1,397

1,265

1,394 1,481

1,238 1,400

1,600

500

600 exchange rate (R2=69.8%)with economic power(R2=91.9%)

6132 652

3,4243,826

4,437

4,000

5,000

300

400

(GDP per Person($))

859 783

829

1,002 913

800

1,000

1,200

300

400 (KRW-100 YEN)

222284

4331,749

2,125

2,652

2,000

3,000

200

244 234 224 238305 302 329 352

275228

400

600

200

71 90 107 117 134188

222

0

1,000

0

100

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14Financial Crisis

224 228

-

200

0

100

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14Financial CrisisChina


Source: NRI based on Tourism Knowledge and Information System, Nara Indexes of National Statistical Office(KOSTAT), World Bank(World Economic Outlook)

Financial CrisisRelaxation of Visa Requirement

for Chinese visitors

Financial CrisisChina became the

firstA weak yen

beganKorean Wave

continued

Diplomatic tension between Korea

and Japan

Hotel Market trends

Independent Tourists comprise the majority of international tourists Though average lengthIndependent Tourists comprise the majority of international tourists. Though average length of stay demonstrates upswing, that of Chinese tourists shows downturn.

Types of International Tourist Average Length of Stay of International TouristsTypes of International Tourist Average Length of Stay of International Tourists

17 3

Total Average

(unit: %) (unit: day)

Airtel Package Group Tour Independent Travel17.3

12 6 12 4

Japanese Tourist

Chinese Tourists

10.9

11.5 12.6 12.4

9.5 9.2

10.9

8.4

9.9

7 7

62% 60% 64% 66% 62% 63% 65% 64% 66%

6.8

8.1 7.4

6.5 6.7 7.0 6.6 7.7 7.4

5.6

7.7

27% 29%28% 26%

27% 27% 27% 25%

3.6 3.7 3.3 3.1 3.2 3.2 3.3 3.5 3.6

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

11% 11% 8% 8% 11% 11% 9% 10% 6%

28% 26% 27% 25%28%

'05 '06 '07 '08 '09 '10 '11 '12 '13


Source: NRI based on Ministry of Culture, Sports, and Tourism, International Tourists Reports, Tourism Knowledge and Information System

05 06 07 08 09 10 11 12 13 1405 06 07 08 09 10 11 12 13

Hotel Market trends

Female international tourists in their 20’s visiting Korea are largest in volume followed byFemale international tourists in their 20 s visiting Korea are largest in volume, followed by male international tourists in their 40’s and female international tourists in their 30’s.

International Tourists by Sex and AgeInternational Tourists by Sex and Age

Top 5 in 2012 (unit : 10 thousand people) Top 5 in 2013 (unit : 10 thousand people) Top 5 in 2014 (unit : 10 thousand people)

139 No. 1

Women in their 20s147

No. 1

Women in their 20s186

No. 1

Women in their 20s

109 No. 2

Men in their 40s

No. 3

119 No. 2

Women in their 30s

No. 3

153 No. 2

Men in their 40s

No. 3

106

108 Women in their 30s

No. 4

M i th i 30 111

112 Men in their 40s

No. 4

M i th i 30 123

126 Women in their 30s

No. 4

M i th i 30

99


No. 5

Women in their 40s 105


No. 5

Women in their 40s 119


No. 5

Women in their 40s


Source: NRI based on Ministry of Culture, Sports, and Tourism, International Tourists Reports, National Statistical Office(KOSTAT)

Hotel Market trends

Purpose of international tourists is sightseeing accounting for 60% Chinese tourists tend toPurpose of international tourists is sightseeing, accounting for 60%. Chinese tourists tend to mainly visit Seoul and Cheju, and Japanese tourists cover Seoul and Busan.

Purpose of international tourists visiting Korea (2013) Visit Place of International Tourists in Korea*(2013)

Religion

/Pilgrimage, ETC, 0.2%

100%

(unit : %, Duplicated Answers Adjusted)

Purpose of international tourists visiting Korea (2013) Visit Place of International Tourists in Korea (2013)

Leisure/

Education,

5.9%

Friend/

Family Visit,

9.7%

/ g g ,

1.0%

49% 47%60%70%

80%

90%

Seoul

Recreation/

Holiday,

48.2%

Business

/Professiona

l Activities,

23 4% 16% 16%

50%

60%

Incheon/

Shopping,

10 6%Beauty/

23.4%

7% 14%

10%21% 3%

16% 6%

10%

20%

30%

40%

Busan

Jeju

Gyunggi

10.6%Beauty/

Health/

Medical,

1.0%

Tourism Related59.8% 18%

12% 13%

7%

5%

14%

0%

10%

20%Busan

ETC


Source:: NRI based on Tourism Knowledge and Information System

International Tourists Chinese Tourists Japanese Tourists

Hotel Market trends

70% of international tourists enter Korea through Seoul (Incheon Airport Gimpo Airport Incheon70% of international tourists enter Korea through Seoul (Incheon Airport, Gimpo Airport, IncheonHarbor). The number of tourists entering Korea through Jeju has increased due to Chinese tourists.

Entrance Place by International TouristsEntrance Place by International Tourists

1,600

ETC

(unit: 10 thousand people) CAGR of ‘10~’14(Current 5 years)

142 71 139

202

1,200

1,400 Seoul (Incheon Airport, Gimpo Airport,

Incheon HarborBusan(Gimhae Airport, Busan Harbor

Jeju(Jeju Airport)

47.0%

8.3%(10.0%)

(14.2%)

(11.4%)(6 4%)

91103

115

128 140

30 37

43

45

800

1,000

Jeju(Jeju Airport) (10.0%)

(11.5%)

( )

(11.5%)

(6.4%)

(11.7%)

(4.6%)

616691

772 865 881

991 82 76 80 89

91 20 28 35

400

600

부산

제주 9.5%(69.8%)

(72.4%)(77.6%)(78.8%)

37 39 38 38 37 42 48 51 57 84

463 473 491 532 616

-

200

서울

기타 18.8%

( )


2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source:: NRI based on Tourism Knowledge and Information System

Hotel Market trends

Expenditure of Chinese tourists has shown upsurge to 2 300$ in 2013 whereas approxExpenditure of Chinese tourists has shown upsurge to 2,300$ in 2013, whereas approx. 66% of Japanese tourists spent less than 1,000$ in 2013.

Average Expenditure of international tourists per person Average Expenditure of Chinese/Japanese tourists per person(2013)g p p p g p p p p ( )

$2,272

(unit: $) (unit: %)

25% of Chinese Tourists spend over than 3 thousand dollars, and 20% of them do 1,000~1,500 dollars

15% 19% 16% 17%25%

$1,940

$2,154

8%15%

Under $500 $500~

$1,000

$1,000~

$1,500

$1,500

~$2,000

$2,000

~$3,000

Over $3,000

$1,558 $1,646

$1,224$1,298

$1,410 $1,530

$1,648

$1,073 $1,076 $1,081 $1,173 $990

$1,224

25%

41%

18%7% 5% 4%

'09 '10 '11 '12 '13

Chinese Tourist Japanese Tourists

International Tourists(Total)

60% of Japanese tourists spend less A weak yen Diplomatic


Source: NRI based on International Tourists Reports, Ministry of Culture, Sports, and TourismSource:

than 1 thousand dollarsA weak yen beganKorean Wave

continued

Diplomatic tension between

Korea and Japan

Hotel Market trends

Japanese tourists’ accommodation expenses is around 213$ (234 000 KRW)/double room/one dayJapanese tourists accommodation expenses is around 213$ (234,000 KRW)/double room/one day. This is higher than that of Chinese tourists, resulting in the rise of hotel room rate.

Expenditure of Chinese and Japanese Tourists by purpose (2013)Expenditure of Chinese and Japanese Tourists by purpose (2013)

(unit: $)

$1 431 Shopping $340

$386

$1,431

Accommodation

Shopping

$266

$340

Spend $115.2 per day for Accommodation(2

Spend $212.8 per day for Accommodation

$345 Food/Beverage $147

person/1 room)(1.9 person stayed at one room in

7.7 days in average (2013)Supposed that stayed 6.7 days using 2 person/1 room)

(2 person/1 room)(1.9 person stayed at one room in 3.6 days in average (2013)Supposed that stayed 2.6 days using 2 person/1 room)

$95

$201

Transportation

Recreation/Culture/Sports

$49

$73

using 2 person/1 room) g p )

$65

$95

ETC

(Including Korean Travel Agency)

Transportation

$56

$49

Spend $2,523 in Total

Spend $931 in Total


Note:* For group tourists, as accommodation fee is included in “expenditure before Leaving,” accommodation expenses is estimated based on individual touristSource: NRI based on International Tourists Reports, Ministry of Culture, Sports, and Tourism

( c ud g o ea a e ge cy)Total(per individual tourist)

Total(per individual tourist)

Hotel Market trends

Hotel reached 69% of accommodations where foreign tourists stayed in 2013 The ratio ofHotel reached 69% of accommodations where foreign tourists stayed in 2013. The ratio of non-hotel accommodations such as guest house demonstrates slow increase.

Annual Use Rate of Accommodation by International TouristsAnnual Use Rate of Accommodation by International Tourists

(unit: %)

78%

Hotel use rate(%)

78%75% 76% 75%

77%

74%

68%67%

69%

11%11%

67%

3%3% 3% 3%

2% 2%4%

4%6%8%

8% 7% 7%6%

8%

11%11%

11%

11% 14% 15% 16% 14% 15% 16% 18% 15%

'05 '06 '07 '08 '09 '10 '11 '12 '13


Note: : As types of answers changed from single choice to multiple one in 2011, the number of answers was re-adjusted to the ratioSource: NRI based on International Tourists Reports, Ministry of Culture, Sports, and Tourism

Youth Hostel/Guest House/Inn Resort/Pension/Residence ETC(Relatives/Friends/School/etc)

Hotel Market trendsThough international tourists travelling to Korea has risen, increase in room supply resulted in decline of occupancy rate In addition decrease of Japanese tourists to Korea led to decline of average roomof occupancy rate. In addition, decrease of Japanese tourists to Korea led to decline of average room rate in 2013.

The number of hotel rooms and Occupancy rate in Nationwide Nationwide Hotel Average Daily Rate 1)The number of hotel rooms and Occupancy rate in Nationwide Nationwide Hotel Average Daily Rate 1)

90,000 70.0% Number of Rooms(Room)

(Unit: 10 thousand people, %)1) Occupancy Rate(OCC: Occupancy)=Number of Rooms/Available Rooms×100

130,352

(unit: KRW)2) ADR(Average Daily Rate)=Room Revenue/Available Rooms

64.3%65.8% 65.9%

63.7%85,000

65.0%

Occupancy Rate(OCC, %)

112 378

119,592

,128,351

Chinese tourists’ average expenses for accommodation (127,000KRW)

74,737

79,393

57.3% 57.5%58.2%

60.4%

75,000

80,000

60.0% 104,809

100,234 99,363

106,325 109,435

112,378

Slight downturn in 2013 due to decrease in the number of

Japanese tourists and increase

67,171 68,583

70,763

53.3%

65,000

70,000

50.0%

55.0%

Japanese tourists and increase in that of Chinese tourists

60,000 45.0%

'05 '06 '07 '08 '09 '10 '11 '12 '13 '05 '06 '07 '08 '09 '10 '11 '12 '13Financial Crisis A weak yen Diplomatic Financial Crisis A weak yen Diplomatic


Source: NRI based on Tourism/Accommodation Industry Report, Tourism Knowledge and Information System, Korea Hotel Association

Financial CrisisRelaxation of Visa Requirement for Chinese visitors

A weak yen beganKorean Wave

continued

Diplomatic tension between Korea and Japan

Ratio of China became the first



continued



Hotel Market trends

Hotel revenue per available room increased but turned downwards in 2013 Annual revenue perHotel revenue per available room increased but turned downwards in 2013. Annual revenue per available room including profits from other facilities rapidly descended in 2013.

Nationwide Hotel Revenue per Available Room1) Annual hotel revenue per Available Room2)Nationwide Hotel Revenue per Available Room1) Annual hotel revenue per Available Room2)

85,902

81 760

(unit: KRW)1) Revenue per Available Room (RevPAR)=occupancy rate * average daily room rate

(ADR)

(Unit: 10 thousand KRW)2) ADR(Average Daily Rate)=Room Revenue/Available Rooms

72,259

78,692

81,760

4 783

5,040 5,094

60,056 57 134

61,881

66,099

4,568

4,783

4,576

53,425

57,134

'05 '06 '07 '08 '09 '10 '11 '12 '13 '09 '10 '11 '12 '13A weak yen DiplomaticFinancial Crisis A weak yen Diplomatic




continued





continued



Hotel Market trends

While the number of room in luxury hotel (special first ratings) increased overall hotel room occupancyWhile the number of room in luxury hotel (special first ratings) increased, overall hotel room occupancy rate has decreased since 2012 which was followed by decline in average room rate in 2013.

Average Hotel Room rate by RatingsHotel Room Occupancy Rate by RatingsNumber of Hotel Room by Ratings Average Hotel Room rate by RatingsHotel Room Occupancy Rate by RatingsNumber of Hotel Room by Ratings

73% 73%special

(unit: 10 thousand KRW)

18.9special first

(unit: %)

25,949special first grade

special second grade

(unit: room)

69%

73% 73%72%

68%65%67%

72%70%

69%

first grade

15.7

14.7 14.4

15.6

15 7

16.3

17.6 18.9grade

21,78522,288

24,09624,991


first grade

63%62% 65%

68%64% 65%67% 67%

61% 61% 61%

15.7

9 9

11.510.5

57%

53% 54%55% 54%

59% 9.0 9.08.6 8.9

9.4 9.7 9.9

7 27.8

8.5 8.113,983 14,05213 341 13 485

15,25514,282 14,280 13,992 14,292

15,779

53%

51%

'05 '06 '07 '08 '09 '10 '11 '12 '13Financial Crisis

6.1 6.1 6.36.7 7.1 7.2

'05 '06 '07 '08 '09 '10 '11 '12 '13A weak yenDiplomatic

13,341 13,485

'09 '10 '11 '12 '13A weak yen Diplomatic Financial Crisis A weak yenDiplomatic


Source: NRI based on Tourism Knowledge and Information System



continued


Korea and Japan


continued


Korea and Japan



continued


Korea and Japan

Hotel Market trends

Revenue per available room in every hotel ratings rose until 2012 with a modest decrease in 2013Revenue per available room in every hotel ratings rose until 2012 with a modest decrease in 2013. Annual revenue per available room including profits from sub-facilities decreased at a sharper rate.

Revenue per Available Room by Hotel Ratings Annual Revenue per Available Room by Hotel RatingsRevenue per Available Room by Hotel Ratings Annual Revenue per Available Room by Hotel Ratings

(unit: 10,000 KRW)

13 5

special first grade


(unit: 10,000 KRW)

special first grade


10.0 10.110.9

11.912.8

13.512.8


first grade

9,158 9,801 10,071

10,556 9,841

first grade

9.1 9.2

5.8 5 6 5.9 6.3 6.57.1

8.17.2

4,466 4 2214,537 4,551 5.8

5.15.6

3 2 3 1 3.4 3.7 3.84.4

4.85.2

4.8

4,221 3,692

2 267 2,4773.2 3.1 3.4

'05 '06 '07 '08 '09 '10 '11 '12 '13엔저시작 한일관계

2,047 2,171 2,267 2,477 2,031

'09 '10 '11 '12 '13DiplomaticA weak yen began


Source: NRI based on Tourism Knowledge and Information System

엔저시작한류유지

한일관계냉각

Diplomatictension Between

Korea and Japan


continued

Hotel Market trends

Increase of hotel supply resulted in visible rise in room occupancy rate in Seoul This led toIncrease of hotel supply resulted in visible rise in room occupancy rate in Seoul. This led to sharp decrease in average hotel room rate in 2013.

Average Hotel Room Rate by RegionHotel Room Occupancy Rate by RegionNumber of Hotel Room by Region Average Hotel Room Rate by RegionHotel Room Occupancy Rate by RegionNumber of Hotel Room by Region

78%81%

79%

SeoulBusan28,342

Seoul

Busan

(unit: 10 thousand KRW)(unit: %)(unit: room)

17.1 Seoul

Busan

69% 69%71%

77%78% 79%

75%75% 76%

78%

78%Jeju

22,360 22,15023,824

25,710Jeju

13.6 13 2

13.7

14.9 15.6 15.9

13 1

Jeju

4,518 of rooms of hotel in Seoul increased between 69%

66%

69%

64% 64% 64%63%64% 65%

70%13.0

12.7 13.2

10.4 10 210.5 10.8

11.2

12.1

13.1

12.1

13.1

Seoul increased between‘11~’13

52%54%

56%

61%63%

6 449 6,729 6,688 6,936 6,950

6,676 6,676 6,676 6,810 7,464

10.0 10.4

9.7 10.2

9.5

8 5 8 3

9.6 9.5 10.0

11.1

52%

50%

52%51%

'05 '06 '07 '08 '09 '10 '11 '12 '13

6,449 6,729 6,688

'09 '10 '11 '12 '13

8.5 8.3

'05 '06 '07 '08 '09 '10 '11 '12 '13Financial Crisis Financial Crisis A weak yenDiplomaticA weak yenDiplomaticA weak yen Diplomatic






continued


Korea and Japan


continued


Korea and Japan


continued


Korea and Japan

Hotel Market trends

Revenue per available room of Jeju and Busan has increased However that of Seoul inRevenue per available room of Jeju and Busan has increased. However, that of Seoul in 2013 has sharply declined with the city’s annual revenue per available room.

Revenue per Available Room of Hotels by Region Annual Revenue per Available Room of Hotels by RegionRevenue per Available Room of Hotels by Region Annual Revenue per Available Room of Hotels by Region

12 6

13.5 Seoul

Busan

(unit: 10,000 KRW) (unit: 10,000 KRW)

Seoul

Busan

10.5

11.7

12.6

11.8

10.2

Jeju

77.7

82.3 80.6

83.0 Busan

Jeju

Increase in the number of hotel in Seoul led to sharp decline in Annual Revenue

9.4

8.6 8.8

9.4

7 5

8.4

9.5 68.0 led to sharp decline in Annual Revenue

per Available Room of Hotels (Total Revenue in 2013 is similar with’

that of 2011)

6 0

7.1 7.7

8.3

5.8 5.3 5.3

6.2 6.6

7.5

43 144.9

47.1 37 2

39.7

45.0 48.8 47.9

5.2 5.2 5.1 5.2 5.7

6.0

'05 '06 '07 '08 '90 '10 '11 '12 '13

37.5 38.8

43.1 37.2

'09 '10 '11 '12 '13Financial Crisis A weak yen Diplomatic A weak yen Diplomatic




continued


Korea and Japan


continued


Korea and Japan




1-1 Business Trends






Indirect Investment Market Trends

Size of real estate funds has steadily grown reaching 30 billion KRW by the end of 2014Size of real estate funds has steadily grown, reaching 30 billion KRW by the end of 2014. Foreign real estate funds also extend to 30% of total real estate funds.

Size of all funds and real estate funds Size of real estate funds and foreign fundsSize of all funds and real estate funds Size of real estate funds and foreign funds

30부동산 펀드 규모 (순자산총액)

총

전체 펀드 규모 (순자산총액)

산 펀 자산총액

(unit: trillion KRW) (unit: trillion KRW)

Total Funds Size (Total Net Assets) Total Real Estate Funds Size (Total Net Assets)

Foreign Real Estate Funds Size (Total Net Assets)

24

부동산 해외 펀드 규모 (순자산총액)Foreign Funds Ratio

376

부동산 펀드 규모 (순자산총액)

Real Estate Funds Ratio

Real Estate Funds Size (Total Net Assets) Foreign Real Estate Funds Size (Total Net Assets)

14

16

20

23%

26%

30%

217242

318 289

319 319

277 308

328

5 9%6.5%

7.4%7.9%

79

12

6

917%

21%

19%

21% 20%23%

190 217

3.1%3.6%

4.4%

5.9%

13

4

0 0 01 2 2

3 35

7%1 3 4 7 9 12 14 16 20 24 300.5%

1.2%1.7%

2.2%


Source: NRI based on Korea Financial Investment Association

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14


Private equity funds account for 96% of the total real estate funds.y

Annual Accumulative Investment in REFAnnual Accumulative Investment in REF

REF CAGR(‘04~’07)25.6%

REF CAGR(‘08~’14)10.2%

29.6 29.7

REF 규모(설정원본)

REF 규모(순자산총액)

87.2%92.6% 93.7% 94.8% 94.7% 95.5% 96.2%

REF Ratio to Private Equity Funds (Total Net Assets)

REF Size(설정원본)

REF Size (Total Net Assets)

19.9

23.2

19.9

24.2 67.1%

75.6%(unit: trillion KRW)

8.4

11.3

14.0 16.4

8.9

11.6

14.1 16.4

27.3%

43.4%

0.9 2.6

4.1

6.8 8.4

0.9 2.6

4.2

7.1


Source: NRI based on Korea Financial Investment Association

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14


Size of REITs increased to 15 billion KRW but still a portion of listed REITs stays at aroundSize of REITs increased to 15 billion KRW, but still a portion of listed REITs stays at around 10% of total REITs.

Annual Accumulative Investment in REITsAnnual Accumulative Investment in REITs

REITs 규모 98Size of REITs (unit: trillion KWR)

REITs CAGR(‘02~’07)54.9%

REITs CAGR(‘08~’14)%

15.0

REITs 규모

70 7280

98

REITs 수

Size of REITs

Number of REITs

Ratio of Listed REITs

(unit: trillion KWR)

8 2

9.5

11.8 48

19 0%

3 3

5.0 4.9

7.0 7.6

8.2

48 10 12

16

19 21

3519.0%

8 6%

12.5%

8 6%9.7% 10.0%

0.6 1.1 1.4 1.7

3.3 8.6% 8.6%


Source: NRI based on Korea Financial Investment Association, Korea Association of Real Estate Investment Trusts

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14


REITs in Korea is mainly consisted of CR REITs and externally managed REITs due toREITs in Korea is mainly consisted of CR REITs and externally managed REITs, due to incorporation of distressed assets.

Size of Incorporated Assets by Types of REITs Number of REITs by Types of REITs

30

CR REITs

Externally Managed REITs

Self Managed REITs2

CR REITs

Externally Managed REITs

Self Managed REITs

Size of Incorporated Assets by Types of REITs Number of REITs by Types of REITs

(Unit: trillion KRW) (Unit: number of REITs)

25

Self Managed REITs

1 4

1.6

1.8g

15

20

1

1.2

1.4

100.6

0.8

0

5

0

0.2

0.4


0'05 '06 '07 '08 '09 '10 '11 '12 '13 14

0'05 '06 '07 '08 '09 '10 '11 '12 '13 '14

Source: NRI based on Korea Association of Real Estate Investment Trusts


REITs have traditionally focused on office and housing however its focus area hasREITs have traditionally focused on office and housing, however, its focus area has diversified to retails, hotels and distribution in recent years.

Annual Investment Portfolio of REITs (numbers of REITs)Annual Investment Portfolio of REITs (numbers of REITs)

(unit: %)

8 5 7 9

6 4 3

ETC

50

25 29

17 9

18 19

6 9 5 5

8

7 9 23

ETC

Hotel

100 100

28 62

45 8

8

Distribution/Factory

50

75 71 31

50 40 Retail

Office44

31 32 23

16 22

House


Source: NRI based on Korea Financial Investment Association, Ministry of Land, Infrastructure and Transport, Korea Association of Real Estate Investment Trusts, KORAMCO

'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14


REITs dividend yield ratio is 7% in average, showing stable trend.y g g

REITs dividend yield ratioREITs dividend yield ratio

93 8100

Average Profit Margin Ratio CR REITs Externally Managed REITs Listed REITs(unit: %)

70.3

93.8

71.7 80

90 Increase of Profit

Margin Ratio due to sales profit

49.0 50

60

70

40.4

28.0 26.1

12 2 12 1

40.3 40.0

10.4 9.9 9.4 16.2 9.9 6.48 9 7 1 8.7

11.9 11.1

9.9 6.0 3.7 7.2 3.8 30

40

8.5 6.6 8.4 12.2 11.9 8.6 8.3 7.1 9.2 7.0

8.5 6.6 8.4 12.2 12.1

10.1

7.4 6.3 7.2

6.4 6.4 4.9 4.2 5.6

8.9 7.1

0

10

20


Source: NRI based on on Korea Financial Investment Association, Ministry of Land, Infrastructure and Transport, Korea Association of Real Estate Investment Trusts, KORAMCO

'02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 3Q


1 M F d t l f T i1 Macro Fundamentals of Taiwan

2 Taiwan’s real estate trend （Office, Residence, Hotel）


Macro Fundamentals of Taiwan

Effective control area of the Republic of China (Taiwan) is approx 36 000 square kilometersEffective control area of the Republic of China (Taiwan) is approx. 36,000 square kilometers, with a population of 230 million.

Overview of Taiwan

Country name Republic of China (Founded Oct. 10, 1912)(*The relocation of the Chinese Nationalist Party to Taiwan was in 1949)

Era name Minguo (2014 A D Minguo 103)

Matsu, Kinmen Region

Overview of Taiwan

Era name Minguo (2014 A.D.= Minguo 103)

Capital Taipei (Population: 2.66 million)

Major cities Shinpei City (Population: 3.97 million) ,Taoyuang ,Taichung, Tainan, Kaohsiung

Area Approx. 36,200 km２（A bit little smaller than Kyushu , Japan)

Capital・Taipei

ShinpeiCity

TaoyuangCity

Population Approx. 23.45million (as of Mar. 2015)

Ethnic Composition Han Race 98% , Aboriginal 2%

Currency New Taiwan dollar (NTD) 1 NTD＝Approx. 3.85 yen (As of Apr, 2015)Penghu Islands

TaichungCity

Nominal GDP 529.5 billion dollars (2014)

Nominal GDP per capita 22,632 dollars (2014)

No. of Japanese residents 16,797 (as of Dec, 2013)

Tainan City

Number of Japanese companies

Japanese Chamber of Commerce and Industry in Taipei member firms: 457 (Mar. 2015)Japanese Club member firms: 293 (Dec. 2014)

Number of travelers b t J

From Japan to Taiwan from Japan: 1.63 million (2014)

Kaohsiung City


between Japan From Taiwan to Japan from Taiwan: 2.97million (2014)


Population has been increasing, although is expected to peak out within the next 5 years.

The population is about to decrease, with the productive workers’ population expected to peak out in 2015 and the total in 2021.

g g y

Population in Taiwan by age-groupPopulation in Taiwan by age-group

←Actual Forecast→

25,000

15,000

20,000

ousand)

10,000

Populatio

n (th

o

0

5,000

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

P

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 194Source: NRI based on the CEPD, Executive Yuan, R.O.C.(Taiwan)

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030

Ages0‐14 Ages15‐64 Age 65 or over


Population density in Taiwan is twice as high as Japan.y g

Comparison of Taiwan and Japan in population distributionComparison of Taiwan and Japan in population distribution

Land area Total population Population densityLand area Total population Population density

377,944

350 000

400,000 639

600

700 127

120

140

ousand

)

250,000

300,000

350,000

(squ

are km

)

337 400

500

600

er sq

uare km)

80

100

120income (NTD

tho

×1.9

100,000

150,000

200,000

Land

area

100

200

300

latio

n de

nsity

(pe

23 20

40

60

nnual hou

seho

ld i

36,192

0

50,000

Taiwan Japan

0

100

Taiwan Japan

Popu

l

0

20

Taiwan Japan

An


Source: NRI based on the Ministry of Interior of ROC and the Ministry of Internal Affairs and Communication of Japan


GDP per capita is approx. 60% of that of Japan. Income level is 90%.

Comparison of Taiwan and Japan in the scale of economy

160

Comparison of Taiwan and Japan in the scale of economy

GDP (2014) Per capita GDP (2014) Household income (2013)

120

135

120

140

160

thou

sand

)

36,332

30,000

35,000

40,000

)

4,616

4,000

4,500

5,000

on)

×0.6

×0.9

80

100

inco

me

(NTD

t

22,598

20,000

25,000

er c

apita

(USD

)

2,500

3,000

3,500

GD

P (U

SD b

illio

40

60

nual

hou

seho

ld

5 000

10,000

15,000

GD

P p

5301,000

1,500

2,000

Nom

inal

0

20

Taiwan Japan

Ann

0

5,000

Taiwan Japan

530

0

500

Taiwan JapanExchange rate：1Yen＝0.26 NTD


Source: IMF Source: IMF Source: NRI based on the DGBAS, Executive Yuan, R.O.C.(Taiwan), Statistics Bureau of the Ministry of Internal Affairs and Communications of Japan,


Taiwan’s GDP growth has been on a steady rise at approx. 3.5%.

Taiwan’s economy showed negative growth during IT bubble of 2001 and the financial crisis after Lehman Shock of 2009, but it quickly returned to stable growth trend.

The reason of stable growth of Taiwan’s economy is it keeps successfully in receiving benefits from China’s economic growth The

g y

The reason of stable growth of Taiwan s economy is it keeps successfully in receiving benefits from China s economic growth. Thecontinuing improvement of the relationship between Taiwan and China is expected to bring Taiwan further economic growth.

GDP growth rate

(%)(%)

10.76

15

rate

5.26

3.67

6.194.7

5.44 5.98

4.193 51 3.785

10 ExpectedValue

GD

P gr

owth

r

‐1.65

3.67

0.73

1 81

1.48 2.113.51

0

G ‐1.81

‐5

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 197Source: NRI based on the DGBAS, Executive Yuan, R.O.C.(Taiwan)‐10

Macro Fundamentals of TaiwanRelationship between Taiwan and China improved significantly after 2008. In recent years, however, Taiwan has been met with events which highlighted underlying discontent against China among itsTaiwan has been met with events which highlighted underlying discontent against China among its population.

History of “Cross-strait relationship” under Ma Ying-jiu regime

May 2008 Ma Ying-jiu of the Nationalist Party becomes the 12th President of Taiwan.

Jul.. Chinese tourists to Taiwan was deregulated. (Group tour)

Dec. The Three Links (Liberalization in commerce, transportation, and postal service) is implemented.( p p ) p

Dec. Cross-Strait Conference on the Cooperation and Exchange of the Chinese Medicine Industry, which is the project representing the cross-strait industrial bridge, was held in Taipei.

Apr. 2009 The third summit meeting of cross-strait contact points was held. A memorandum on cross-strait financial cooperation (concerning banks, securities and insurances) was signed and chartered flights were decided to be increased and become scheduled.Chinese investment into Taiwan was deregulated (63 kinds in manufacturing 24 in service and 11 in public works was released to be invested byJul. Chinese investment into Taiwan was deregulated. (63 kinds in manufacturing, 24 in service and 11 in public works was released to be invested by Chinese).

Nov. Cross-Strait financial MOU was signed. (Put into effect in January 2010)

Jun. 2010 Signed Economic Cooperation Framework Agreement ;ECFA. At the same time announced the list for bilateral tariff negotiation items.

Jan. 2011 Started waiving import tariffs (so-called Early Harvest list).

Nov. Both sides agreed on industry cooperation in following segments (LED. Municipal Wireless, Cold Chain Logistics, TFT-LCD, EV).

Aug 2012 The customs authorities of Taiwan and China signed a Cross-Strait Customs Cooperation Agreement regarding customs service, smuggling crackdown d t iff d tiAug. 2012 and tariff reduction.

Aug. Both sides reached a consensus to promote a mechanism of transparency information, loosing investment limitations to promote prosperity.

Jun. 2013 The Cross-Strait Agreement in Trade in Services based on WTO framework is signed. It proposes opening up over 100 services sectors in phases.


Mar 2014 The Cross-Strait Service Trade Agreement Law passed the diet. But anti-the law demonstration was happened on the next day.

April Legislative Speaker promised to postpone review of the law until legislation monitoring all cross-strait agreements has been passed


Taiwan-China relation was also reinforced in terms of transportation Taiwan is now listed asTaiwan China relation was also reinforced in terms of transportation. Taiwan is now listed as one of the Asian countries with the most densely air direct links with China.

No. of Destinations in China No. of flights to China

Wid i li k t “S d Ti ” iti Fli ht b t T i d ChiWidening links to “Second-Tier” cities even “Third-Tier” cities to build an extensive flight network.

Flights between Taiwan and China have already outnumbered Hong Kong’s.

840Taiwan55Taiwan

800HK44HK

0 200 400 600 800 1,000Linkages to China

0 10 20 30 40 50 60Direct links to China Unit: Flights/weekUnit: Destinations


Linkages to China Direct links to China

Source: NRI based on the Civil Aeronautics Administration of the MOTC, R.O.C.(Taiwan),


As economic unification between Taiwan and China proceeds regional integration between

The Chinese economic area centering China has been accelerating its unification as the Greater China with the return of Hong Kong in

As economic unification between Taiwan and China proceeds, regional integration between greater China and other regional organizations is fast-approaching.

The Chinese economic area centering China has been accelerating its unification as the Greater China, with the return of Hong Kong in 1997 and Macau in 1999, the conclusion of the ACFTA with ASEAN in 2002, and the ECFA with Taiwan in 2010.

ECFA between Taiwan and China made tariffs on 539 items in China and 267 items in Taiwan gradually reduced, and investment in the service industry deregulated. Therefore, increasing of business investment between Taiwan and China is expected.

Unification of the Greater China economy

ChiReturn of Hong

Conclusion of ECFA(2010)

China

Taiwan

Kong and Macau (1997, 1999)

Conclusion Negotiating of economic

ASEAN

of ACFTA (2002)Removal of tariffs (2010)

Negotiating of economic cooperation agreement (from 2011, with Singapore)



1 M F d t l f T i1 Macro Fundamentals of Taiwan

2 Taiwan’s real estate trend （Office, Residence, Hotel）


Taiwan’s real estate situation （Office, Residence, Hotel）

Following 7 areas compose major office districts of Taipei City.g j y

Neihu Science Park district

Major office areas in Taipei City

Neihu Science Park district• The area Government aims to develop as a science park

district• Holding a large concentration of IT industry

headquarters.• Its traffic convenience has improved due to the extension

of MRT

Songjiang Nanjing• Area with the highest office density in Taipei.• Holding a large number of offices of Japanese

firms as well as traditional industries, financial services, and travel industries. of MRT.services, and travel industries.

anjin

g

g

Neihu SciencePark district

n N

orth

Zhong Shan North• A large concentration of offices, commercial

Taipei SongShan Airport

Dun Hua N./Minsheng• Having the second largest concentration of luxury offices

(Hsin Yi area is the largest) and being home to many financial service industries.

• Traffic convenience significantly improved after the Song

jiang

Na

Dun

Hua

/M

ings

hen g

Zhon

g Sh

afacilities, and hotels.• Many offices of Japanese firms are also

located .

Hsin Yi/World Trade Center• Redeveloped under the Hsin Yi Development

Plan • Area with the highest office rent level in

T i i

SongShan airport became an international airport.Taipei stationarea

nan

Hsin Yi/Taipei.

• Highly convenient, due to the large concentration of administrative, financial, trade exhibitory, leisure, and residential functions.

• Offices of many global companies such as IBM and Microsoft located .

Dunnan• Holding a large number of well-known companies and

foreign firms.

Taipei station area• Area centering Taipei station, where the lines of

Taiwan Railways, MRT, and the High Speed Rail intersect.

• The first area in Taipei City where offices were

Dun

nWorld Trade Center


g• Holding many financial companies, as well as many

traditional industries.• With its traffic convenience, having developed to be

a complex of residential and commercial area.

p ydeveloped, with a large concentration of financial/ insurance industries and government institutions.

Source: NRI based on the Taiwan real estate yearbook and other materials


Office vacancy rates in Taipei City started to decline in 2010 however due significant

Recent years Overall the vacancy rates in Taipei were declining and is about 6% in end of 2013

Office vacancy rates in Taipei City started to decline in 2010, however, due significant increase of supply in 2014, vacancy rate exceeded 8%.

Recent years, Overall, the vacancy rates in Taipei were declining and is about 6% in end of 2013. in 2014, approximately 360,000sqm office floor completion in Nan-gang and Song-shang district. Therefore, vacancy rate were rising up to 8% in2014.

Supply of new offices and vacancy rates in Taipei City

14

16

140 000

160,000

180,000 Completion of Taipei 101

Taiwan Cooperative Bank : 32,000pingChina Trust Financial

8

10

12

100,000

120,000

140,000

空

単位

：坪

）su

pply

(Pin

g)

Vac

anc

China Trust Financial Holding:80,000ping

4

6

8

60,000

80,000

室率

(%)

新規

供給

面積

（単

Completion of FargloryFinancial Center

reas

of n

ew s

cy rate

(%)

0

2

4

0

20,000

40,000

新A

r


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

00

Source: NRI based on the Taiwan real estate yearbook

Areas of New Supply (Ping) Vacancy Rate (%)


Average office rent of Grade A in CBD is approx. 2,400 NTD/Tsubo . g

Overview of major office areas (2014)

DistrictSupply floor

space (Tsubo)

A-class office avg. rent

(NTD/Tsubo/month)

B-class office avg. rent

(NTD/ Tsubo /month)

A-class office Vacancy rate

(%)

B-class office Vacancy rate

(%)

Taipei station district 62,139 2,200 1,691 7.76% 3.69%

Chung Shan North district 32,932 -- 1,746 -- 4.35%

Songjiang Nanjing district 261,293 1,936 1,720 27.36% 7.38%

Minshengg/Dun Hua N.

district265,576 2,281 1,743 11.20% 6.85%

Dun Hua/Jen-Ai district 171,115 2,452 1,777 5.23% 4.77%

Xinyi district 282,612 2,927 1,696 10.45% 3.09%

Note: 1 Tsubo = 3.306 square meters Average rent :2 400 NTD/Tsubo/month

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 204Source: NRI based on CBRE data

Average rent :2,400 NTD/Tsubo/month


Large number of new office spaces are expected to be supplied in 2016.

In 2016, numerous floor areas of office are expected to be supplied into real estate market.

g

1,200,00070

Number of office construction license issuanceand total floor space licensed for construction in Taipei City

1,000,000

50

60 建設

ライ

600,000

800,000

30

40

イセ

ンス

発行

延

ンス

発行

件数

400,00020

30

延べ

床面

積（m

2

建設

ライ

セン

0

200,000

0

10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2）


2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: NRI based on statistics by the CPAMI, R.O.C.(Taiwan)


New CBD development outside of Taipei City is supplying the market with new office spaces.

The Existing office areas are distributed in central Taipei city. Based on redevelopment of lands outside center of Taipei City, Xin-Ban area and Nagang area have been new office area of Taipei

metrpolis

y y g

metrpolis.

Xin-Ban Fuchung Area• Rent: 1,300NTD/Tsubo

Zin Ban Special Zone is located around Banqiao

Taipei City

Taipei

DunpeiArea

Nanjing E.Rd.

AreaNangangArea

• Zin-Ban Special Zone is located around Banqiaostation which is a terminal station of .TRA, MRT, Taiwan-HSR.

• The highest office in New Taipei City “Far Eastern Building”(50F) has been opened in Jul, 2013.

Main Sta.XimenArea

DunnanArea

XinyiArea

New Taipei City

Area

Zin-BanFuchungArea

Far EsternMRT Far Estern Memorial Hospital Area• Rent:1,200 NTD/Tsubo

Nankang Area• Rent:1,200 -1,300 NTD/Tsubo• This Area is expected as a new CBD of Taipei

MemorialHospitalArea

• New area of office with almost bran-new office.• The most famous office of this area is T-park built

by FEG Group.

p pbecause of being a terminal station of .TSHR and 2 lines of MRT,

• Numerous offices have been and will be constrctedin this area.


Existing Office Area New Office Area

Taiwan’s real estate situation (Residential Market)

Total population of Taipei Metropolis (incl Taipei City New taipei city and Keelung City) is 7 million NearlyTotal population of Taipei Metropolis (incl, Taipei City, New taipei city and Keelung City) is 7 million. Nearly 30% of Taiwan population is accumulated in these three cities.

The location and population of Taipei City ,Keelung City and Shinpei City

Taipei City population: 2.66 million

Keelung City g ypopulation: 0.37 million

New taipei city population: 3.99 million

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 207Source）NRI based on the DGBAS, Executive Yuan, R.O.C.(Taiwan)


Over the past 5 years, Taipei metropolitan area has been gradually expanding to the west.y g y g

Population Changes in Taipei City and New Taipei City over the last five years

TaipeiKeelung City

New-Town region

Shimen

JinshanSanzhia pe

cityTaoyuanCounty

y

MRTdevelopment Taipei

Keelung City

Danshui

BaliLinkou

WuguL h

Wanli

Ruifang

ShinpeiCity

YilanCounty

region Taipei City

WuguLuzhou

SanchongTaishanXinzhuang

Shulin ZhongheYonghe

BanqiaoShenkeng

Xizhi

Pingxi

Ruifang

Shuangxi

Gongliao

New Taipei City

Legend: Average

Yingge

Sanxia Xindian

TuchengShiding

Pinglin

Legend: Average annual growth rate

WulaiNew-Town

region

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 208Source: NRI based on statistics by the Ministry of Interior, R.O.C.(Taiwan)


Construction of MRT is one the major reasons for Taiwan’s accelerating urban sprawl.j g

MRT construction status around Taipei Metropolitan Area

Line Section Year openedZhongshan Junior High School M 1996D h i

DanshuiNeihu-Muzha Line

Zhongshan Junior High School ⇔Taipei Zoo Mar. 1996

Zhongshan Junior High School ⇔Taipei Nangang Exhibition Center Jul 2009

Danshui Line Danshui ⇔ Taipei Main Station Mar. 1997

Zhonghe Line Guting ⇔ Nanshijiao Dec. 1998

【Distance from Taipei City :10km】

Danshui

BeitouXin-beitoug

Xindian Line Taipei Main Station ⇔ Xindian Nov. 1999

Longshan Temple ⇔ Taipei City Hall Aug. 1999

Longshan Temple ⇔ Xinpu Aug. 2000

Taipei City Hall ⇔ Kunyang Dec. 2000

Wugu

DazhiLuzhou

【Distance from Taipei City :5m】

Nangang-Banqiao Line

p y y g Dec. 2000

Xinpu ⇔ Yongning May 2006Kunyang ⇔ Nangang Dec. 2008Yongning ⇔ Dingpu Dec 2014Nangang

⇔Taipei Nangang Exhibition Center Feb. 2011

TaishanLuzhou

Neihu

Dazhi

SanchongNew Taipei Industrial Park

Sanchong

MinquanW. Rd

T i i

Taipei NangangExhibition Center

SongshanAirport

g g

Luzhou Line Luzhou ⇔ Zhongxiao Xinsheng Nov. 2010

XinzhuangLine

Fu Jen Univ. ⇔ Daqiaotou Jan. 2012

Zhongxiao Xinsheng ⇔ Guting Sep. 2012

Huilong ⇔ Fu Jen Univ. Mar. 2013

Xinzhuang

Banqiao

Nangang

XizhiFu Jen Univ.Huilong Guting

CKS MemorialHall

Zimen

Taipei Main

Station

SongshanTo Taoyuan Airport

Banqiao

Elephant Mt.

ZhongxiaoXinsheng

Xinyi Line CKS Memorial Hall⇔ Elephant Mt. Dec. 2013

Songshan Line Songshan ⇔ Ximen Nov. 2014

Circular Line New Taipei Industrial Park ⇔ Dapinglin Dec. 2015

Taoyuan Taipei Main Station ⇔ Jhongli Jun 2016

Zhonghe

Muzha

YongningNanshijiao

Jingan Taipei ZooDapinglin

Xiaobitan

Banqiao

Shulin


yAirport MRT Taipei Main Station ⇔ Jhongli Jun 2016

Wanta Line CKS memorial hall ⇔ Huilong Dec. 2015

Source）NRI based on the MRT Construction Dep. Of Taipei City Gov.

Xindian

Yongning

Dingpu

Xiaobitan

Xindian


Together with transition of population land price is also rising up in the west of Taipei’sTogether with transition of population, land price is also rising up in the west of Taipei s metropolitan area.

Land price growth rate at major areas in Taipei City and New Taipei City

Legend: Average annual growth rateg g g

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 210Source: NRI based on statistics by the Ministry of Interior, R.O.C.(Taiwan)


Housing price in Taipei and New Taipei has been on a rise for the past 10 years howeverHousing price in Taipei and New Taipei has been on a rise for the past 10 years, however, it’s growth rate has changed into a moderate one in recent years.

Transition of housing price IndexShi i Cit 2014 4Q

140

160

Shinpei City 2014 4QPrice 416 thsd/tsubo

100

120

指数

する

指数

）

Financial Crisis

Taipei City 2014 4QPrice 825 thsd/tsubo

60

80

住宅

価格

指

010年

を10

0とす

40

60

（2

0

20

201120102009200820072006200520042003 2012 2013 2014


台北市新北市

201120102009200820072006200520042003 2012 2013 2014

Taipei City Shinpei City

Source: NRI based on Cathay Real Estate’s Housing Index quarterly report


Housing price in the city center of Taipei exceed 1 million NTD/Tsubo Prime luxuryHousing price in the city center of Taipei exceed 1 million NTD/Tsubo. Prime luxury properties even exceed 3 million NTD/Tsubo.

Unit housing prices at major areas near MRT station in Taipei City and New Taipei City (Unit:10,000 NTD/ Tsubo)

25-55

47-86

67-120

45-6563-10885-125

30-4334-45

65-9355-80 100-20535-65

45-65 60-120 85-150

80 180

90-300

30-52

45-62 50-70

52-8042-8580-180

23-33

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 212Note: Prices at each point indicate market quotations of areas around major MRT stations.

Source: NRI based on My Housing.com55-72

28-51


Rent price is extremely low compared to selling price Cap rate of the majority of propertiesRent price is extremely low compared to selling price. Cap rate of the majority of properties in Taipei City even remain under 2%.

Cap rates of properties in Taipei City and New Taipei City

LocationZhongshan Dist

(Near MRT Zhongshan Neihu Dist(Near MRT Neihu Sta )

Wenshan Dist(Near MRT Xinhai Sta )

Taipei City New Taipei City

AddressBanqiao Dist

(Near MRT BanqiaoElementary School Sta.) (Near MRT Neihu Sta. ) (Near MRT Xinhai Sta.)

Layout 2 Room 2LDK 3LDK

Address (Near MRT BanqiaoSta.)

Layout 3LDK

Area 30 Tsubo 41 Tsubo 26 Tsubo

Age 5 year 2 years 18 years

Area 33 Tsubo

A 8Age 5 year 2 years 18 years

Price 18 million NTD 29million NTD 24 million NTD

Age 8 years

Price 41 million NTD

Rent 29,000 NTD 50,000 NTD 27,000 NTD Rent 65,000 NTD

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 213Source: NRI based on interviews with owners, material by 591.com,

etc.

Cap Rate 1.9% 2.0% 1.4% Cap Rate 1.9%


Number of construction licenses in Taipei is approx 5k per year whereas that of New Taipei

In New Taipei City even though the number of housing construction and the license issuance increase in recent two years therefore

Number of construction licenses in Taipei is approx. 5k per year, whereas that of New Taipei City reaches over 20k.

In New Taipei City, even though the number of housing construction and the license issuance increase in recent two years, therefore whole supply of housing will still be expected to increase for seasons.

On the other hand, Government is now considering policies to supply reasonable housing and preparing social housing development with public lands.

Th N b f h i t ti li iThe Number of housing construction license issuance

Taipei City New Taipei City

40 000800 40 000800

25 000

30,000

35,000

40,000

500

600

700

800

建設

件数

25 000

30,000

35,000

40,000

500

600

700

800

建設

件数

15,000

20,000

25,000

300

400

500

設ラ

イセ

ンス

発行

戸

設ラ

イセ

ンス

発行

件

15,000

20,000

25,000

300

400

500

設ラ

イセ

ンス

発行

戸

設ラ

イセ

ンス

発行

件

0

5,000

10,000

0

100

200

2001200220032004200520062007200820092010201120122013

戸数

建設

0

5,000

10,000

0

100

200

2001200220032004200520062007200820092010201120122013

戸数

建設

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 214Source: NRI based on statistics by the CPAMI, R.O.C.(Taiwan)

件数(左軸) 戸数(右軸)

2001200220032004200520062007200820092010201120122013

件数(左軸) 戸数(右軸)

Taiwan’s real estate situation (Hotel Market)

Number of tourists travelling to Taiwan is increasing significantly due to the deregulation of

Japanese and mainland Chinese tourists account for 57% of the number of tourists to Taiwan

Number of tourists travelling to Taiwan is increasing significantly, due to the deregulation of the mainland Chinese’s tourism policy towards Taiwan.

Japanese and mainland Chinese tourists account for 57% of the number of tourists to Taiwan. Government is now planning to implement additional deregulations of tourism restrictions on mainland Chinese, so the number of

tourists to Taiwan is still expected to grow further.

The number of foreign tourists to Taiwan (By place of residence)

10,000

12,000

千人

） 9,910Deregulation of individual toursof mainland Chinese

8,000

の推

移（単

位：千

5,5676,087

7,056

8,016

Deregulation of group toursof mainland Chinese

4,000

6,000

海外

旅行

者数

の

Mainland China3.99 million2,831 2,978

2 2482,950

3,378 3,520 3,716 3,8454,395

,

2,000

訪台

湾海 57%

Japan1.63 million

2,248


02001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Occupancy rate of hotels in Taipei City has kept its high level, exceeding 70%.y y g g

The number of guest rooms and occupancy rates of tourist hotels in Taipei City

12,000

76.8% 74.8% 75.2% 72.0% 71.1% 75.6% 75.5% 78.0% 73.6% 77.4%Occupancy rates ofInt’l Tourist Hotels

The number of guest rooms and occupancy rates of tourist hotels in Taipei City

1,2631,263 1,263 1 383 1 357

1,9742,040 2,040 2,275 2,330

10,000

,

+8.5%+5.0% -0.1% +2.3% +1.4%

, 1,383 1,357

6,000

8,000

客室

数

8,879 8,324 8,013 7,786 7,738 7,898 8,323 8,313 8,313 8,403

2,000

4,000

客

0

,

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

国際観光ホ般観光ホ


国際観光ホテル一般観光ホテルNote: Tourist hotels are hotels that meet the criteria set by the Tourism Bureau of the Ministry of Transportation and

Communications, and are broken down into international tourist hotels and general tourist hotels according to their levels. There are 25 international tourist hotels in Taipei as of the end of December 2011. Source: NRI based on statistics by the Tourism Bureau of

the MOTC,R.O.C.(Taiwan)

Taiwan’s real estate situation (Hotel Market)

Pushed by the increasing number of international tourists price of guest rooms is on a risingPushed by the increasing number of international tourists, price of guest rooms is on a rising trend.

The average price of guest rooms of tourist hotels in Taipei City

5000

6000

I t ti l T i h H t l 2014er n

ight

)

4000

International Tourish Hotel 2014 Price 4,831 NTD/per night

) General Tourish Hotelms

(NTD

/Pe

2000

3000

価格

(元/泊

General Tourish Hotel2014 Price 3,472 NTD/ per night

f gue

st ro

om

1000

2000

客室

平均

価ag

e pr

ice

of

02005 2006 2007 2008 2009 2010 2011 2012 2013 2014

觀光ホテル般ホテル

Ave

ra


觀光ホテル一般ホテル国際観光ホテル一般観光ホテル

Source: NRI based on statistics by the Tourism Bureau of the MOTC,R.O.C.(Taiwan)

Residential market

Although most of residential units are HDB flats private residential units are the dominant

HDB flat is a public housing developed and managed by the Housing and Development Board (HDB) and can be sold to Singapore

Although most of residential units are HDB flats, private residential units are the dominant properties in the market.

HDB flat is a public housing developed and managed by the Housing and Development Board (HDB) and can be sold to Singapore citizens only.

On the other hand, private residential properties can be traded by anyone including foreigners.

Housing stock in Singapore

(Units)

1 200 000

1,400,000

800 000

1,000,000

1,200,000

600,000

800,000Private Residence

HDB (including EC)*EC: Executive Condominium

200,000

400,000

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 219Source: NRI based on URA

02005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Residential market

Housing sales peaked out in 2012 with sales in 2014 dropping by half compared to the

While the number of private residential units sold in 2013 was 15 thousand in 2014 it decreased to 7 3 thousand

Housing sales peaked out in 2012, with sales in 2014 dropping by half compared to the previous year.

While the number of private residential units sold in 2013 was 15 thousand, in 2014 it decreased to 7.3 thousand.

New housing sales of private residential properties in Singapore

(Units)

25,000

15,000

20,000

10,000

0

5,000


02005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Residential market

Sales price index which followed an increasing trend has been dwindling since the latter

Sales price of private residential properties have dropped by approximately 4% in 2014

Sales price index, which followed an increasing trend, has been dwindling since the latter half of 2013.

Sales price of private residential properties have dropped by approximately 4% in 2014.

Housing price index of private residential property in Singapore

(2009Q1=100)

160

180

200

100

120

140

160

40

60

80

100 Non‐landed

Landed

0

20

40


Residential market

Price drop is primarily caused by property cooling measures that has been gradually

The cooling measures are expected to remain imposed for the time being

Price drop is primarily caused by property cooling measures that has been gradually toughened since 2009.

The cooling measures are expected to remain imposed for the time being.

Major cooling measures implemented in Singaporean residential market

2013 -- 2010 2011 - 2012

Sep. 2009• Strengthening of a regulation on housing

loans

Jan. 2011• Imposing a seller's stamp duty on selling

residential properties within four

Jan. 2013• Increasing the ABSD rate and expanding

the application of ABSDloans

Feb. 2010• Imposing a seller's stamp duty on selling

residential properties within a year after acquisition

• Lowering the LTV limit to 80% for housing

residential properties within four years after acquisition, and rise in the SSD rate

• Lowering the LTV limit to 50% for housing loans

Dec 2011

the application of ABSD

Jun. 2013• Introducing a 60% cap on the Total Debt

Servicing Ratio (TDSR); the monthly total debt obligations must not exceed 60% of monthly income• Lowering the LTV limit to 80% for housing

loans

Aug. 2010• Imposing a seller's stamp duty on selling

residential properties within three years after acquisition

Dec. 2011• Imposing Additional Buyer's Stamp

Duty of 10% on the purchase of residential properties by foreigners

• Imposing ABSD of 3% on the purchase of residential properties by Permanent

monthly income

Aug. 2013• Introducing new buying regulation where

permanent residents are demanded to wait three years from the date of obtaining PR status before they can buy a resaleyears after acquisition

• Lowering the LTV limit to 70% for housing loans

• Increasing the minimum cash payment from 5% to 10% of the valuation limit

p p yResidents who already own 1 or more residential properties and Singaporean Citizens who already own 2 or more

Oct. 2012• Introducing the maximum tenure of new

PR status, before they can buy a resale HDB flat

Dec. 2013• Introducing a 30% cap on

the Mortgage Servicing Ratio (MSR) for th h f E ti C d i i

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 222Source: NRI based on public information

Introducing the maximum tenure of new housing loans to be capped at 35 years the purchase of Executive Condominium

Residential market

Vacancy rate of non-landed private homes turned upward while rent level started to decline

Although vacancy rate of non-landed private homes dropped in the latest quarter it is still on an upward trend

Vacancy rate of non landed private homes turned upward, while rent level started to decline in the latter half of 2013.

Although vacancy rate of non-landed private homes dropped in the latest quarter, it is still on an upward trend. Rent level continues to decrease with approximately 2.6% drop in 2014.

Rental index and vacancy rate of non-landed private homes in Singapore

(2009Q1=100) (%)

12

14

120

140

8

10

80

100

4

6

40

60 賃料（左軸）

空室率（右軸）

Rental Index (LHS)

Vacancy Rate (RHS)

0

2

0

20


Residential market

Number of foreign workers who would otherwise have been tenants is shrinking due to

It is clear that the number of tenants with capabilities to pay higher rent are running short since the number of foreigners on

Number of foreign workers, who would otherwise have been tenants, is shrinking due to the tightening foreign worker policies.

It is clear that the number of tenants with capabilities to pay higher rent are running short, since the number of foreigners onEmployment Passes (EP) who are subject to higher salary criteria has hardly increased.

Change of work visa holders in Singapore

(Thousand people)

140

160

80

100

120

Work Permit

40

60

Work Permit

S Pass

Employment Pass

‐20

0

20


202005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Office market

Although office rent is on an upward trend, recent vacancy rate has been rising.

Latest median monthly rent of Category 1 office buildings is approximately S$114 per sq. meters, and that of Category 2 is approximately S$68 per sq. meters.

g y g

Median monthly rent and vacancy rate of office buildings in Singapore

Category 1 (Core business areas) Category 2 (Other areas)(S$/sqm) (%) (S$/sqm) (%)(S$/sqm) (%) (S$/sqm) (%)

15

20

120

140

160

15

20

120

140

160

10

60

80

100

10

60

80

100

0

5

0

20

40

0

5

0

20

40

Category 1: Office buildings located in core business areas in Downtown Core and Orchard Category 2: The remaining office buildings which are not included in Category 1 office

賃料（左軸）空室率（右軸）賃料（左軸）空室率（右軸）Rent (LHS) Vacancy Rate (RHS) Rent (LHS) Vacancy Rate (RHS)


Category 1: Office buildings located in core business areas in Downtown Core and Orchard Planning Area which are relatively modern or recently refurbished, command relatively high rentals and have large floor plate size and gross floor area.

Category 2: The remaining office buildings which are not included in Category 1 office buildings.

Source: NRI based on URA

Office market

Although recent supply of new office buildings has been limited it is expected to increase

On one hand there is an outlook that huge supply in future may curb rent rise as a whole On the other hand there is also a view that

Although recent supply of new office buildings has been limited, it is expected to increase significantly.

On one hand, there is an outlook that huge supply in future may curb rent rise as a whole. On the other hand, there is also a view that the impact on rent of new office buildings will be limited as companies will move to new offices.

Completion of office buildings in Singapore

500

600(Thousand sq. meters)

Forecast

400

200

300

0

100


02005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

2014年まではNet、2014年まではGross、2015年以降は2015年第1四半期時点での竣工時期の見込み


Office market

Sales price of office buildings has been on an upward trend for more than five consecutive

Latest median sales price of office space in Central Area is approximately S$13 300 per sq meters and that of Fringe Area is

Sales price of office buildings has been on an upward trend for more than five consecutive years.

Latest median sales price of office space in Central Area is approximately S$13,300 per sq. meters, and that of Fringe Area is approximately S$9,300 per sq. meters.

Median sales price of office buildings in Singapore

(S$/sqm)(S$/sqm)

12,000

14,000

8,000

10,000

Central Area

2 000

4,000

6,000 Central Area

Fringe Area

0

2,000


Central Area: Outram, Museum, Newton, River Valley, Singapore River, Marina South, Marina East, Straits View, Rochor, Orchard and Downtown Core.Fringe Area: Bukit Merah, Bukit Timah, Queenstown, Kallang, Bishan, Marine Parade, Geylang, Toa Payoh, Tanglin, Novena and Southern Islands.


Transaction trend

Cap rates have been on a downward trend since 2009.

Cap rate of non-landed private homes is on the first half of 2%, and that of commercial properties is between the first half and a halfway of 4%.

Cap rates in Singapore

(%)6

5

3

4Multiple Residence (Upper class)

Multiple Residence (Middle class)

Commercial (Most expensive area)

1

2Commercial (Central/CBD)

Commercial (Fringe area)

Multiple Residence (Upper class):Claymore Hill, Ardmore ParkMultiple Residence (Middle class):Holland, River ValleyCommercial (Most expensive area):Raffles PlaceCommercial (Central/CBD):Shenton Way, Cecil Street, Robinson RoadCommercial (Fringe area):Tanjong Pagar Maxwell Anson

02005 2006 2007 2008 2009 2010 2011 2012 2013


Commercial (Fringe area):Tanjong Pagar, Maxwell, Anson

Source: Japan Association of Real Estate Appraisers

Development trend

There are fewer opportunities for new development in Singapore due to shrinking supply of

Singaporean government owns about 80% of country’s land and also controls the supply of development sites

There are fewer opportunities for new development in Singapore due to shrinking supply of new development sites.

Singaporean government owns about 80% of country s land and also controls the supply of development sites. The amount of development sites sold by the government has been on a downward trend since 2011.

Development sites sold by Singaporean government

(sq. m)

350,000

400,000

200 000

250,000

300,000

Others

Industrial

100,000

150,000

200,000 Hotel

Mixed

Commercial/Office

Residential (Non‐Landed)

*The figure of 1H2015 is based the Confirmed

0

50,000

Residential (Non Landed)


gList of Government Land Sales Program.


Development trend

Singaporean developers are accelerating their overseas business due to a slowdown of and

They are expanding their business in ASEAN India China USA and UK

Singaporean developers are accelerating their overseas business due to a slowdown of and fewer development opportunities in domestic market.

They are expanding their business in ASEAN, India, China, USA and UK.

Major development plans in overseas by dominant Singaporean developers in recent years

Capitaland

Developing mix-used and retail properties in China Vietnam Indonesia Malaysia and

Keppel

Developing office and mix-used properties in I d i M Vi t dChina, Vietnam, Indonesia, Malaysia, and

India Developing Serviced apartments in China,

Korea, Vietnam, Philippines, Laos, Turkey, and France etc.

Indonesia, Myanmar, Vietnam, and Philippines

Developing residential and retail properties in US

UOL CDL

Developing properties in China and Malaysia Acquired sites, developing Hotel and mixed-

used properties in UK

Developing properties in US, UK, Japan, China, and Australia

Developing hotels in Japan

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 230Source: NRI based on public information

REIT Market

S-REIT market capitalization recovered in 2009 and has now reached the scale of

There are 33 listed REITs as of the end of March 2015

S REIT market capitalization recovered in 2009 and has now reached the scale of approximately S$66 billion.

There are 33 listed REITs as of the end of March 2015.

S-REIT market capitalization and number of REITs

（Mil. S$）（No. of REITs）

30

35

60,000

70,000

20

25

40,000

50,000

10

15

20,000

30,000Market Capitalization

Number of REITs

0

5

0

10,000

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 231Source: NRI based on Bloomberg

REIT Market

While S-REIT dividend yield rose sharply in 2009, it remains at approximately 6% since then.

Recent yield spread is between 3-4%.

y y y

S-REIT dividend yield and spread of 10-year Singapore government bond

（%）

25

20

10

15 Spread

Average Dividend Yield(Gross)

5

10‐yr SGB Yield

0

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 232Source: NRI based on Bloomberg

I di R l E t t M k t i I di R id ti l Offi t

1 India’s Macro-economic Indicators


2 Real-estate Market Overview

3 Key Segments3 Key Segments


Macro-Economic Factor – Population Growth

India has one of the largest and rapidly growing population making it an attractive

World Population Trends Population growth forecast

India has one of the largest and rapidly growing population, making it an attractive consumer market.

China19%

India USAR t

1.50

2.00

%)2014 India

18% 4%

Indonesia4%

Brazil3%

Rest52%

0.50

1.00

grow

th ra

te (

%2014

World Population (2013) : 7238 mn

-0.50

—

Popu

latio

n g

India17%

-1.002000 2010 2020 2030 2040 2050

Time (years)

China14%

Nigeria4%

Rest57%

2050P

India China Russia BrazilKorea Japan USA UK

4%USA4%

Indonesia4%

World Population by 2050 : 9683 mn


As India’s population grows, the demand for infrastructure will grow further

Source: Population Reference Bureau, 2014 Datasheet USA

Macro-Economic Factor – Rapid Urbanization

India is witnessing rapid urbanization and this trend is expected to grow steadily.

Better pay, work environment and more opportunities are driving working population from small towns and villages to urban centers resulting in rapid urbanization.

g g y

Urban rural population growth trend and forecast

100%18.0 Past Trend Projected Future Trend

8.8 8.160%

70%

80%

90%

12.0

14.0

16.0 Percentagemill

ion)

7.68.1

8.58.8

9.09.2

30%

40%

50%

60%

6.0

8.0

10.0

e of total popu

pula

tion

(00’

s m

2.9 3.3 3.8 4.3 4.86.1

7.4 8.1

0%

10%

20%

30%

0.0

2.0

4.0

lation

Tota

l Pop

2000 2005 2010 2015 2020 2030 2040 2050Time

Urban Rural Urban population as % of total


As urbanization trend continues, demand for urban infrastructure will rise rapidly

Source: 1. World Urbanization Prospects: The 2014 Revision, UN Population Division;

Macro-Economic Factor – Rapid Urbanization

Rapid urbanization has happened across 7 major cities of India all of them having 4 million

India’s Top Urban Centres

Rapid urbanization has happened across 7 major cities of India, all of them having 4 million plus population.

City State Area Population AHI

Mumbai Maharashtra 1176 km2 12.47 mn INR 334,812

2 New Delhi Delhi 1483 km2 11.00 mn INR 360,893

Ch i T il N d 1189 k 2 8 42 INR 324 844

6

7

Chennai Tamil Nadu 1189 km2 8.42 mn INR 324,844

Hyderabad Andhra Pradesh 650 km2 6.80 mn INR 180,406

1

4

Bengaluru Karnataka 741 km2 5.57 mn INR 269,537

Ahmedabad Gujarat 464 km2 4.68 mn INR 192,1631 Mumbai

35

Kolkata West Bengal 1026 km2 4.48 mn INR 185,840

2

3

4

5

New Delhi

Chennai

Hyderabad

BengaluruT 7 b t lit b l ti d h h ld i


6

7

Ahmedabad

Kolkata

Top 7 by metropolitan area, urban agglomeration and household incomeAHI-Average Household Income per annumArea refers to City Metropolitan Area“INR”: Indian rupees, “mn” : million

Source: CMIE April 2015 Survey Data, Census of India 2011

Macro-Economic Factor – Age Demographics

Low median age and increasing working-age population are reducing dependability and

57% of India’s 1.2 billion population is below the age of 30 years in 2012 making it one of the youngest countries in the world.

A d i

Low median age and increasing working age population are reducing dependability and providing more hands to drive the economy.

Age structure dynamics

100

45

50 Most favorable period for development

60

80

25

30

35

40

Percenears

)

20

40

10

15

20

25 tage of populaA

ge (i

n ye

00

5

2000 2005 2010 2015 2020 2040 2060 2080 2100

ation

Time

Median age (years) Dependability ratio (%) Working age population (%)

Decreasing dependability is likely to further increase infrastructure demand specially housing

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 238Source: 1. World Urbanization Prospects, the 2011 Revision, UN Population Division; 2. U.S. Census Bureau

Note: Working age population refers to percentage of population between 20-65 years Dependability ratio is calculated as non-working population by working population

Decreasing dependability is likely to further increase infrastructure demand, specially housing

Macro-Economic Factor – Income levels

India’s per capita GDP and household savings are increasing indicating improvement in

GDP per capita at current prices Average Household Savings per annum

India s per capita GDP and household savings are increasing, indicating improvement in economic condition of society.

2000

2500

100

120

1500

2000

80

hous

ands

)

1000

US$

40

60

INR

(In

Th

0

500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20190

20

2011201220132014 2011201220132014 20112012201320142005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2019

Time (years)

2011201220132014 2011201220132014 2011201220132014

Urban Rural Overall

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 239Source: IMF World Economic Outlook Oct’14

Improving economic condition of society will increase demand of better quality infrastructure specially housing

Source: CMIE Consumer Pyramid Retrieved 9th April, 2015

Macro-Economic Factor – Income levels

India’s middle class population is almost half of the total population and is among the

Structure of Population in 2014 by Income Top 10 Countries in Middle Class Consumption

India s middle class population is almost half of the total population, and is among the highest consuming middle-class groups in the world.

3RICHAverage HHI: Rs.1.01mn-33% over 2013

RANK 2009 2020 2030

1 U.S 4.4 CHINA 4.5 INDIA 12.8

2 JAPAN 1.8 U.S 4.3 CHINA 10.0

No change

55HIGH MIDDLE INCOMEAverage HHI: Rs. 0.33mn-15% over 2013

3 GERMANY 1.2 INDIA 3.7 U.S 4.0

4 FRANCE 0.9 JAPAN 2.2 INDONESIA 2.5

5 U.K 0.9 GERMANY 1.4 JAPAN 2.3No change

83

MIDDLE INCOMEAverage HHI: 0.14mnNo Change

6 RUSSIA 0.9 RUSSIA 1.2 RUSSIA 1.4

7 CHINA 0.7 FRANCE 1.1 GERMANY 1.3

8 ITALY 0.7 INDONESIA 1.0 MEXICO 1.2+2.5% over 2013

129

LOWER INCOME &POORAverage HHI: 0.07mn+16% over 2013

9 MEXICO 0.7 MEXICO 1.0 BRAZIL 1.2

10 BRAZIL 0.6 U.K 1.0 FRANCE 1.1

WORLD 21 WORLD 35 WORLD 55+0.8% over 20130.8% over 2013

India’s middle class population would majorly drive demand in construction sector


Note: Middle class defined as those living in households with daily per capita income between US$10-100 per day at 2005 US$ PPP terms.

HHI: Household Income per annumHHI brackets: Rich (above Rs 0.72mn), High middle income (Rs. 0.72-0.18mn), Middle income (Rs. 0.18-0.09mn), Lower Income and Poor (below Rs. 0.09mn)Source: : CMIE Consumer Pyramid Data Retrieved 13th April, 2015 Source: Brookings Institution, OECD Working Paper no-285, 2010

Sector Performance – Contribution and Growth

Construction sector contributed 8% to India’s GDP Market has witnessed steady growth in

Sector contribution to GDP Real-estate market size and growth-rate

Construction sector contributed 8% to India s GDP. Market has witnessed steady growth in past which is likely to continue in future, owing to demographic pressure.

Sector contribution to GDP Real estate market size and growth rate

200

Total GDP (2013-14) value at current prices: INR 104.8 trillion

Agriculture, forestry and

mining15%

Finance

Community services

13%140

160

180

Manufacturing14%

Electricity, gas & water supply

Finance, Insurance,

Real Estate & Business Services

20%134

18080

100

120

US$

(bill

ion)

& water supply2%

Construction8%

Trade, hotels, transport &

communication

28%50 53 56 67

7995

113134

20

40

60

02008 2009 2010 2011 2012 2013 2014 2015 2020

Time (years)

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 242Source: Central Statistics Office (CSO), India 2014 Source: 1. Corporate Catalyst India, Real Estate Report 2012

2. IBEF India Nov’13 http://www.ibef.org/industry/real-estate.aspx

Note: Real-estate market includes ownership of residential, commercial and industrial dwellings and related business services

Sector Performance – Major Players Performance

While most players have grown in size in FY13-14 maintaining profitability has been an

Performance of Top 15 Real-estate Developers in India by market capitalization

While most players have grown in size in FY13 14, maintaining profitability has been an area of concern for majority of country’s leading developers for second consecutive year.

Developer nameMarket Net Sales Net Sales Net Profit Net Profit

Cap (BSE) (2013-14) YoY% (2013-14) YoY%DLF Ltd. 2,88,405 23,859 11% 5,268 5%

Prestige Estates Projects Ltd. 1,04,306 20,052 169% 3,400 163%

Oberoi Realty Ltd. 99,949 6,226 5% 2,951 -10%

HDIL 56,000 7,708 -21% 2,449 68%

Godrej Properties Ltd. 54,684 6,640 56% 977 -20%

Sobha Developers Ltd 40 491 21 129 17% 2 065 5%Sobha Developers Ltd. 40,491 21,129 17% 2,065 5%

Indiabulls Real Estate Ltd. 30,577 849 -76% 1,446 -46%

Omaxe Ltd. 24,646 11,847 -12% 603 -30%

Brigade Enterprises Ltd. 17,678 8,952 15% 898 40%

S t k R lt Ltd 17 634 387 21% 1 373 1893%Sunteck Realty Ltd. 17,634 387 21% 1,373 1893%

Kolte Patil 17,542 1,872 3% 464 -29%

DB Realty Ltd. 17,271 452.6 -2% -411 -13807%

Purvankara Projects Ltd. 17,051 9,227 13% 1,060 -6%

Anant Raj Ltd. 12,881 4,384 39% 883 -19%

Parsvnath Developers Ltd. 8,769 4,283 -7% 234 -68%

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 243Note: Highlighted numbers indicate negative growthSource: BSE Company data fetched 08th Apr 2015 | All figures in INR Million | BSE- Bombay Stock Exchange

Fluctuating financial performance of leading developers explains the volatile state of the Indian real-estate market

Financing Developments – Project Financing Options

Private lending NBFC lending & PE funds have continued to be the primary sources of real-

List of project financing options Financing options by developers preference

Private lending, NBFC lending & PE funds have continued to be the primary sources of realestate financing. Recently REITs and InvITs have been allowed in Indian market.

Private Lending FCCB

QIPAvailable Real-estate financing options in India

• Bank Credit

• NBFC Credit

PE funds

NBFC Lending

g

AIF

• NBFC Credit

• Private Credit

• Public Listing (IPO)

REMF

Bank Lending

IPO• External Commercial Borrowings (ECB)

• Private Equity (PE)

• Foreign Direct Investments (FDI)

REIT

InvITg ( )

• Qualified Institutional Placement (QIP)

• Foreign Currency Convertible Bond (FCCB)

ECB

NBFC: Non-banking Financial Company QIP: Qualified Institutional PlacementFCCB F i b d

Preference (high to low)

• Real-estate Mutual Funds (REMF)

• Alternative Investment Fund (AIF)

• Real-estate Investment Trusts (REIT)


PE: Private EquityIPO: Initial Public OfferingECB: External Commercial Borrowing

FCCB: Foreign currency bondsREMF: Real Estate Mutual FundAIF: Alternative Investment FundREIT : Real Estate Investment TrustInvIT: Infrastructure Investment TrustSource: Content sourced from proprietary information of Jones Lang LaSalle India

• Infrastructure Investment Trusts (InvIT)

Financing Developments – Project Financing Options

Government is also focusing towards specialized financing options for real-estate sector

O ti B i f D i ti C t St tSpecialized real-estate investment options

Government is also focusing towards specialized financing options for real estate sector development.

Option name Brief Description Current Status

Real-estate Mutual Funds (REMFs)

REMFs are mutual fund schemes established in the form of a trust, which invests directly or indirectly in real estate assets or permissible assets.

• SEBI has allowed fund houses to launch real-estate funds under April 16, 2008 notification for amendment of SEBI (Mutual Funds) Regulations, 1996 to permit mutual funds to launch REMFslaunch REMFs.

• However due to lack of transparency and regulation on land prices REMF have not generated sufficient investor interest

• Prominent REMF players• ICICI Prudential• Kotak Mutual Fund• HDFC Mutual Fund

Real Estate Investment Trust (REITs)

REIT is a corporate structure that buys, develops manages and sells real estate assets and allows

• SEBI approved REITs regulations in September 2014. • REIT was introduced to make available fresh equity in the real( ) g

various participants small and large to invest in a professionally managed portfolio of real estate properties, that are publicly traded.

• REIT was introduced to make available fresh equity in the real estate sector in India leading to reduced pressure on the banking system by attracting long term FINANCE from foreign (presumably) and domestic sources for the sector.

• This will help ease the pressure on the balance sheets of cash-starved developersstarved developers

Infrastructure Investment Trust (InvITs)

Provides additional framework for investment in infrastructure in the country and would own and manage income generating infrastructure projects.

• SEBI approved InvITs regulations in September 2014. The InvITs will invest in infrastructure projects, either directly or through a special purpose vehicle as mandate by SEBI

Long Term Bonds by Intends to ease raising long term funds by banks for RBI has allowed banks to issue infra bonds via private public

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 245Source: Securities and Exchange Board of India (SEBI), News Articles

Long Term Bonds by Banks for Infrastructure financing

Intends to ease raising long-term funds by banks for financing infrastructure projects

• RBI has allowed banks to issue infra bonds via private, public placement. It has also eased priority sector norms for banks’ long-term bond (Jul 2014)

Financing Developments – Trends in PE

PE investments have bounced back mainly because investors have shown renewed

PE inflows in Real Estate Sector

PE investments have bounced back, mainly because investors have shown renewed interest in residential and leased office spaces, in anticipation of quick capital appreciation.

PE inflows in Real Estate Sector

2.91

Values in US$ Billion

2.30

2.57

1.29

1.70

1.23

0.88 0.94 0.85

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 246Source: Cushman & Wakefield

Regulatory Developments – FDI Policy Conditions

Recently FDI norms in construction sector have been relaxed in order to attract more FDI.

FDI Policy Norms

• In view of depleting FDI inflow in construction and real estate sector in last couple of years the current BJP led NDA government brought in relaxed

y

• In view of depleting FDI inflow in construction and real estate sector in last couple of years, the current BJP led NDA government brought in relaxed rules for FDI in the construction sector.

• The proposal has been approved by the Union Cabinet in Oct 2014 and notified by DIPP in Dec 2014.

FDI Relaxations Potential Impact on SectorFDI Relaxations Potential Impact on Sector

• Reduced the minimum floor area to 20,000 sq mt from the earlier 50,000 sq. mt.

• Brought down the minimum capital requirement to $5 million from $10 million.

• Allowing smaller projects to qualify for FDI

• In case of development of serviced plots, the condition of minimum land of 10 hectares has been relaxed.

• Encourage development of plots for serviced housing given the shortage of land in urban agglomerations as well as the high cost of land

• Developers will be exempt from restrictions in area and minimum capitalization if they commit 30% of the project cost to affordable housing

• Increased the unit size to be considered for affordable housing from 60 square meters (carpet area) to 140 square meters (floor area), on

• Increase the supply of affordable housing across India

• Larger unit size may attract more consumers to buy units under affordable housing scheme

condition that at least 25% of the units under affordable housing should be of a floor area not exceeding 60 square meters.

• Allowed foreign investors to exit on project completion or 3 years from the date of final investment subject to the development of trunk infrastructure such as roads water supply street lighting drainage and

• Easier exit provisions may encourage more investment in Housing Sector through FDI route


infrastructure such as roads, water supply, street lighting, drainage and sewage.

DIPP is Department of Industrial Policy and Promotion; Source: News Articles

Residential Space – Average household member-size

Decreasing average household size and increasing total population is leading to household

Households growth rate Urban-rural housing shortage

Decreasing average household size and increasing total population is leading to household shortage in the country.

1200

1400

250

300

n)

34

30.135

40

mill

ion)

Urban Household Growth CAGR (1991-2014) : 3.64% Rural Household Growth CAGR (1991-2014) : 2.08%

169 172 176 180

600

800

1000

150

200

Population (mehol

ds (m

illio

n

15 118.4 19.3 20.5

18.722

26.7 2624.3

2020

25

30

olds

sho

rtag

e (

5681 84 87 91

112

138

200

400

600

50

100

million)

No.

of h

ouse 15.1

5

10

15

No.

of h

ouse

ho

40 56

001991 2001 2011 2012 2013 2014

Time (years)Average household size

02001 2005 2008 2010 2012 2014`

N

Time (years)

U b R l5.5 5.3 4.9 4.8 4.8 4.7

Urban Rural Total Population(members per household)

Urban Rural


Source: CMIE Consumer Pyramid Data Retrieved 9th April 2015 Source: 1. Ministry of Housing and Urban Poverty Alleviation2. Planning Commission working group on rural housing

With increasing population and decreasing family size per household, the housing demand is ought to grow

Residential Space – Supply Trends

Supply of new residential units in urban centers has been primarily in the mid-price segment

City-wise Residential launches in Top 7 cities (2009-13) Supply Trend by Price Band in Top 7 cities in 2013

Supply of new residential units in urban centers has been primarily in the mid price segment range with Delhi and Mumbai having the highest inventory.

y p ( ) pp y y p

90%

100% Delhi-NCR

Percentage share per price band

70%

80%

90%

w la

unch

es

Mumbai

Chennai

40%

50%

60%

ge s

hare

of n

ew

Bengaluru

Pune

10%

20%

30%

Perc

enta

g

Hyderabad

Kolkata

0%2009 2010 2011 2012 2013

Time (Yearly)

Delhi-NCR Mumbai Chennai Bengaluru

Kolkata

Affordable Low-mid Upper-mid High-end


Delhi NCR Mumbai Chennai BengaluruPune Hyderabad Kolkata

Source: Content sourced from proprietary information of Jones Lang LaSalle India

Note: Average capital values range- Affordable housing category: <INR 3.5 million- Affordable housing category: INR 3.5 - 7.5 million- Affordable housing category: INR 7.5 - 15 million- Affordable housing category: >INR 15 million

Residential Space – Demand Trends

Overall absorption of residential units is on a declining trend due to large existing unsold

Absorption Trend in Top 7 cities

Overall absorption of residential units is on a declining trend, due to large existing unsold inventory in the midst of recovering demand, but likely to improve in near-future.

Absorption Trend in Top 7 cities

25 0%

30.0%

20.0%

25.0%

Rat

e

10.0%

15.0%

Abs

orpt

ion

R

5.0%

0.0%

Time (Quarterly)


Figures represent Top 7 cities by urban population: Mumbai, Delhi-NCR, Kolkata, Chennai, Bengaluru, Hyderabad, Pune


Note: Term “Absorption” refers to ratio of space leased to total space

Residential Space – Rental and Capital Value Trends

Rental values in Hyderabad have increased the most while in Mumbai it has decreased due

Average Residential Values across major Indian cities

Rental values in Hyderabad have increased the most, while in Mumbai it has decreased due to demand-supply fluctuations. Capital values have appreciated moderately across all cities.

City Name Average Rental Valueper Month per 1000 sqft.

Annual Rental Growth Rate

Average Capital Valueper sqft.

Annual Capital Growth Rate

Delhi/NCR INR 14,500 - 20,000 0-5% INR 6,300 - 8,200 0-5%

Mumbai INR 32,000 – 52,000 0-5% INR 12,100 – 19,500 5-10%

Kolkata INR 12,000 – 19,000 5-10% INR 4,000 – 8,000 5-10%

Chennai INR 10 500 17 000 0 5% INR 6 500 10 000 10 15%Chennai INR 10,500 – 17,000 0-5% INR 6,500 – 10,000 10-15%

Bengaluru INR 12,000 -18,000 20-25% INR 4,500 – 8,500 10-15%

Hyderabad INR 10,000 – 16,000 5-10% INR 4,000 – 6,000 5-10%

Pune INR 10,000 – 13,500 0-5% INR 4,500 – 6,000 15-20%

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 252Source: Content sourced from proprietary information of Jones Lang LaSalle India

Note: Values represented above are average for FY12-13 and for indicative purposes only. Actual values may vary by time, specific locality area, property specifications and other factors

u e INR 10,000 13,500 0 5% INR 4,500 6,000 15 20%

Residential Space - Performance in FY14-15

Residential market witnessed increased demand for mid & affordable housing as economy

Market Factors FY14 15 Growth Trend Reason

Residential market witnessed increased demand for mid & affordable housing as economy showed recovery signs. However, new supply remained low due to existing unsold inventory

Market Factors FY14-15 Growth Trend Reason

Demand

• Residential segment can be divided into high-segment (luxury), mid-segment (middle-class) and low-segment (affordable) housing

• Demand for mid and low-segment housing has increased once again asDemand for mid and low segment housing has increased once again as consumers interests got revived due to early signs of economy recovering from slowdown, and interest rates cuts have boosted buyers sentiments.

• Around 122,000 new units have been launched between Q1 and Q3 of FY14-15 across top 8 cities of India lower than previous year due to existing unsold

Supply15 across top 8 cities of India, lower than previous year, due to existing unsold inventory.

• Bengaluru, Mumbai and Delhi-NCR accounted for 71% of new residential launches in Top 8 cities.

Capital Values

• Capital values have remained stable in FY14-15 for most of the cities, except Delhi/NCR, where it has declined, due to over supply

• Developers have restrained from announcing new projects, due to availability ofunsold inventory

Noticeable Trends• Developers focusing

majorly on mid-segment

y

• Developers have primarily focused on mid-segment offerings in this year, as investors interest in increasing for such units


Noticeable Trends majorly on mid segmenthousing • Around 68% units launched in first 3Q of 2014 were for mid-segment consumer,

which is 56% higher than 2013.

Office Space – Supply and Demand Trends

Office space vacancy is forecasted to increase in 2015 due to higher completions in 2014 as

Office space supply and demand in Top 7 cities

Office space vacancy is forecasted to increase in 2015 due to higher completions in 2014 as compared to demand growth in this period

p pp y p

50%

60%

45

50

40%

50%

30

35

40

V(mill

ion

sq. f

t)

20%

30%

20

25

30

Vacancy (%)

on/A

bsor

ptio

n (

0%

10%

5

10

15

Com

plet

io

-10%0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F

New Completions Net Absorption Net Vacancy


Note: Figures represent Top 7 cities by urban population: Mumbai, Delhi-NCR, Kolkata, Chennai, Bengaluru, Hyderabad, Pune


Office Space – Office Rental and Capital Value Trends

Overall office rental values growth trend has been mixed while capital values have

Average Office Rental Values across major Indian cities

Overall, office rental values growth trend has been mixed, while capital values have appreciated across major centres.

City Name Average Rental Valueper sqft./month

Average Rental Growth Rate (FY13-14)

Average Capital Valueper sqft.

Average Capital Growth Rate (FY13-14)

Delhi/NCR INR 114 – 182 0-5% INR 19,000 – 23,000 0-5%

Mumbai INR 130 – 166 ▲0-5% INR 13,000 – 18,000 0-5%

Kolkata INR 65 – 79 ▲0-5% INR 7,000 – 10,000 ▲0-5%

Chennai INR 47 68 0 5% INR 7 000 10 000 0 5%Chennai INR 47 – 68 0-5% INR 7,000 – 10,000 0-5%

Bengaluru INR 52 – 72 ▲0-5% INR 6,000 – 10,000 5-10%

Hyderabad INR 38 – 48 0-5% INR 4,000 – 6,000 5-10%

Pune INR 50 – 68 5-10% INR 6,000 – 8,000 10-15%


Pune INR 50 68 5 10% INR 6,000 8,000 10 15%

Note: Values represented above are average for FY12-13 and for indicative purposes only. Actual values may vary by time, specific locality area, property specifications and other factors

Office Space – Asian Rental Value Trends

Apart from Mumbai India’s other major commercial centres continue to remain cost

Office Rental Values Trend of Major Asian Cities

Apart from Mumbai, India s other major commercial centres continue to remain cost competitive against peer Asian hubs.

1400

1600

1000

1200

USD

psm

pa)

600

800

ectiv

e R

ents

(U

200

400

Net

Effe

0


4Q13 4Q14

Office Space - Performance in FY14-15

Office space market has improved with both demand and supply witnessing an increase

Market Factors ReasonFY14-15 Growth Trend

Office space market has improved, with both demand and supply witnessing an increase. MNC companies have expanded office spaces due to renewed interest in India business.

Market Factors Reason

Demand

• Demand for office space picked up in most cities, and net absorption increased by 34% over previous year, on account of substantial pre-committed absorption in 2013.

FY14 15 Growth Trend

• Companies which had postponed office expansion plans bought new spaces to take advantage of decreasing rental/capital values

• Around 20.4 mn square ft of office space was supplied in 2014, around 9%

Supplyhigher than previous year. Delhi, Mumbai and B’luru being major beneficiaries

• Many delayed projects got completed in 2014, and improved absorption rate led developers to complete projects quickly, resulting in increased supply.

Rental Values

• Rental trends have been mixed, with rentals declining in 4 of top 8 cities due to over supply

• While in remaining, rentals have increased marginally due to fresh supply of Grade A office spaces at premium prices, and increase in rents in projects having high occupancies

Noticeable Trends

having high occupancies

• With new and stable union government in place, foreign investors sentiment is improving and MNCs are expanding office spaces in major cities, as a result of business expansion in India.

• Multi-national companiesare increasing


• This trend is more prominent for IT, BFSI and Consulting based MNC companies

ginvestments in India

Retail Space – Overall Outlook

Rapid urbanization is driving retail sector growth hence demand and supply of retail space

Growth of retail sector in India

Rapid urbanization is driving retail sector growth, hence demand and supply of retail space is going to increase in future.

1,1461,200

800

1,000

)

425

518 490 600

US$

(Bill

ion)

201 204 238

278 321

368

200

400

0 1998 2000 2002 2004 2006 2008 2010 2012 2013 2019E

Time (Years)


Source: Indian Brand Equity Foundation

Retail Space – Supply Demand Trends

Retail space vacancy is set to increase due to declining demand of mall space specially for

Modern Retail space supply demand trend in Top 7 cities

Retail space vacancy is set to increase due to declining demand of mall space, specially for those malls located in non-prime locations of the cities.

Modern Retail space supply demand trend in Top 7 cities

25%

14.0

16.0

t)

15%

20%

10.0

12.0

Va(mill

ion

sq. f

t

10%

15%

6.0

8.0

acancy (%)

n/A

bsor

ptio

n

5%

2.0

4.0

Com

plet

ion

0%0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F

New Completions Net Absorption Vacancy


Note: Figures represent Top 7 cities by urban population: Mumbai, Delhi-NCR, Kolkata, Chennai, Bengaluru, Hyderabad, Pune


Retail Space – Asian Rental Value Trends

Major Indian cities are still on the lower side of retail rentals as compared to other leading

Retail Rental Values Trend of Major Asian Cities

Major Indian cities are still on the lower side of retail rentals as compared to other leading Asian cities.

16000

18000

12000

14000

USD

psm

pa)

6000

8000

10000

ectiv

e R

ents

(U

2000

4000Net

Effe

0


4Q13 4Q14

Retail Space - Performance in FY14-15

Retail segment has witnessed increasing demand for mall space due to rising consumerism


Retail segment has witnessed increasing demand for mall space due to rising consumerism, but supply declined due to delay in projects. Rental values have increased marginally.


Demand

• Growing consumerism, young population, increasingly brand conscious middle-class consumers and growing per capita income levels, will continue to drive demand for new retail spaces in India


p

• Demand of Grade A malls in Tier 2 and 3 cities is rapidly increasing.

• In first three quarters of 2014, a total of 1.53 million sqft of new retail space was added across B’luru Delhi-NCR Hyderabad Kolkata and Pune

Supplyadded across B luru, Delhi NCR, Hyderabad, Kolkata and Pune

• However 14.3 million sq. ft of upcoming supply got deferred due to issues such as financial crunch of developers, project delays and poor response from investors and retailers.

Rental Values• Mall rentals have been marginally increased across Top 8 cities of India

• Only in Pune rentals have increased significantly, as retailers are increasingly occupying vacant spaces

Noticeable Trends

• The impact of e-commerce cannot be ignored, as convenience of home shopping is presiding over visits to offline retail spaces

H ffli t il t ki t li h l d i b t• E-commerce impact on

offline retail spaces


• However many offline retailers are taking to online channels and vice-versa, but in mid term e-commerce may negatively impact retail spaces in Tier 1 cities

offline retail spaces

Logistics Space – Major Manufacturing Clusters in India

India’s manufacturing footprint and consumer markets are spread across the country thus

India’s Manufacturing Footprint and Major Markets

India s manufacturing footprint and consumer markets are spread across the country, thus arising need for domestic trade corridors and logistics hubs.

g p j

• AutomobileFMCG

New Delhi

• FMCG• Heavy Industries

• Life Sciences (Pharma & Bio-Tech)• Automobile

Ahmedabad

• Automobile• FMCG

• Automobile

MumbaiHyderabad

Kolkata

Pune• Life Sciences (Pharma & Bio-Tech)

• Life Sciences (Pharma & Bio-Tech)• Automobile• FMCG

• FMCG• Heavy Industries

ChennaiBengaluru

• Automobile• FMCG• Heavy Industries

• Heavy Industries

• Life Sciences (Pharma & Bio-Tech)• Automobiles

El t i d C i ti


• Heavy Industries• Electronics and Communication• Aerospace

Logistics Space – Major Indian Trade Corridors

Major Domestic Trade Corridors and Logistic Hubs are as follows.

Major Domestic Trade Corridors

j g

jDelhi-Kolkata 1,452 kms

Chennai-Mumbai 1290 kms

Kolkata-Chennai 1,684 kms

Established & Growing Logistics HubsDelhi-NCR Kolkata

Mumbai-Delhi 1,419 kms

Mumbai Hyderabad

Chennai Pune

Bengaluru

Ahmedabad Thiruvananthapuram

Surat Jaipur

Goa Vadodara

Chandigarh Nashik

Kochi Indore

Visakhapatnam Mangalore


Nagpur Ludhiana

Coimbatore Guwahati


Logistics Space – Market Size and Rental Growth

India’s widely spread agricultural and industrial resources and lack of existing quality

Rentals of warehousing spaces across major industrial corridors are growing at an average of 5% per annum

India s widely spread agricultural and industrial resources and lack of existing quality storage infrastructure are driving Indian warehousing industry.

Rentals of warehousing spaces across major industrial corridors are growing at an average of 5% per annum Gurgaon-Manesar and Chennai-Bengaluru routes have shown double digit appreciation in rentals

Warehousing Market Size Warehousing Space Rental Growth Trends

228.3250.0

300.0

10%

10%

Gurgaon-Manesar

NH 4 (Chennai Bengaluru)

Rental Growth (%)

129 4148.8

171.1

197.3

150.0

200.0

(Bill

ion)

10%

6%

6%

NH-4 (Chennai-Bengaluru)

NH-91, NH-24, NH-58 (Noida)

NH-4 (Pune-Mumbai)

dors

112.5129.4

50 0

100.0

US$

(

6%

4%

3%

NH-6 (Dhulagarh)

NH-3 (Bhiwandi)

NH 2 (D k i Old D lhi)Logi

stic

Cor

rid

0.0

50.0

2013 2014 2015e 2016e 2017e 2018eTime (Years)

3%

2%

NH-2 (Dankuni-Old Delhi)

NH-7 (Hyderabad)

L

Y-o-Y rental growth (%)


( )

Source: Netscribes Report 2012 | USD 1 = INR 60 Source: Content sourced from proprietary information of Jones Lang LaSalle India

Logistics Space - Performance in FY14-15

Logistics spaces have continued to be affected by slow economic growth in 2014 and lack


Logistics spaces have continued to be affected by slow economic growth in 2014 and lack of clarity regarding GST implementation.


Demand• With e-commerce booming in India, the demand for warehousing space near

large local markets has increased significantly


• Rising domestic consumption have also led to demand for warehousing space

• Supply continues to decline due to issues related to land acquisition, lack of

Supplysupporting infrastructure (power, water, roads) etc to lure investors and customers

• Delay in introduction of GST bill is also impacting warehousing space supply.

Rental / Capital Values • Rental / Capital values of warehousing spaces across major industrial corridors witnessed a positive trend as land values kept rising and supply decreased.

Noticeable Trends

• Difficultly to setup 100% export based SEZ units due to locational and other regulations is enabling demand for domestic based SEZ spaces.

• Specialized storage requirements for chemicals, F&B category is increasing

• Domestic SEZs catching speed

• Demand of temperature controlled warehouses


demand for temperature controlled warehouses

• DMIC will comprise of 13 industrial areas driving warehousing supply

controlled warehouses• DMIC to increase

warehousing supply

DMIC-Delhi Mumbai Industrial Corridor

Hospitality Space – Market Size and Rental Growth

Travel and tourism industry is growing steadily but requires quality infrastructure support to

India’s Position in the World By Industry Competitiveness 65th By Hotel

Infrastructure 67th By Foreign Tourist Arrivals 42nd

Travel and tourism industry is growing steadily but requires quality infrastructure support to be competitive globally .

Domestic and International Tourists Arrivals Top 6 cities in Tourist Arrivals by Air

Competitiveness Infrastructure ArrivalsSource: Travel and Tourism Competitiveness Report 2013

1,036

1,152 1,200

1,400

llion

s)

18

16 16

18

20

ions

)

Contribution of travel & tourism to GDP: ~6.2%

568

674 753

864

800

1,000

sts

arriv

als

(mi

13

11 10

12

14

st a

rriv

als

(mill

532 568

400

600

umbe

r of t

ouris

7 7 6

4 5 5 5

3

5 5

4

6

8

umbe

r of t

ouris

0

200

2007 2008 2009 2010 2011 2012 2013

Nu

Ti (Y )

3 2 2 1 1

0

2

4

NCR Mumbai Chennai Bengaluru Kolkata Hyderabad

Nu


Time (Years)

Tourist arrivalsSource: Ministry of Tourism

Major Tourist Destinations

Total Domestic Foreign

Source: Airports Authority of India

Hospitality Space – Present and Upcoming Inventory

Hospitality space inventory is set to grow steadily in future as occupancy rate is getting

Hospitality Space - Supply and Demand Trends

Hospitality space inventory is set to grow steadily in future as occupancy rate is getting stabilized.

Hospitality Space Supply and Demand Trends

60%

62%

120,000.0

140,000.0

56%

58%

80 000 0

100,000.0

120,000.0

Average Ocom

s

52%

54%

40 000 0

60,000.0

80,000.0 ccupancy Ra

Num

ber o

f roo

48%

50%

20,000.0

40,000.0 te (%)

N

46%0.0 2013 2014 2015e 2016e 2017e

No. of rooms Occupancy Rate

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 267Source: Cushman and Wakefield

Note: Figures represent aggregated numbers of Top 8 cities : Mumbai, Delhi-NCR, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad | Numbers are forecasted for 2015, 2016 and 2017

Hospitality Space - Performance in FY14-15

Hospitality space demand continued to grow with increasing supply of hotel spaces As a


Hospitality space demand continued to grow, with increasing supply of hotel spaces. As a result room rates have remained largely stable due to increasing local competition.


Demand

• Domestic tourism increased by 10% and international by 5.9% over previous year

• The average occupancy rate across Top 8 cities have improved indicating


• The average occupancy rate across Top 8 cities have improved, indicating increasing demand for hospitality space

• Top 8 cities are expected to add over 44,000 new keys by 2018 end, with Delhi

Supplyand Mumbai accounting for 51% of new supply

• Overall, the supply stock across all major cities have grown, with Delhi having highest y-o-y growth of 16.5% in supply.

Average Room Rates

• Average room rates across most metro cities have not increased considerably over last year, since increased supply amplified competition and quest for maintaining occupancy.

• Overall occupancy rates were in the range of approx. 54-60%

Noticeable Trends

• Depreciating rupee is likely to further boost domestic tourism as overseas leisure trips become more expense

A lt d d f id hi h d h t l lik l i i

Domestic tourism to majorlydrive hospitality space


• As a result demand for mid-high end hotel spaces may likely increase in near-term future

p y pdemand in India

Authors

Hirokazu SAOAuthor of Retail Property Market

Tomohiko TANIYAMAAuthor of Real Estate Investment Products

Akira DAIDOAuthor of Population Movements in

Sao is engaged in consulting and research projects, mainly on real estate, housing and infrastructure-related cases. Sao undertakes survey/research as well as business strategy planning.

Taniyama is engaged in consulting and research projects. His resent research theme is the analysis of alternative investment market including real estates and infrastructures, and the development of new financial instruments and new real estate economic models.

Japan and Residential Property Market

Daido is engaged in consulting and research projects such as real estate and housing, electric industry, and planning of business strategies.

Keita KAMEIAuthor of Logistics Property Market

Kamei is engaged in consulting and research projects, undertaking real estate, housing , housing loan, and infrastructure-related survey/research,

Seiya HARIMAAuthor of Macro Fundamentals of Japan

Harima is engaged in consulting and research projects such as real estate/infrastructure-related

Yinhua BAI, Ph.D.Lead Author of China

Bai is engaged in consulting and research projects such as urban and regional development, and l i f l t t b i t tloan, and infrastructure related survey/research,

as well as business strategy planning. survey/research, and planning of business strategies.

planning of real estate business strategy.

JaRyoung CHOILead Author of KoreaYue KANG

Author of ChinaJunWon SEOAuthor of Hotel Market Trend in Korea

As a Executive Director of Real Estate, Retail, Service Division at NRI Seoul, Choi is engaged in consulting and research projects such as urban and regional development, real estate business strategy and real estate investment strategy, business strategy planning.

Author of China

As a Consultant at NRI Shanghai, Kang is engaged in consulting and research projects such as urban and regional development, and planning of real estate business strategy.

Author of Hotel Market Trend in Korea

As a Senior Consultant of Infra Business develop Division at NRI Seoul, Seo is engaged in consulting projects related to Real estate business strategy and development, Urban Development.

YoonJi BAEAuthor of Household Economy and Housing market trends, Indirect Investment Market Trends in Korea

As a Consultant of Real Estate, Retail, Service

KangTae PARKAuthor of Office Market Trends in Korea

As a Consultant of Real Estate, Retail, Service Division at NRI Seoul Park is engaged in

DongHyun LEE Author of Business Trends in Korea

As a Consultant of Real Estate, Retail, Service Division at NRI Seoul, Lee is engaged in consulting


, ,Division at NRI Seoul, Bae is engaged in consulting projects related to Housing/Real estate business strategy, Making business plan.

Division at NRI Seoul, Park is engaged in consulting projects related to Distribution strategy, Plan of operation/ Execution support.

projects related to Distribution/Analysis of consumer's market and marketing.

Authors

Michihiro KONAGAILead Author of Taiwan

Yasuyuki ARAKIAuthor of Singapore

SungYun (Sonny) KIMAuthor of Japan and IndiaKim has been engaged in real estate related Lead Author of Taiwan

Konagai is engaged in consulting and research projects such as infrastructure development and business strategy planning in infrastructure market.

Araki is engaged in consulting and research projects such as investment environment analysis in real estate and infrastructure market, and planning the business strategies and overseas market strategy.

consulting projects and research for years. His current interest in real estate investment market includes behavioral investment, market cycle theory, demographic impact on real estate market, real estate securitization, global real estate investment, and financial crisis.

Amit KUMARLead Author of India

As a Division Head of Business Strategy Consulting Division at NRI India, Kumar is engaged in consulting and research projects such as infrastructure related business strategy M&A

Wataru KADOBAYASHIAuthor of Real Estate Market India

As a Group Manager at NRI India, Kadobayashi is engaged in consulting and research projects such as infrastructure-related business strategy,

Arpit MARTHURAuthor of Real Estate Market India

As a Consultant in Business Strategy Consulting Division at NRI India, Mathur is engaged in consulting and research projects such as infrastructure related business strategy andas infrastructure-related business strategy, M&A

and corporate alliances.

gy,overseas business, and corporate alliance or M&A. infrastructure-related business strategy and

alliances.

Anoop KUBBAAuthor of Real Estate Market India

Toshiro TAKEKOSHIManager, Consulting division Kengo MIZUNO

Managing DirectorAs a Business Analyst in Business Strategy Consulting Division at NRI Inida, Kubba is engaged in consulting and research projects related to infrastructure, real estate industry, economic policies and regulations.

Takekoshi specializes in infrastructure business, with particular focus on real estate and energy industries, advising clients on management and business strategies, as well as cross border alliance and M&A.

Managing DirectorNRI Thailand

Mizuno specializes in real estate and housing industry in Thailand.

Aya IMAIEditor

Imai is engaged in research and consulting with specific focus on real estate and housing i d t i i il d ti b d t

Kazuya SAITOEditorial assistant

Saito is engaged in research, particularly market forecasting, as well as consulting with specific f t ti S it l k

Contact: Nomura Research Institute, Ltd.Consulting Division


industries, primarily conducting cross border entry strategy planning.

focus on construction company. Saito also works on the reconstruction of earth quake hit cities.

the asian real estate market 2015 - nri.com

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