Resilience across all sectors. Figure 1 (Q1 2011=100) 120. Source: DTZ Research

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PROPERTY INSIGHTS Malaysia Quarter 2, 212 Resilience across all sectors Market Overview The Malaysian economy grew at a slower 4.7% year-on-year (y-o-y) in Q1 212 compared to 5.2% in Q4 211.

1 PROPERTY INSIGHTS Malaysia Quarter 2, 212 Resilience across all sectors Market Overview The Malaysian economy grew at a slower 4.7% year-on-year (y-o-y) in Q1 212 compared to 5.2% in Q Growth for the whole year is projected to come in lower at 4.% - 5.% compared to 5.1% for 211. Domestic demand is expected to be the main driver, with the Economic Transformation Programme Figure 1 Prime office rental index (Q1 211=1) (ETP) and Government Transformation Programme (GTP) continuing to be the main catalysts. 6 4 The residential market remained stable with average capital and rental values experiencing Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 12 Q4 13 Q4 14 marginal increase. The outlook is however more cautious as sentiment is clouded by both internal and external issues, including those of a political nature. With no new retail space in first half (H1), and little in the pipeline in second half (H2) and 213, well located and positioned malls continue to draw tenants and shoppers. Going forward, the retail Despite a spike of new supply, the office market generally remained stable with both average occupancy rate and rental rates unchanged. However, prime office rents are forecasted to decline as more new space becomes available in the near future (Figure 1). market remains favourable driven by resilient local consumer sentiment, stable employment outlook and easing inflation.

2 Trends & Updates Economic Overview The Malaysian economy grew at 4.7% y-o-y in Q1 212, slower than the 5.2% growth in Q4 211 (Figure 2). This is within Bank Negara Malaysia s (BNM) revised forecast range of 4.% - 5.% for 212. The economy is expected to be domestically-driven for the remainder of 212, with the services sector expected to be the biggest contributor to the country s GDP, followed by the manufacturing sector. The ETP and GTP are expected to continue to be the main drivers of the domestic economy. Nevertheless it faces risks from a lacklustre global demand as a result of the Europeans debt crisis and slowdown in emerging Asian countries. The Consumer Price Index (CPI) in May eased to 1.7% y-o-y, the lowest in almost two years. For the period January to May 212, inflation increased by 2.1% to 14.5 compared with the same period last year. The inflation outlook for 212 is around 2.%, lower than last year s 3.2%. This will give the government room to keep interest rates low to boost the economy. The Overnight Policy Rate (OPR) has remained unchanged at 3.% since May 211, which translated into lending rate stability for properties. May loan growth was the fastest this year at 12.5% y-o-y versus 12.1% in April with overall domestic lending activities remain robust, which resulted from stronger growth of business loans stemming from the roll out of Entry Point Projects under the ETP which filled up the gap left by the moderation in property loans. Malaysia s household debt-to-gdp ratio rose to 77.% in Q2 from 76.6% in Q1. This is reflected in the outstanding household loans, which grew by 11.7% y-o-y while household deposit growth edged marginally lower 12.2% y-o-y. Compared to other countries in the region, this figure is considered high especially when viewed in relation to GDP per capita. Figure 2 GDP growth (y-o-y) and unemployment rate 12% 8% 4% % -4% -8% Q1 9 Q2 9 Q3 9 Q1 1 Q2 1 Q3 1 Q1 11 Q2 11 Q3 11 Q1 12 GDP growth Unemployment rate increase in exports, resulting in a trade surplus of RM29.78bn for Q1. The trade surplus in May narrowed to RM4.6bn (USD1.46bn), almost half of the RM8.5bn a year earlier. Imports jumped 16.7% while exports rose 6.7%. A total of RM7.5bn in foreign direct investment (FDI) was recorded in the first quarter of the year, down by 25.% from the RM1.1bn for the same period last year, due to the global economic slowdown. Nevertheless it is still higher than the RM6.5bn in Q The on-going Economic Transformation Programme projects will be catalysts to induce more FDI inflows to the country. Despite external headwinds, consumer confidence in Q1 was up. The Consumer Sentiment Index (CSI) in Q1 improved 8. points to quarter-on-quarter (q-o-q), which is the highest since Q4 21. This is due to improvement in income level and better finances. The unemployment rate remained unchanged at 3.% as at April 212, compared to Q1. The Government had introduced the 1Malaysia Training Scheme (SL1M) to address the unemployment issue which provides the leverage for graduates to find an appropriate job. Reflecting the strong domestic demand, imports expanded by 6.9% y-o-y in Q1, more than the 4.4%

3 Residential Sale activities appear to be slowing down in line with the impact of measures by the Government to cool the market as well as cautious sentiment from prospective buyers due to the slowing economy. In response, developers will be expected to adopt a more measured approach to new launches. For example, to increase affordability, there is now a trend toward developing smaller units below 1,5 sq ft. After a quiet first quarter, Q2 saw the only completion of St. Mary Residences which is located off Jalan Raja Chulan in the city centre, adding another 626 units to the existing supply of high-end condominiums. Another 1,679 units are expected to enter the market by end of this year (Figure 3). This is likely to put pressure on rents of high-end condominiums in the city centre as the majority, 74.% or 1,247 units, are in this location. Nevertheless, the overall average price of highend condominiums in Kuala Lumpur is relatively stable with a marginal increase of.5% q-o-q to RM636 per sq ft in Q2. Average rents also increased slightly by 1.3% to RM3.67 per sq ft per month (Figure 4). It was reported that the government is mulling to increase the base price for houses that may be bought by foreigners, from the current RM.5m to RM1m, in an effort to control the rise in property prices. This measure is expected to have minimal impact on the high-end segment as most foreign purchases are priced above RM1m. It will, however, protect the mass segment of homes from foreign speculation. Figure 3 Future supply of high end condominium in Kuala Lumpur, units 4,5 3, 1,5 Figure 4 H2 212 City centre To mitigate the risk of abandoned projects, the government is thinking of imposing a contribution (refundable) of 3.% of development cost on developers, which can be used to revive projects should the construction be stalled. However the industry, as expected, will object strongly to this as it will increase capital requirements as well as development cost. 213 Looking forward, the market is entering a period of slower growth and more caution as sentiment is clouded by both internal and external issues, 214 including those of a political nature. 215 Outside city centre Post 215 Rental and price indices of high end condominiums in Kuala Lumpur (Q1 211=1) Capital value 21 Q1 11 Q2 11 Q3 11 Rental Q1 12 Q2 12

4 Retail The retail stock in Kuala Lumpur remained at 23.5m sq ft, without any new completion since Q4 211 and following the closure of two retail malls in the previous quarter for the development of a Mass Rapid Transit (MRT) station. Another mall, a 38-year-old Bukit Bintang Plaza (BB Plaza) located in the city centre was initially planned for demolition to make way for the construction of a MRT station; however it was reported later that it will remain. Figure 5 Retail new supply (NLA) in Kuala Lumpur, sq ft (s) The average occupancy rate of retail centres in Kuala Lumpur during the review period experienced a marginal decline of.3 percentage-point both q-o-q and y-o-y to 9.3%. The relocation of major departmental store TANGS from Pavilion Mall to 1 Utama Shopping Centre in Petaling Jaya (outside of Kuala Lumpur) led to the slight fall in average occupancy rate in Kuala Lumpur. In May, Setia City Mall in Shah Alam and The Paradigm in Kelana Jaya with Net Lettable Area (NLA) 7, sq ft each opened for business. These two regional malls located outside of Kuala Lumpur reported overwhelming response with 99.% of the retail space in Setia City Mall leased out and about 91.% for The Paradigm. More malls are planned to be opened in the coming year in Klang Valley (Table 1). Overall, a quieter retail market was seen in the second quarter with no major festive holiday as compared to the previous quarter which was boosted by the celebration of Chinese New Year. The Malaysian Retailer-Chain Association (MRCA) cited that some retailers experienced decline in sales. Nevertheless, the food and beverage industry remained stable and some of the retailers were Table 1 reported to be registering sales growth of up to 2.%. Facing a possible economic slowdown, retailers are looking at cost-effective measures and maximising staff performance, whilst some retailers have started venturing abroad. Parkson Retail Group, one of the Malaysian retailers that has gone regional, is widening its overseas market by investing USD15m to open five new stores in Indonesia, to tap on the growing Indonesian consumer market which is driven by political stability and rising purchasing power. Parkson plans to open its first store in September 213 at The St Moritz within the Puri CBD in West Jakarta. Completed Supply New Supply Opening of selected upcoming retail centres in Klang Valley Name of development NLA (sq ft) Expected Opening Nu Sentral, Kuala Lumpur 68, 213 KLIA2, Sepang 35, 213 IOI City Mall, Putrajaya 1,3, 213 Sunway Velocity, Kuala Lumpur 8, 213

5 While local retailers are venturing overseas, the retail market continues to attract international players. British department store chain Debenhams recently opened its new flagship store at Starhill Gallery Kuala Lumpur. Covering over 37, sq ft, the store is its largest in Malaysia and South East Asia. The new store aims to build on the popularity of the brand in Malaysia by offering higher quality products at affordable prices. The announcement by the Prime Minister in May on the highly-anticipated windfall of RM1.69bn for Felda settlers, totalling RM15, per household as an incentive for the listing of Felda Global Ventures Holdings Bhd (FGVH), is likely to benefit the retail market as this will boost the household incomes of about 112,365 Felda settlers. Going forward, fairly resilient local consumer sentiment, stable employment outlook, easing inflation and little pipeline supply would provide impetus to the favourable retail outlook (Figure 5). Offices The office market remained generally stable in the quarter despite a spike in new supply of about Figure 6 Office net absorption, sq ft (s) and vacancy rate 877, sq ft with the completion of two very prime 1,8 16% offices, Menara Darusalam and Menara FELDA, both located within the KLCC area and part of the commercial district of the Golden Triangle. Menara FELDA will be the brand new corporate headquarters of Federal Land Development Authority 1,2 6-6 Q1 9 Q2 9 Q3 9 Q1 1 Q2 1 Q3 1 Q1 11 Q2 11 Q3 11 Q1 12 Q % 12% 1% which have in the same quarter successfully listed -1,2 8% FELDA Global Ventures Holdings, one of the biggest Net absorption (LHS) Vacancy rate (RHS) IPO internationally for the year. Menara Darusalam, a mixed development, will also house the soon-tobe-opened Grand Hyatt Hotel. With already several recently completed office buildings in the vicinity such as Menara Worldwide and Menara Prestige still looking to fill up their space, the new additions will add competitive pressure on rents. Office vacancy in Kuala Lumpur remained unchanged at 14.% as net absorption for this Figure 7 Prime office rental index (Q1 211=1) quarter was quite healthy at 754, sq ft, compared 4 to 129, sq ft in Q1. Major leases noted during the quarter are SME Corp (2, sq ft) and SPAD (62, sq ft) which moved to the newly completed Q4 1 Q4 2 Q4 3 Q4 4 Q4 5 Q4 6 Q4 7 Q4 8 Q4 12 Q4 13 Q4 14 Platinum Sentral at KL Sentral, whilst Foster Wheeler, an oil and gas company is relocating from Wisma Selangor Dredging to Menara Citibank. However, market activities appeared to be slowing down. Vacancy is higher in the main office district, the Golden Triangle. Accounting for 5.% of the vacant space available in the overall market, vacancy in this prime district was 15.2%.

6 Prime office rental rates remain stable and resilient at this moment, averaging RM6.23 per sq ft per month, whilst top tier offices are commanding about RM7.9 per sq ft per month. With a substantial pipeline of supply completing in H2 212 and 213, rents are forecasted to fall (Figures 7 and 8). Average capital values in Kuala Lumpur increased 3.8% q-o-q to RM838 per sq ft. Recent transaction evidences included RM1,16 per sq ft for the proposed Menara Tun Razak 2, and RM938 per sq ft for Horizon Tower 8, Bangsar South. To date, the office market seems to be able to surprise on the upside despite the pending prospect of a softening. It remains to be seen how long this can be sustained. A lot of this will Figure 8 Pipeline office supply, sq ft (m) H be bearing on how fast the economy can restructure towards the higher value added, service sector.

GENERAL DISCLOSURE Disclaimer - This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice.

7 GENERAL DISCLOSURE Disclaimer - This report should not be relied upon as a basis for entering into transactions without seeking specific, qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information contained herein should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ. DTZ July 212 Disclaimer - Citibank The market data and information herein contained ( Information ) is the product or service of a third party not affiliated to Citibank NA, Citigroup Inc or Its Affiliates. None of the Information represent the opinion of, counsel from, recommendation or endorsement by Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents. You may not use the Information for any unlawful purpose or any purpose not expressly permitted hereby. Reproduction of the Information in any form is prohibited. NO WARRANTY The Information is provided as is, without warranty of any kind, it has not been independently verified by Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents and use of the Information is at your sole risk. Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents shall not be liable and expressly disclaim liability for any error or omission in the content of the Information, or for any actions taken by you or any third party, in reliance thereon. The Information is not guaranteed to be error-free, or to be relied upon for investment purposes, and Citibank NA, Citigroup Inc or Its Affiliates, Officers, Employees or Agents make no representation or warranty as to the accuracy, truth, adequacy, timeliness or completeness, fitness for purpose, title, non infringement of third party rights or continued availability of the Information. LIMITATION OF LIABILITY IN NO EVENT SHALL CITIBANK NA, CITIGROUP INC OR ITS AFFILIATES, OFFICERS, EMPLOYEES OR AGENTS, BE LIABLE FOR ANY LOSS OR DAMAGE OF ANY KIND WHATSOEVER (INCLUDING, WITHOUT LIMITATION, ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES, OR DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, AND ANY AND ALL FORMS OF LOSS OR DAMAGE, REGARDLESS OF THE FORM OF ACTION OR THE BASIS OF THE CLAIM, WHETHER OR NOT FORESEEABLE ) ARISING OUT OF THE USE OF THE INFORMATION (PROVIDED IN ANY MEDIUM), EVEN IF ANY OF CITIBANK NA, CITIGROUP INC OR ITS AFFILIATES, OFFICERS, EMPLOYEES OR AGENTS, HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGE. COUNTRY SPECIFIC MALAYSIA 212 CITIBANK CITIBANK IS A REGISTERED SERVICE MARK OF CITIGROUP INC. CITIBANK BERHAD. CO REG. NO M

PROPERTY INSIGHTS. Market Overview. Weaker consumer sentiment impacts retail sector. Citigold Private Client. Malaysia Quarter 1, 2014

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