PROPERTY INSIGHTS. Market Overview. Residential prices continue to soften while office rents are expected to rise. Citigold Private Client

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1 Citigold Private Client PROPERTY INSIGHTS Singapore Quarter 4, 213 Residential prices continue to soften while office rents are expected to rise Market Overview The Singapore economy expanded by 4.4% year-on-year (y-o-y) in Q4, bringing full-year growth to 3.7%, an improvement over 212 s growth of 1.3%. While domestic cost pressures remain due to the tight labour market, economic restructuring efforts and higher costs, the Ministry of Trade and Industry (MTI) expects the Singapore economy to grow by 2-4% in 214 as the global economic environment improves. The residential sector began 213 with a set of cooling measures but it was the permanent and structural TDSR framework that led to a significant reduction in transaction volume and slower price growth. Downward pressure on resale prices is expected to continue going forward, amidst a weak transaction volume and competition from projected completions in 214. However, a major price correction is not expected given that the drivers for the residential market remain relatively healthy, but buyers will become more selective. Real estate investment activity fell by about 73% quarter-on-quarter (q-o-q) in Q4, but reached $28.5bn for the whole of 213, similar to 212 s volume. The mixed-use sector was the most invested sector in 213, accounting for about 24% of activity. Foreign investments increased nearly 3% y-o-y, Figure 1 Office Rental Indices Q1 211 = Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 Q4 1 Q4 13 Q4 14 Q4 15 Raffles Place Shenton Way / Robinson Rd/Cecil St driven largely by Asian investors. Activity in 214 could moderate despite a more positive outlook for the office sector, as deals could take longer to complete. Despite a slow start, the office market ended 213 on a positive note with high occupancy rates supporting an increase in rents across the different areas. Rents in the Central Business District (CBD) are projected to continue to increase as the supply of good quality office space remains tight (Figure 1). Average rental values of prime retail space in all regions registered flat q-o-q growth in Q4 but declined as a whole in 213. The price growth of resale strata retail units was approximately four

2 times slower in H2 as compared to H1 after transaction volume dropped due to the implementation of the Total Debt Servicing Ratio (TDSR) framework in June 213. Trends & Updates Economic Overview Overall growth in 213 in line with forecast According to advance estimates by MTI, the Singapore economy expanded 4.4% y-o-y in Q4, slower than the 5.9% growth recorded in Q3. On a q-o-q basis, the economy contracted by 2.7%, largely due to a slowdown in the manufacturing and construction industries. Nevertheless, total growth for 213 was estimated to be 3.7%, in line with the MTI s forecast of 3.5-4% for the year (Figure 2). The q-o-q fall in the manufacturing industries was attributed to a sharp contraction in biomedical manufacturing output and slower growth in transport engineering output. The Purchasing Manager s Index (PMI) recorded expansionary readings in October and November, but fell in December to 47.9 (Figure 3). A reading below 5 indicates that the manufacturing economy is generally declining. This was due to slower growth in new orders and export orders, as well as a decline in production output and stockholdings. Moderate growth in 214 Going forward, improving global economic conditions, especially in the advanced nations, are expected to support a moderate up-turn in the Singapore economy. Against this backdrop, MTI expects the Singapore economy to grow by 2-4% in 214. Core inflation could pick up due to domestic pressure Inflation continued on an upward trend as the Consumer Price Index (CPI) rose 2.6% y-o-y in November 213, following a 2.% and 1.6% increase H undreds Figure 2 GDP growth rates 2% 1% -1% Source : MTI Figure 3 Q1 12 Q2 12 Q3 12 GDP growth (y-o-y) Singapore PMI and NODX Source : SIPMM, IE Singapore, DTZ Research *NODX figures for December 13 are not available. Figure 4 Q1 13 Q2 13 Q3 13 GDP growth (q-o-q) Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 *Dec-13 PMI (LHS) NODX growth (y-o-y) (RHS) Inflation, interest rate and unemployment rate 6% 5% 4% 3% 2% 1% % Q1 12 Q2 12 Q3 12 CPI change (y-o-y) Overall unemployment rate Q1 13 Q month SIBOR Source : MTI, MAS, MOM, DTZ Research *CPI figures for Q4 13 are based on October and November. Unemployment figures for Q4 13 are not available. Q3 13 4% 2% % -2% -4% *Q4 13

3 respectively in October and September (Figure 4). According to the Monetary Authority of Singapore (MAS), core inflation (excluding accommodation and private transport costs) inched up in November to 2.1%, compared to 1.8% in October. Looking ahead, even though imported inflation is expected to remain subdued due to spare production capacity in advanced economies and ample supply buffers in the commodity markets, the MAS expects core inflation to continue to rise in the next few quarters, as the pass-through to consumer prices from rising business and labour costs could increase. Core inflation is projected to average % in 213 and 2-3% in 214. US Fed begins tapering bond purchases On December 18, the US Federal Reserve announced it will taper its quantitative easing programme amid an improving jobs picture and other positive signs in the U.S. The Fed will reduce its purchases of Treasury and mortgage-backed securities by USD1bn a month beginning January. While the near-term impact is not likely to be significant, the tapering of bond purchases by the US Fed could see investors seeking higher returns from their property investments in Singapore. Investors could also divert their funds to other countries where they can get a higher return. Residential New low for transactions in secondary market The residential sector began 213 with a set of cooling measures but it was the permanent and structural Total Debt Servicing Ratio (TDSR) framework implemented in June 213 that led to a significant reduction in transaction volume and slower price growth. Based on a basket of existing properties tracked by DTZ Research, resale prices fell q-o-q in Q4 after a stronger growth in H1, as secondary home sales plummeted by more than half from 15,678 units in 212 to about 7,6 units in 213 (Figure 5). This was also a new low for secondary sale transactions since 24 when 6,476 units were sold. Both non-landed and landed price growth slowed Resale prices of luxury condominiums declined q-o-q and y-o-y by 2.% in Q4 213 after remaining unchanged for four consecutive quarters since Q3 212 (Figure 6). Similarly, resale prices of freehold condominiums in the prime districts of 9, 1 and 11 fell 1.5% q-o-q and.5% y-o-y in Q4. Meanwhile, resale prices of leasehold condominiums in the suburban areas declined 1.1% q-o-q in Q4, but still increased. Figure 5 Primary and secondary home sales (excluding executive condominiums), units 5, 4, 3, 2, 1, Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb 13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 *Dec-13 Primary sales Secondary sales Units launched Source: URA REALIS, 3 January, DTZ Research *URA s data on developer s sales and launches for December 213 was not available yet at the time of publication. 1.1% on a y-o-y basis in 213, largely supported by the 2.2% growth in H1. Within the landed segment, price growth was slower in 213 compared to 212 as transactions were also affected by the TDSR framework. 1,17 landed homes were transacted in the secondary market in 213, fewer than half of the 2,639 secondary sale transactions of landed homes in 212. The fall was even more significant in H2 213, with a drop of about 7% compared to the same period in 212. Resale prices of freehold landed homes in the prime districts of 9, 1 and 11 and the suburban areas

4 were flat in Q4, bringing the price growth for the whole of 213 to 3.1% and 3.2% respectively, significantly lower than the 7.3% and 9.3% growth respectively in 212. Meanwhile, resale prices of leasehold terrace homes fell 5.% q-o-q in Q4, but registered a marginal y-o-y increase of.8% for the whole of 213, aided by a 5.% growth in H1. Prices could continue to soften Downward pressure on resale prices is expected to continue going forward, amidst a weak transaction volume and competition from the estimated 2, Figure 6 Resale non-landed residential price indices (Q1 211=1) Q4 1 Q1 11 Q2 11 Q3 11 Q1 12 Q2 12 Q3 12 Q1 13 Q2 13 Q3 13 Q4 13 Luxury Prime freehold Suburban leasehold units that will be completed in 214. However, a major price correction is not expected given that the drivers for the residential market, such as improving economic sentiment and low interest rates, remain relatively healthy. In addition, strong sales at recent launches indicate that there is still liquidity in the market, although purchase demand going forward is likely to be more project-specific as buyers become more selective. Iconic projects or projects with are better-located will continue to enjoy comparatively healthy demand. Investment 213 real estate investments similar to 212 s volume Real estate investment activity fell by about 73% q-o-q to $3.6bn in Q4, but reached $28.5bn for the whole of 213, similar to the $28.7bn in 212 (Figure 7). The q-o-q fall in Q4 could be attributed to a more than 8% plunge in the sale of government land sites and was also amplified by the listing of three major REITs in Q3. Investment sales comprise transactions that are $5m and above and exclude $616m of transactions in single residential units and lots that cannot be redeveloped/subdivided into more than one plot. of 213, however, office investments accounted for only about 17.5%, or $5.bn, of activity and were about 9% lower than the $5.5bn in 212. For the whole of 213, mixed-used 1 investments accounted for the largest share, or about 24.3% of activity. Investments in mixed-use properties more than doubled y-o-y from $2.8bn in 212 to $6.9bn in 213, similar to the peak in 27. In contrast, residential investments declined 37% y-o-y to $6.4bn in 213, due to tepid activity for collective sales and fewer transactions for Government Land Sales (GLS) sites. The office sector was the most invested sector in Q4, accounting for $1.2bn, or 33.3%, of activity, largely due to the sale of TripleOne Somerset for $97.m at the end of the quarter. Sales of strata-titled offices, mainly at Springleaf Tower, made up the rest of office investments in Q4. For the whole 1 A mixed-used development is defined as one where the dominant use is less than 75% of the total floor area.

5 Increase in foreign investments in 213 Even though domestic investors continued to dominate the bulk of activity, foreign investments increased more than 3% y-o-y in 213 to $4.1bn, with the majority coming from within the Asian region (Figure 8). Chinese investors were particularly active, investing a total of $2.9bn in Singapore properties, almost triple the $1.bn they invested in 212. Bright Ruby Resources acquired Grand Park Orchard for $1.2bn in the largest non-reit and non-gls deal in 213 while other Chinese developers were active in GLS tenders for private residential and executive condominium sites. Japanese developers also contributed to the increase in foreign investments in 213. In Q4, Japan-based Daisho Group acquired The Westin Singapore hotel for $468.m, or an estimated $1.5m per key, which was a new record price. Besides the acquisition by Daisho Group, Japanese developer Sekisui House was also active in GLS tenders, acquiring its fifth GLS private residential site since 21 at Fernvale Close as part of the joint-venture with Far East Organization and Frasers Centrepoint Ltd. Figure 7 Investment sales, SGD bn Figure Q1 Q2 Q3 Q4 Investment sales, SGD bn investor profile % 4% 3% 2% 1% % Domestic Foreign Foreign % over total Real estate investment activity to moderate in 214 Looking ahead, real estate investment activity in 214 is expected to moderate despite a more positive outlook for the office sector with the expected uptick in office rents. Transactions would be limited by the amount of stock available for sale and a gap in pricing expectations between sellers and buyers, while the tapering of bond purchases by the US Federal Reserve could see investors seeking higher returns from their property investments in Singapore even though the near-term impact is not likely to be significant. Property deals could take longer to be completed or investors could divert their investments to other countries where they can get a higher return. Residential investments are also likely to fall further given that collective sales continue to be difficult and there are fewer residential sites on the H1 214 GLS programme.

6 Retail Retail rents fell while price growth slowed Average rental values of prime retail space in all regions registered flat q-o-q growth in Q4 but declined as a whole in 213 (Figure 9). Average rents in other city areas fell the most y-o-y in 213 by.9%, whereas rents in Orchard/Scotts Road and suburban areas fell by a smaller.3% and.2% respectively. In contrast to falling retail rents, the average capital value of prime resale retail units in Orchard/Scotts Road, other city areas and suburban areas continued to rise.9%,.5% and 1.% q-o-q respectively in Q4. However, on an annual basis, average resale capital value growth in Orchard/Scotts Road and other city areas in 213 were similar to the growth of around 11-12% in 212 while suburban areas registered a higher y-o-y growth of 13.4% in 213 compared to a growth rate of 9.6% in 212. The price growth of resale retail units was four times faster in H1 as compared to H2. This could be due to the implementation of cooling measures in the residential and industrial sectors in January 213, which drove buyer interest into the retail sector hence pushing up prices. Subsequently, price growth slowed down in H2 after the implementation of the TDSR framework and there was a significant reduction in transaction volume of strata retail units by approximately 43% to 352 in H2 from 622 in H1. Influx of new brands in prime Orchard retail belt The prime Orchard Road retail belt remains an attractive location for international retailers to debut in Singapore. This was evident in Q4 as some new-to-market brands launched their inaugural presence in Orchard Road. Bulk of pipeline supply in 214 Going forward, an estimated 5.7 million sq ft (NLA) Figure 9 Average prime first-storey retail gross rental index in Orchard/Scotts Road (Q1 211=1) Figure 1 Q4 5 Q4 6 Q4 7 Q4 8 Q4 9 is expected to be completed in the next five years (Figure 1). The bulk of the pipeline supply will be completed in 214 and largely located in the suburban areas. The large pipeline supply in the suburban areas could exert some downward pressure on rental values in these areas, but this would be mitigated by the demand from the local residential catchment area. Meanwhile, the tight supply in Orchard/Scotts Road (8.6%) will continue to support average rents in the area. Q4 1 Q4 13 Retail development pipeline including projects on awarded GLS sites, sq ft (million) Q Orchard/Scotts Rd Other city areas Suburban areas Q4 15

7 Offices Demand from non-traditional sources For the whole of 213, primary demand has stemmed from non-traditional sources such as the professional services, social media, information and technology (IT), energy and fast-moving consumer goods (FMCG) sectors. Being more moderate in their office space requirements (compared to financial institutions), demand moved slowly, but at a steady pace. The pace of leasing activity was faster in the second half of the year as the local economy picked up. Figure 11 Office Rental Indices Q1 211 = Q4 5 Q4 6 Q4 7 Q4 8 Raffles Place Q4 9 Q4 1 Q4 13 Q4 14 Q4 15 Shenton Way / Robinson Rd/Cecil St Increase in shadow space Take-up of office space was highest in Q4 at slightly over.5 million sq ft, bringing total net absorption for 213 to around 1.4 million sq ft. This was close to 212 s net absorption of 1.6 million sq ft. However, this includes a fairly large amount of 244, sq ft of shadow space, due largely to occupiers relocating and pre-terminating their leases as well as some firms putting up their excess space for sublease. Uptrend in CBD rents as occupancy remains tight Nevertheless, with occupancy rates remaining high in most areas, rents continued to trend upwards, especially in the CBD, where the supply of good quality office space remains tight. In Marina Bay, average gross rents held firm at $11. per sq ft per month in Q4. On a y-o-y basis, rents in Marina Bay have increased by 4.8% in 213. grew by 1.6% and 2.7% q-o-q respectively to $9.55 and $7.7 per sq ft per month. This brought rental growth for both areas to 3.% and 6.2% respectively for H2 (Figure 11). Occupiers willing to relocate to decentralised areas Outside the CBD in the decentralised areas, rents are starting to rise as well with high occupancy levels and better quality office spaces being built. An increasing number of office tenants are becoming open to re-locating. Some are also willing to move out of the central areas to newer buildings that are well-connected and are more cost-effective. Within Raffles Place and Shenton Way/Robinson Road/Cecil Street, occupancy rates have increased throughout 213 by 2.1 and 7. percentage-points respectively, ending at 95.8% and 98.2% in Q4. Correspondingly, as space filled up over 213, rents began to increase in Q3 after the office market showed signs of strengthening. In Q4, rents in Raffles Place and Shenton Way/Robinson Road/Cecil Street

8 Limited supply in the CBD will put pressure on rents In the next five years, another 8.9 million sq ft of office space is expected to be completed, with close to half or 4.1 million sq ft within the CBD (Figure 12). Notwithstanding, new supply within the CBD in the next two years will be limited with only one major completion in 214. Landlords will therefore still have the bargaining power in the near-term. Barring any unforeseen economic shocks, rents in the CBD are thus projected to increase by close to 1% over the next two years. Figure 12 Office development pipeline including projects on awarded GLS sites, sq ft (million) CBD CBD Fringe Decentralised Areas Termination

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