Investment market regains momentum in second quarter following first quarter standoff

The Asian property investment market enjoyed a stronger second quarter of 2009
following a subdued start to the year, with direct real estate investment volume edging
up 41 per cent from the first quarter. The improved investment turnover was catalysed
to a certain extent by debt- funded investors compromising at current price levels and
liquidating assets to service near- term debt obligations. Despite the improvement
witnessed in the second quarter, however, transaction volumes nevertheless remained
thin in the first half of 2009 compared to the corresponding period in 2008, falling by
58 per cent year- on- year to approximately US$12.4 billion, according to the CB
Richard Ellis Asia Investment MarketView for the first half of 2009.

Investor sentiment in the region generally turned more positive as the first half of the
year progressed. Hong Kong, Singapore and Taiwan experienced the largest quarterly
rebound in transaction volume, up 302 per cent, 297 per cent and 151 per cent
respectively in the second quarter. The same quarter also witnessed a rise in land
acquisitions in China as big local developers scrambled to snap up land for future
development in anticipation of imminent appreciation in land prices.

Despite the significant contraction of total investment turnover in Asia in the first half of
2009, India and Taiwan ended the six-month period with positive year- on- year growth,
which surged by 339 per cent and 12 per cent respectively. The change in investor
sentiment in Taiwan primarily resulted from the expected opening of the domestic
market to Mainland Chinese investment. Meanwhile, the formation of a stable
government in India coupled with the utilisation of Qualified Institutional Placement
(QIP) by real estate companies to raise new funds provided a boost to the Indian
property investment market.

The largest transaction concluded during the review period was the disposal of the AIG
Otemachi Building in Tokyo for approximately US$1.2 billion. Prime office properties
continued to attract the strongest interest from investors, accounting for six of the ten
largest deals recorded in the region during the six-month period. The combined value
of the ten largest transactions in Asia was US$5.1 billion, a drop of 46 per cent from
the same period in 2008. Nine of the ten largest deals involved domestic investors.
Overall, the amount of inter- regional cross- border investment accounted for only 8 per
cent of total volume in the first half of 2009, dropping from a high of 30 per cent a
year earlier, as global institutional investors and real estate funds largely remained on
the sidelines.

Hotel transactions suffered the largest drop in the first half by market segment, falling
75 per cent year- on- year. This was largely attributable to the US$774 million sale of
the Westin Hotel Tokyo completed in the first quarter of 2008. Meanwhile, the
industrial and office sectors experienced declines in volume of 63 per cent and 59 per
cent respectively.

“Cash- rich local investors are most likely to be the main drivers of the investment
market over the short- to medium- term as many of them are interested in purchasing
quality assets for long- term investment. However, it is possible that even domestic
investors will find it difficult to find suitable investment opportunities due to the shortage
of quality properties put up for sale during the current downturn,” commented Andrew
Ness, Executive Director of CBRE Research Asia.

South East Asia

Three en- bloc office buildings were sold in Singapore during the second quarter,
representing 24.5 per cent of total investment sales and injecting life into what was
previously a quiet commercial investment market. Investment activity in the Malaysian
property market was thin during the first half of the year, with domestic investors and
developers accounting for the small number deals that did occur. There were no
significant transactions in the office, retail and residential sectors, although a number of
scattered transactions took place in the industrial and hospitality sectors.

Greater China

The residential sector in China recovered strongly in the first half and witnessed plenty
of activity, particularly in the high end luxury sector. However, raising debt for large
scale acquisitions remained challenging despite the improvement in market conditions,
and a number of investors opted to focus their attention on smaller office buildings.
Foreign institutional investors remained inactive, discouraged by the lack of further
discounting, while local investors were more active on account of their readier access
to domestic credit.

Investment sentiment in Taiwan largely improved during the second quarter following
the announcement of the imminent opening of numerous industrial sectors Taiwan to
Mainland Chinese investment, including infrastructure and real estate. Total transaction
sales in Taiwan amounted to NT$28 billion (US$854 million), up by 151 per cent
compared to the first quarter of 2009.

In Hong Kong the number of transactions above HK$100 million (US$13 million)
dropped by 69 per cent y- o- y in the first half of 2009. However, the residential sales
market picked up in the second quarter thanks to the low lending rate and improved
market liquidity.

North Asia

The second quarter saw Tokyo emerge as the location with the largest number of
distressed or potentially distressed real estate assets in the region. Owners came under
pressure to re- finance deals which have fallen to well below the original LTV ratios
prescribed by their loan covenants. The period saw a number of major office
transactions concluded at US$50 million and above, with Japanese investors and
investment institutions accounting for virtually all transactions, proving that appetite still
persists in Japan for acquiring quality assets.

Confidence in the Korean real estate investment market continued to improve. The
review period saw a total of eight en- bloc office building transactions totalling US$649
million.

India

The Indian real estate investment market witnessed some improvement towards the end
of the first half after what was a relatively subdued start to the year. A number of
enquiries witnessed in the second quarter should be converted into transactions in the
third and fourth quarters. The period saw a number of large developers successfully
raise new funds through the QIP route, which relieved the strain on liquidity to some
extent. Private players found themselves in a stronger position following the marginal
easing of interest rates and the willingness of banks to discount leased properties.