| Malaysia | Residential |

06 August 2013

Real Estate Foresight

Iskandar: A place for Work, Play and Living
1. Where are the hotspots in Iskandar?
Iskandar, the latest development in Johor, was created in 2006 to spur the growth of the Malaysian economy. Iskandar covers 221,634 hectares (2,217 sq km) of land area within the southern-most part of Johor. To put things into perspective, Iskandar is about 3 times the size of Singapore and 2 times the size of Hong Kong. Iskandar aspires to become a strong and sustainable metropolis of international standing. The Iskandar Regional Development Authority (IRDA) is the body responsible for the direction and development of Iskandar. There are five flagship zones in Iskandar. These zones have been designated as a focal point of development in Iskandar. Each zone will develop a specific industry. Exhibit 1: Map of Iskandar
OrangeTee Research & Consultancy Email: research@orangetee.com Website: www.orangetee.com

Source: IRDA, OrangeTee Research

Zone A Johor Bahru City: The financial district of Johor and the capital of Johor. Zone B Nusajaya and Medini: The hub for creative arts and entertainment, medical facilities, educational institutions, tourism, biotechnology and hi-tech manufacturing. The planned new major growth centre of Iskandar Malaysia where most of the catalyst projects will be developed. Medini is the only part of Iskandar where there is no foreigner quota and where foreign investors are allowed to buy properties costing less than RM 500,000. Zone C The Western Gate Development : Logistics, Port and Marine services, Food production and Petrochemical industries will be located here. Zone D The Eastern Gate Development: The Industrial and manufacturing hub of Johor. Zone E Senai-Skudai: The hub for agro and food processing, information & communications technology and retail tourism. The Senai International Airport and Universiti Teknologi Malaysia (UTM) are also located here.

Research & Consultancy Wong Xian Yang Senior Research Analyst Christine Li Head International Projects Chris Yap Senior Manager

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06 August 2013

2. How has Iskandar done so far?

Iskandar has come a long way since 2006. Started with only a committed capital of RM 11 billion in 2006, the investment grew at an annualised rate of 36.9% over the last 7.5 years. It reached RM 118.9 billion worth of committed investments in June 2013, surpassing its investment target of RM73 billion for phase 2. The final investment target of Iskandar is RM 383 billion by 2025. Of the RM 118.9 billion, RM 53.7 billion has been realised to date, which is about 45% of the total amount committed. Interest from private investors has been piqued in recent years, with the ratio of private sector investment to government investment standing at 13:1 as of June 2013. This is in stark contrast to 2006 when the ratio was at 1:1, indicating that Iskandar has been increasingly successful in getting the buy-in from private investors. Exhibit 2: Cumulative committed investments in Iskandar

Source: IRDA, Media reports, OrangeTee Research

Exhibit 3 shows the annual investment amounts over the years. In the first 3 years, investment in the manufacturing sector took the lead. After accumulating a total investment amount of RM21.7 billion, investments in the manufacturing sector has slowed. However, the sector still manages to attract about RM2 billion to RM4.3 billion additional investment each year. In 2009, other sectors such as property, utilities and tourism started to pick up. Given the bullish sentiments among property developers, pace of property development in Iskandar accelerated. Developers invested a record RM9.1 billion in 2012. However, this is set to be broken soon, as the total property investment in the first half of 2013 stood at RM8.8 billion, just a shade lower than what was achieved in the whole of 2012. If this momentum continues into the second half, the investment amount could well surpass the previous record. Exhibit 3: Iskandars yearly investments by sector

Source: IRDA, Media reports, OrangeTee Research

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06 August 2013

3. Who is buying into Iskandar?

Before 2010, Iskandar was mainly supported by foreign investors. However, after seeing the increase in foreign interest in Iskandar, more local investors have since joined the fray. As at June 2013, local investments represent 64% of the total private investments, while foreign investments have declined to 36%. Nevertheless, foreign investments in absolute dollar terms have been increasing over the years to RM40 billion in June 2013, up from RM22.83 billion in 2008. Exhibit 4: Foreign Vs Local private investments in Iskandar

Source: IRDA, Media reports, OrangeTee Research

Investments in manufacturing and properties continue to form the main chunk of the investments to date, carrying a weightage of 31% and 38% respectively. IRDA expects the manufacturing sector to lead the growth moving forward. Exhibit 5: Investment in Iskandar by sectors as at June 2013

Source: IRDA, Media reports, OrangeTee Research

4. What are the upsides and downsides?

Upsides Lower price entry point compared to Singapore One of the main reasons for investors to buy Iskandar properties is its lower price entry point. Private home prices in Singapore have increased significantly since 2009 and the index is about 60% above the trough in 2Q2009. In comparison, Johor housing prices have risen about 31% over the same period. With the slew of property cooling measures over the last 3 years, some would-be investors might have been priced out of the Singapore residential market. For them, Iskandar could be an alternative real estate investment opportunity compared to Singapore. However, even though Iskandar region was created in 2006, the prices only seemed to have picked up in 2012. From the start of 2012 to Q1 of 2013, Johor housing prices have risen about 16%. This could mean that investors should have a longer investment horizon for Iskandar properties.

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| Malaysia | Residential | Exhibit 6: Singapore RPPI and Johor Housing Price Index

06 August 2013

Source: URA, NAPIC, OrangeTee Research

Improving accessibility and infrastructure in Iskandar The upcoming KL-Singapore High Speed Rail (HSR) and JB-Singapore Rapid Transit System (RTS) will improve the accessibility in Iskandar. If Iskandar becomes one of the important stops, the attractiveness of Iskandar could be further enhanced with good connectivity. However, both the HSR and RTS are still in their planning stages and will only be completed around 2018. The RTS is planned to be linked to the upcoming Thomson Lines Woodlands North station near Republic Polytechnic in Woodlands. Political will by both Malaysia and Singapore governments With improving ties between Singapore and Malaysia, the success of Iskandar will benefit both countries. Billions of dollars have been invested in Iskandar by both the Singaporean and Malaysian governments and investors. A notable project is the collaboration between Temasek Holdings, CapitaLand Malaysia and Iskandar Waterfront Holdings to develop a S$3.2 billion township in Danga Bay. In addition, an integrated eco-friendly technology park in Nusajaya was also jointly developed by Ascendas and UEM Land Berhad. The Economic Development Board (EDB) in Singapore is encouraging multinational corporations to consider Iskandar as a complementary investment opportunity where land and labour are relatively more abundant and cheaper. EDB envisions companies housing their high value and skilled operations together with their headquarters in Singapore while their factories operate in neighbouring countries. According to Iskandar Regional Development Authority (IRDA) figures, Singapore companies have set up over 300 manufacturing projects in Iskandar since 2006. Downsides Safety and security One of the main concerns of Singaporeans is the safety and security in Iskandar. Recent spate of robberies in Johor has deterred many Singaporeans from buying a home in Iskandar and living there. To address these concerns, the IRDA announced a Safety and Security blue print for Iskandar. Currently a total of 15 new police posts have been built, with 4 more under construction. CCTV cameras will also be installed in locations throughout Iskandar. To supplement the police in Iskandar, an auxiliary police force will be established. According to Malaysian government statistics, street crime in Iskandar fell 47% in 2011 compared to 2010. Currency risk There is an implicit currency bet when investing in Iskandar. As the rentals and asset sales in Iskandar would be in the Malaysian Ringgit, buyers will be exposed to currency risk. Should the Ringgit depreciate against the Singapore dollar, investors may not achieve the desired rentals or prices on their asset sales. The Singapore dollar has gained about 6.78% over the Malaysian Ringgit over the last five years. Lack of transparency and historical data In Singapore, investors can get information on the property market by using URAs database, REALIS. However, official transaction data in Malaysia is not readily available to the general public. This is especially so for Nusajaya, an area where many residential projects have just begun to sprout up. Many buildings in Nusajaya are still

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06 August 2013 under construction. As a result, there is hardly any market history to track or analyse. Future rental yield and resale price is anyones guess at this point of time. Possible oversupply Investors have shown strong interest in Iskandar which spurred demand for real estate investment since 2012. Developers have launched many residential projects in Iskandar to meet the popular demand. However, with the large supply coming up in the next few years, the demand can hardly be supported by local population alone. Therefore, a significant portion of the demand has to come from foreign interest. So far Singaporean investors have led the demand, being the top foreign investor in Iskandar as at end 2012. The looming spectre of an oversupply has caught the attention of the Malaysian authorities, who halted further land sales in Iskandar for the time being last month according to media reports. Halting further land sales will limit the supply of land that developers can build on thus stoking demand for Iskandar properties.

5. What should buyers know before purchasing a property in Iskandar?

Real Property Gain Tax Buyers who wish to lock in capital gains within 5 years of purchase will be subject to Real Property Gain Tax (RPGT). This is similar to Singapores sellers stamp duty. The tax charges are as follows: 15% of the profits in the first 2 years, and 10% of the profits in the next 3 years. After which there will not be any RPGT payable for sale of property. Sub-Sales Sub-sales may only be allowed with the consent from the developer. In additional, an admin fee may be charged. For commercial properties, 2% of the sales price may be charged by the developers. Upfront costs of Purchase Exhibit 7 shows the costs that are payable during purchase of a property in Malaysia. However, do note that some developers in Iskandar are offering different discount/rebate packages to entice investors. The discounts can be as much as 16% off the initial purchase price. Exhibit 7: Upfront fees payable when purchasing a newly launched property in Iskandar Costs Notes 1. Down payment after signing S&P 10% of the purchase price. agreement 2. Legal Fees for Sales and 0.4% to 0.7% of the purchase price Purchase Agreement 3. Stamp Duty for Loan 0.5% of the loan quantum 4. Legal Fees for Loan 0.4% to 0.7% of the loan quantum 5. State Consent Fee Varies from state to state. For Johor, (Foreign Ownership Levy) the state consent fee is currently RM10,000, with an application fee of RM500. 6. Balance payment assuming 80% 10% of the purchase price loan 7. Stamp duty for memorandum of For the first RM100,000 1% of transfer purchase price (This stamp duty is usually Next RM400,000 2% of purchase price payable upon after construction Above RM500,000 3% of purchase completion and transfer of title price to owner) Total estimated costs for RM1,000,000 RM256,600 property with 80% loan (Assuming no rebates and discounts on purchase price) Convert to SGD assuming exchange rate SGD$102,640 of 2.5
Source: OrangeTee Research

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| Malaysia | Residential |

06 August 2013 Rental Income Tax There is a rental income tax of 26% for non-residents in Malaysia. Anyone that stays less than 182 days in Malaysia in a year will be considered a non-resident, regardless of citizenship or nationality. New loan curbs in Malaysia On July 5th 2013, the Malaysian central bank announced a new set of loan measures to rein in excessive household borrowing and to curb property speculation. Notably, the tenure of property loans is now capped at a maximum of 35 years, down from 45 years previously. The new measure would probably deter some highly leveraged buyers from the property market as a maximum tenure cap would mean higher monthly interest payments. This would remove some demand from the market.

6. What are the major upcoming catalyst projects?

Below are some of the upcoming projects in Iskandar, Nusajaya. Motorsports City Motorsports City is a RM3.5 billion Project in Nusajaya by Singapore billionaire Investor, Peter Lim. It will have a 4.5km test track, dubbed the Nurburging of Iskandar Malaysia, that will be Formula One -compliant and designed by an internationally acclaimed track designer. Gleneagles Medini Hospital Gleneagles Medini Hospital will be a fully integrated healthcare facility featuring a 300-bed hospital, nursing home and a rehabilitation centre. It will be located next to Afiniti and Legoland. Pinewood Studio in Medini Pinewood Studio is an integrated media production studio facility aiming to transform Iskandar into a destination for filmmakers worldwide. Afiniti and Avira wellness resort Afiniti Medini is developed by Pulau Indah Ventures (PIV). PIV is a 50-50 joint venture formed by Khazanah and Temasek. Avira is developed by Nuri Merdu Sdn Bhd, a joint venture between PIV and E&O Oriental Bhd. Both Afiniti Medini and the Avira Wellness aimed at providing residents a holistic retreat-like lifestyle with many retail and hospitality services within arms reach. Educity Educity aspires to be a regional education hub. So far, Marlborough College Malaysia and Newcastle University Medicine Malaysia, have already begun full-time operations. Commencement of operations of more colleges in EduCity - Raffles University Iskandar, University of Reading, Raffles American School, Johan Cruyff Institute Malaysia (JCIM) and MDIS - are set to begin in the coming years. Ascendas-UEM Land Technology Park The $1.5 billion 210ha freehold techpark by Ascendas and UEM Land will have infrastructure to support a range of industries such as electronics, logistics, engineering services etc. The park will be the closest industrial site to the MalaysiaSingapore Second Link checkpoint. Legoland Water Park It boasts Asias first Legoland Water Park. It will have over 20 attractions and 70 models, and will be the world's largest Legoland Water Park. Now nearing completion, the water park is the latest addition to the Legoland Malaysia Resort, which opened last September 2012 in Iskandar. Angry Birds theme park Set to open in May 2014, it will be the first Angry Birds theme park in South-East Asia.

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7. Where are the upcoming property launches in Iskandar?

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