Future Direction of the Property Market in Hong Kong & Macau Nicholas Brooke, FRICS FHKIS Chairman, Professional Property Services 5 June 2007

PPSPPS 2006 Recommendations Soho District – up 15-20% dependent on property Discovery Bay – up % on small to medium low and mid-rise properties Hope you bought in both Soho and Discovery Bay If not, what should you do this year?

Soho District, Central

Discovery Bay, Lantau

PPSPPS

PPSPPS Background Sales volume fluctuated during early 2006, notwithstanding reduced concerns over interest rates However, total transactions still exceeded 100,000 in 2006 Some impact on pricing but luxury market remarkably strong Clear emergence of growing divergence between luxury and mass market trends

PPSPPS The Arch, West Kowloon

PPSPPS Current Situation Noticeable improvement in sales volumes 2007 – over 51,000 transactions in 5months Variety of new releases and competitive loan packages Recent land auctions for luxury residential sites have been well contested Rents and prices risen in luxury sector but mixed signals form mass residential market Stock market boom good for sentiment but a sustained correction here or in Shanghai could have adverse impact

PPSPPS The Bel-Air, Pokfulam

PPSPPS Rents and Prices – Luxury Market Luxury prices on Hong Kong Island averaged HK$10,020 psf during Q Flat prices on the Peak averaged HK$13,500 psf whilst a penthouse in The Legend sold for HK$33,000 psf Luxury house prices averaged HK$18,000 psf on Hong Kong Island rents on the Island averaged HK$36.00 psf per month with Peak averaging HK$45.00 psf

Luxury Residential Capital Value

PPSPPS Rents and Prices – Luxury Market Very low vacancy rate - below 3.0% Leasing market expected to remain strong in 2/3Q 2007 – 10% uplift Luxury prices on Hong Kong Island rose 22% in Q1 2007, Kowloon 10% and New Territories 37% Further increases in the sales prices expected during the year – 15/20%

Luxury Residential Rental Value

PPSPPS Rents and Prices – Mass Residential Market Prices eased slightly over Q to average HK$4,700 psf across Hong Kong New projects being released a few units at a time Although economic conditions continue to improve, this sector is affected by major changes in Hong Kong demographics Population hollowing – negative growth territory Dependent on newly weds and upgraders

PPSPPS

PPSPPS Future Supply Debate as to adequacy of future supply Predicted to be of the order 15,000 p.a. – cf 30-35,000 when Hong Kong in growth mode Government control of land supply should underpin prices Modest growth anticipated in line with GDP performance

PPSPPS Future Supply Purchase for investment by PRC and Asian nationals likely to fuel demand for luxury property Repositioning of real estate as an asset class Most investors increasing their allocation to real estate

PPSPPS 2007 Best Buys Luxury houses in the New Territories –Lifestyle choice for many –Buy on estates, not in villages –Require good accessibility to MTR or KCR –Significantly cheaper than on the Island or in Kowloon

PPSPPS Office Sector Growth in economy continues –2005 – GDP 7.5% –2006 – GDP 6.9% –2007 – GDP 5.6 in Q1 Little new supply in short term except in decentralised areas Central rents continue strong; secondary districts less so

Office Rental Value HK$psf pm (Net Effective)

PPSPPS Office Sector Renewed emphasis will be on decentralisation due to high Central rents Weight of institutional funds will maintain high value regime Disconnect between yields and capital values Opportunities for small investors in decentralised areas

PPSPPS Macau Receiving increased attention Increases in values in 2004/05 of 50% - but now slowed and in some cases declined Reality little of quality except for new projects Many units in hands of speculators Many new units under construction

PPSPPS One Macau Residences

PPSPPS Macau Prices average between HK$2,500 – HK$3,300 per square foot but One Central (Hongkong Land) selling at HK$ per square foot Wait on new developments proposed around Nam Van Lakes Likely to set new benchmark of quality

PPSPPS 2007 Best Buys New (off plan) luxury units in Macau –Lower cost of entry –Strong rental market in the future –Limited supply –Many overseas residents expected to arrive in coming years to staff new casinos –Improved links to Hong Kong and Zhuhai in future

Thank you Professional Property Services Limited