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Singapore, 6 December 2010
 
Pacific Star Favours Hong Kong & Singapore Among Key Asian Property Markets
 
Pacific Star Group (太平星), one of Asia’s leading real estate investment houses, said today Hong Kong and Singapore are its most favoured of 11 Asian property markets. The Group made the conclusion in its biannual Asian Property Outlook and Strategy report which highlights its key investment themes in regional real estate markets. Included in the study were also Bangkok, Beijing, Delhi, Ho Chi Minh, Kuala Lumpur, Mumbai, Seoul, Shanghai and Tokyo.

The report rated Hong Kong and Singapore as Tier I for the attractiveness of their office, retail and residential properties. The rating is based on their aggregate scores across key property drivers, which include economic outlook, demographics, socio-political stability, ease of doing business, transparency, vacancies, financing environment and timing in rental cycles.

Explaining the methodology, Pacific Star said: “We banded the markets into three tiers: Tier 1 for ‘extremely attractive’, Tier II for ‘attractive’ and Tier III for ‘less attractive’. We arrived at the banding by considering a host of factors and not just expected returns. For that reason, it should be noted that returns may exhibit an inverse relationship with attractiveness.

“For instance, less attractive markets may present more opportunities to acquire mispriced assets, hence potentially higher total returns, while excessive competition in attractive markets could translate into potentially lower total returns. Ultimately, expected total returns may need adjustments according to perceived risks and the associated premiums required.”

Pacific Star said Hong Kong and Singapore demonstrated strong fundamentals in most of the property drivers. It expects total returns for both cities to be in the very low teens for retail, low teens for residential, and single digit for office properties over the next 12 months.

Elaborating on the office sector outlook for Singapore, Pacific Star added: “We recently saw lease renewals by anchor tenants, from the financial sector, in Capital Square which we manage. The closing of these major leases has helped to diversify the lease expiry profile of Capital Square and also allowed us to ride on the uptrend in the office market.

"Financial sector tenants will continue to drive leasing demand in Singapore. In spite of the large supply pipeline, we expect vacancy rates to be lower than expected given strong pre-commitments. Strong upward pressure on office rents will persist.”

On Hong Kong, another financial hub, Pacific Star noted that net take-up was positive in 3Q 2010. “The tight supply situation in core areas is not expected to ease in the near term and this will result in office rents rising next year.”

On retail property sectors in the two cities, Pacific Star said they will continue to be underpinned by strong employment prospects and improved tourism spending. Singapore is drawing more visitors because of its integrated resorts launched this year while Hong Kong will see higher tourism receipts because of rise in visits by mainland Chinese.

Turning to residential real estate in the two economies, Pacific Star added that demand by global investors will remain strong, particularly from China and India’s rising wealthy class. The high level of affluence in these cities, coupled with low local borrowing costs, will continue to fuel residential demand in Singapore and Hong Kong.

For the full report on individual markets, please refer to Pacific Star’s Asian Property Outlook and Strategy report.

Pacific Star’s banding of Asian property markets for their attractiveness based on property drivers and their expected total returns are shown in the table below:

Band* Office Retail Residential
Tier I Hong Kong, Singapore
Hong Kong, Singapore
Hong Kong, Singapore
Total Returns Single digit Very low teens Low teens
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Tier II Beijing, Delhi, Mumbai,
Seoul, Shanghai, Tokyo
Bangkok, Beijing, Kuala
Lumpur, Seoul, Shanghai,
Tokyo
Bangkok, Beijing, Kuala
Lumpur, Seoul, Shanghai,
Tokyo
Total Returns Low teens Low mid teens Low mid teens
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Tier III Bangkok, Ho Chi Minh,
Kuala Lumpur
Delhi, Ho Chi Minh, Mumbai
Delhi, Ho Chi Minh, Mumbai
Total Returns Mid teens Mid teens to > 20% > 20%
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Band*
Tier 1 – most attractive, least risky
Tier 2 – attractive, risky
Tier 3 – less attractive, most risky

Pacific Star is one of Asia’s fastest growing real estate investment and advisory groups, having advised and managed real estate deals worth more than US$5 billion since its inception in May 2001. The Group manages prime office, residential and retail space across Asia. The properties it manages include Capital Square and TripleOne Somerset in Singapore, Pavilion Residences in Kuala Lumpur, and Noon Square in Seoul.

Pacific Star manages a suite of funds, namely the Euro 1.2 billion AREIF Fund, the $600 million Baitak Asian Real Estate Fund and the $650 million Asian Real Estate Prime Development Fund. The Group has generated superior returns for its investors, ranging from over 40% for commercial property transactions to over 100% for divestments of real estate vehicles through public listings.

Pacific Star has facilitated several notable investments including Shui On Land in China which owns the renowned Xintiandi in Shanghai. Capital Square in Singapore, and the acquisition and divestment of a 50% interest in Eureka Office Fund which had Singapore commercial properties Temasek Tower, Adelphi and One George Street in its portfolio.

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