REVIEW OF OPERATIONS. Indonesia. Market Review. Jakarta Pasadenia Garden

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1 44 Indonesia Jakarta Pasadenia Garden Keppel Land has 25% stake in Taman Pasadenia, a residential project in Pulomas, Jakarta. The first phase of the project, Pasadenia Garden, comprising two blocks of eight-storey strata-titled condominium units, two blocks of four-storey rental apartments and a clubhouse, was completed in late However, due to the economic and political crisis in Indonesia, take-up has stalled, with 45% of the condominium units sold and 34% of the rental apartments leased. Subsequent phases of this project have thus been put on hold till market conditions stabilise. Many golfers have enjoyed the beauty and challenge of Ria Bintan s Ocean Course. Bintan Ria Bintan Ria Bintan is Keppel Land s integrated resort within the Bintan Beach International Resort. The master plan for the 447 ha site includes hotels, golf courses and holiday resort homes, which will be developed over four phases. Club Med Ria Bintan, which was opened for operations in October 1997, achieved an average occupancy of 62% in 1998 despite the economic slowdown in the region. Ria Bintan Golf Club is another successful Keppel Land development in Bintan. Built on 100 acres of land, this is a world-class championship golf course designed by Gary Player. The 18-hole Ocean Course with a spectacular view of the South China Sea opened for play in October 1998, while the first nine holes of the Forest Course are scheduled for opening in the fourth quarter of Full golf club facilities will also be available by end Yogyakarta Melia Purosani Hotel Melia Purosani Hotel, the first five-star hotel located in Yogyakarta, suffered from the fall in business and leisure travel as the political situation in Indonesia deteriorated. In response to the difficult market conditions in 1998, the joint venture company undertook a streamlining exercise, which reduced costs and allowed the hotel to improve its operating margin. Keppel Land has a 20% interest in Melia Purosani Hotel. Economic recovery was stalled by the political and social unrest in 1998 The deepening economic crisis in Indonesia, which was triggered off by the Thai Baht collapse in July 1997, took on a political dimension in Social unrest in the country forced President Suharto to resign after 32 years in power, in May The presidential position went to Vice-President BJ Habibie, who has agreed to hold parliamentary elections in June 1999, followed by presidential elections in November. In the midst of the political and social turmoil, GDP contracted by an estimated 13.7% in 1998 and is expected to contract further as tensions escalate towards the elections.

2 45 Jakarta Market values for luxury residential apartments fell significantly In US$ terms, capital values of prime condominiums in Jakarta fell by 58% with rentals falling by 29% over This was due to the reduced purchasing power and political instability. As in the last quarter of 1998, the supply of luxury apartments available for rent stood at about 13,800 units with average occupancy estimated at 60% and monthly rentals at US$19 psm. Capital values of condominiums in the CBD and prime locations had reduced to Rp11 million psm and Rp7 million psm respectively. Demand for condominiums is expected to continue declining due to the lack of investor confidence and housing mortgage financing. Surabaya No additional retail space in 1998 and 1999 As most development projects were put on hold, there was no additional supply of retail space in 1998 and no new projects are expected in 1999 either. The cumulative supply of retail space thus remained at about 213,000 sm. Over 1998, occupancy was estimated to be 87% with average monthly rental rates ranging from US$10-18 psm. Rentals are payable in Rupiah and are calculated based on a fixed exchange rate of about Rp3,000 to Rp3,500 per US$. Vacancy rates are expected to soften further for the coming year. Manado Hotel Sedona Manado Hotel Sedona Manado is a resort hotel located at Tateli, 12 km from Manado, the capital of North Sulawesi. When completed, it will have 247 rooms and suites with recreational facilities like a private swimming lagoon, and offers easy access to excellent diving sites. Due to the present slowdown in tourist arrivals, the opening of the hotel has been postponed to Surabaya Galleria Tunjungan In Surabaya, the second largest city in Indonesia, the Group has a 23,384-sm prime site in the heart of the CBD, adjacent to the historic Majapahit Hotel. The site is planned for development into an up-market retail and commercial complex named Galleria Tunjungan. However, due to the political unrest in the Indonesian cities, completion of the first phase, a shopping mall with a rentable area of some 76,000 sm, has been postponed to Bali Tanah Lot Beach Resort Tanah Lot Resort is located along the southwestern coastline of Bali, which overlooks the Indian Ocean. The proposed development which will cover 150 ha is planned as an integrated resort comprising world-class hotels, resort homes and a signature golf course. A new road leading to the Ngurah Rai International Airport was completed in 1997 halving the driving time between the airport and Tanah Lot to just 45 minutes. Land acquisition to expand the site is in progress.

3 46 China Shanghai - Ocean Towers The Group is developing a 25-storey office building in Shanghai named Ocean Towers. When completed, it will have a total lettable area of 36,000 sm. It is strategically located at Yan An East Road in the prime commercial district of Huangpu, and is also adjacent to the tunnel linking to Pudong. Foundation work has been completed, and superstructure work will commence in late Kunming - Spring City Golf & Lake Resort Singapore Prime Minister Goh Chok Tong officially opened Spring City Golf & Lake Resort. Spring City Golf & Lake Resort sits on the north-eastern bank of Kunming s famous Yang Zong Hai Lake. The master plan for the 500-ha site includes world-class golfing facilities, holiday homes, business and conference facilities, recreational facilities and also China s first Club Med. The first phase of the resort has two 18-hole championship golf courses designed by Jack Nicklaus and Robert Trent Jones Jr, a luxury clubhouse and 49 exclusive lodges. Singapore Prime Minister Goh Chok Tong officially opened it on 30 November 1998, in the presence of distinguished guests such as Yunnan Party Secretary Ling Hu An and Yunnan Provincial Governor Li Jia Ting. The first collection of 50 resort homes, called The Primrose, launched during the year were snapped up. Following its success, sales of the second collection of 86 resort homes called The Magnolia, have commenced in Since operations commenced in April 1998, Spring City Golf & Lake Resort has earned the reputation of being the best golf resort in China. Apart from locals, golfers have come from Hong Kong, Taiwan, Thailand, Malaysia and Singapore. The traffic is expected to grow in 1999 when the second Robert Trent Jones Jr designed course is fully opened to the public. Keppel Land leads the joint venture consortium with a 40% stake, and is also managing the resort. Suzhou - Suzhou Industrial Park Keppel Land is a member of the main consortium developing the 70 sq km China-Singapore Suzhou Industrial Park (SIP) in Suzhou. As at end-september 1998, SIP has attracted 115 projects with total investments of US$3.45 billion. Keppel Land also participates in the development of ready-built factories and commercial-residential parcels within SIP. The ready-built factory development has now entered into its fourth phase of construction. Standard factories of phase 1 and phase 2 are fully occupied while phase 3 is almost 80% occupied. Major tenants include multinational companies such as Advanced Micro Devices, Glaxo Wellcome, Hitachi, Nokia and Adidas.

4 47 Singa Plaza is a mixed-use development within the SIP. The first phase of Singa Plaza comprises one high rise office block, and two blocks of six-storey residential apartments which have been completed. The office tower is almost 60% committed. Some of the tenants include Bank of China, Economic Development Board of Singapore, and Agricultural Bank of China. The second phase of Singa Plaza comprising a 25-storey residential block with 148 apartments was recently completed and is available for lease. On a separate land adjacent the Jinji Lake, construction is in progress for an exclusive residential enclave which comprises one 64-unit apartment block, 20 units of bungalows, five units of townhouses and a clubhouse for the residents. The Primrose, Spring City s first collection of resort homes has been sold out. Supply of office space in Shanghai, outstripped demand growth In Shanghai, the GDP grew by 10% in 1998 while inflation remained flat. However, analysts believe that these figures are due to public spending on infrastructure rather than a growth in foreign direct investment or private consumption. Net absorption of Grade A office increased by 34% year-on-year but supply outstripped demand growth. By end-1998, the Grade A vacancy rate in Puxi was 45%. Rentals have fallen 39% to US$25-US$30 psm per month, and capital values by 16% to US$2,300-US$2,400 psm. The number of approvals for new commercial developments have, however, been in decline and are limiting the commercial sites in Puxi. The office sector is thus expected to firm up by Hong Kong Kowloon - MTR Residential Project The Group is developing a residential site strategically located at the Kowloon MTR station, which links the Central station to the Chek Lap Kok International Airport. The development will offer over 1.5 million sf of residential space and over 1,000 carpark lots, and is targeted to be launched in the second quarter of Keppel Land is part of a consortium developing the site, which is led by Wing Tai. Other members include Temasek Holdings, Singapore Land and Hong Kong Land s Lai Sun Development and Worldwide Investment.

5 48 Hong Kong Recovery in residential prices The mass housing market appears to have bottomed out in the last quarter of 1998 when developers cut prices to attract buyers. For nine months of the year, transactions hovered just over 7,000 a month and surged to 12,600 per month with the price cuts. At its bottom, mass residential prices have fallen 34% in 1998, a 46% drop from the October 1997 peak. Prices picked up by 10% to 15% for the better projects towards the end of the year. Demand was supported by a drop in interest rates, relaxation of antispeculation and pre-sales restrictions and government policy to raise home ownership. Prices of properties in good locations are expected to recover by a further 10% to 20% in 1999 With developers adopting a cautious stance and the suspension of land sales till March 1999, the available supply of flats is expected to be well absorbed in the next two years. Market recovery is, however, expected to be gradual as high unemployment moderates demand. Philippines Metro Manila SM-KL Tower SM-KL Tower is a mixed-use development on a two-hectare site in Ortigas, within walking distance from major offices, shopping malls and hotels. The development will comprise two 55-storey office towers and one 70-storey serviced apartment-cum-hotel tower. When completed, it will be the tallest building in Ortigas. The six-level basement carpark over the 7,000 sm phase 1 site has been completed, and commenced operation on 27 November Construction of the five-storey retail podium is expected to start in the last quarter of 1999, and complete in the second half of The 265,000 sf retail podium of SM-KL Tower will house a leisure complex and other lifestyle-related establishments. Meanwhile, Benguet Centre, an existing six-storey office building on the development site, is substantially leased. Buoyant retail market expected to be sustained Despite the regional economic crisis, consumer spending in the Philippines grew by around 3.5% in 1998, buoyed by the local culture of consumption and the growing remittances from the large population working overseas. Demand for retail space in shopping centres operated by major market players such as Ayala, Shoe-Mart and Robinsons, thus remained strong achieving monthly rental rates of P800 - P1,000 psm for prime retail space and P400 - P700 psm for non-prime space. The outlook for the retail sector in 1999 remains positive. The office market weakened with oversupply of office space The peaceful transition of power from the Ramos to the Estrada administration in June 1998, allowed for a smooth continuation of the economic reforms. GDP contracted by only 0.5% in spite of the Asian economic difficulties. The office property sector, however, did not do well as the supply continued to outpace demand. Vacancy rates in Makati increased from 1.7% in 1997 to 7.8% in 1998, and in Ortigas, it increased from 3% to 15.6%. The existing supply of around 600,000 sm of office space in Ortigas CBD is projected to increase by another 90,000 sm in Vacancy rates are expected to worsen in 1999, particularly for lower grade buildings. Capital values for office space in Ortigas is expected to fall from P40,000 - P70,000 psm to P30,000 - P60,000 psm in 1999.

6 49 Myanmar Yangon Sedona Hotel Yangon Sedona Hotel Yangon, facing the scenic Inya Lake and known to be one of the best hotels in Myanmar, soft-opened in September However, as tourist arrivals fell, operations at the hotel were streamlined. After the cost rationalization exercise where the number of rooms in operation was reduced to 175 rooms, the average occupancy improved to more than 53% for the year. Mandalay Sedona Hotel Mandalay The Group s second hotel investment in Myanmar is Sedona Hotel Mandalay, which is opposite the famous ancient Mandalay Palace. It is just three minutes drive from the city centre and 12 minutes from the airport. Sedona Hotel Mandalay has soft-opened since September However, due to the regional downturn, the number of guestrooms was also reduced in 1998 in response to the fall in tourist arrivals. Tourist arrivals fell with the recession in Asia With the United State s sanctions imposed in April 1997 and cash-strapped Asian investors putting many projects on hold, Myanmar s GDP fell from 4.6% to 0.6% in Tourist arrivals also fell from 329,160 in 1997 to 318,427 in 1998, dragging down the occupancy and room rates of hotels in Myanmar. The government appears to be shifting focus from the tourism industry towards the manufacturing sector. In view of the weak economic outlook and local political tensions, tourist arrivals are expected to fall further in Vietnam Ho Chi Minh City Saigon Centre Saigon Centre is strategically located along Le Loi Boulevard, Ho Chi Minh City s main thoroughfare. When completed, Saigon Centre will comprise office blocks, serviced apartments, and a hotel inter-linked by a retail podium. It will be developed over five phases according to market demand. The first phase comprising a 25-storey office cum serviced apartment tower with a retail podium has been completed, and is already a prominent city landmark with office occupancy exceeding 85%. Located in the building is Sedona Suites, Ho Chi Minh City, Keppel Land s first serviced apartments in Vietnam. The 89 apartment units, managed by Sedona Hotel International, have achieved an average annual occupancy of 85% in 1998, which has improved to more than 90% in January Saigon Centre is strategically located in Ho Chi Minh City s business hub.

7 50 Major tenants of the office tower include Deutsche Bank, Vietnam Brewery, United States Consulate, Singapore Consulate, Reuters, Qantas and Swiss Air. Ho Chi Minh City Tamarind Park Tamarind Park, a 20-storey apartment tower, is located at Thai Van Lung Street in Ho Chi Minh City s prime District 1. It will house 173 furnished residential units complete with full recreational facilities. Located in the heart of the city centre, it is close to major hotels, commercial establishments, embassies and government offices. Due to the decline in investment climate, the development has been deferred until market conditions improve. Royal Park Sedona Suites is fast becoming an enclave for foreign diplomats and businessmen. Hanoi International Centre International Centre is the first modern office building in the capital of Vietnam. It is strategically located at Ngo Quyen Street, next to the Metropole Hotel. It offers more than 7,500 sm of prime Grade A office space in an eight-storey office block. With its strategic location and quality, International Centre enjoys high occupancy of over 80% attracting multinational tenants. Hanoi Royal Park Located on the northeastern bank of Ho Tay, Hanoi s largest lake, is Keppel Land s second serviced apartment in Vietnam, the Royal Park Sedona Suites. The 170 serviced apartments and villas with comprehensive clubhouse facilities are managed by Sedona Hotel International. The first phase, which has 80 units of serviced apartments, eight villas, a clubhouse and recreational facilities, soft-opened in May 1998, while the second phase will open in the first half of Royal Park Sedona Suites was officially opened by Prime Minister Goh Chok Tong on 18 December By March 1999, 83% of the 170 apartments and villas have been leased to businessmen, diplomats and expatriates. Hanoi - Vietcombank Towers Keppel Land has a 6% stake in Vietcombank Towers, a 22-storey office building, located in the CBD. Substructure works, which consist of two levels of basement carpark, was completed in May The overall development is targeted for completion in 2000.

8 51 Vung Tau PetroVietnam Towers The Company also has an 11.9% stake in PetroVietnam Towers, a 10-storey prime office development in the commercial district of Vung Tau an oil and gas city. Completed in mid-1997, it is the first international standard building in Vung Tau City. Consolidation for the office and apartment markets in the cities The slowdown in foreign investments and downsizing of existing operations by foreign investors has dampened demand for office space and apartments. On the other hand, supply continued to increase as completed projects enter the market. Both the office and apartment markets in Hanoi and Ho Chi Minh City have moved rapidly from a severe undersupply and high rental situation a few years ago, to an oversupply and competitive rental scenario. Demand shifting to quality properties The average occupancy levels for office in Hanoi and Ho Chi Minh City have declined to 50% and 45% respectively, while those for apartments have fallen to 60% and 70% respectively. The accompanying significant fall in rentals has resulted in a flight to quality developments, which are newer and centrally located. These properties can command a higher rental premium over the rest of the market and can achieve occupancy rates of up to 90%. Monthly office rentals for such developments in Hanoi and Ho Chi Minh City hovers around US$35 psm and US$30 psm respectively while monthly apartment rentals in the two cities are in the region of US$30 psm and US$35 psm respectively. Malaysia Taman Sutera, Skudai, Johor Taman Sutera is a 498 ha township in the western suburb of Johor Bahru near Skudai. Only 15 minute s drive to Johor Bahru s city centre and Senai International Airport, it is also close to the North-South Highway as well as the second causeway linking Malaysia and Singapore. The site is divided into two main development zones and when completed will yield some 15,000 freehold residential and retail units. A total of 1,040 units in Zone One have been launched comprising terrace houses, semi-detached houses and shop houses. Prices for the residential units ranged from RM198,000 to RM628,000 while the shop offices were priced around RM668,000. So far, 81% have been sold. Some 40 units were sold during the month-long Home Ownership Campaign which started on 12 December Taman Sutera, located at the heart of Johor Bahru s future growth area, has received warm response. All the houses launched have obtained their Certificate of Fitness for Occupation, while site clearing and earthworks for Zone Two have been deferred. Keppel Land has an 18% stake in Taman Sutera.

9 52 Taman Jernih, Bukit Mertajam, Penang Taman Jernih is another Keppel Land residential development in Malaysia. It is located close to the established residential districts of Taman Bandaraya and Taman Bukit Indah in Penang. When completed, the whole project will yield a total of 516 mixed residential units comprising 368 of two-storey terrace houses, 28 semi-detached houses and 120 low-cost linked houses. Reputed to be among the best quality homes in the northern region of Malaysia, the first phase of Taman Jernih, which comprise 85 terrace and 16 semi-detached houses is 90% sold as at end-april These are expected to obtain their Certificate of Fitness for Occupation in October 1999 with the entire estate scheduled for completion in Malaysia plunged into a recession with the property sector worst hit After more than a decade of economic growth, the Malaysian economy plunged into a recession in The Asian contagion was compounded by policy changes, which scared foreign investors away from the country. GDP contracted by 6.4% in 1998 with the property sector being the worst hit. Property sales fell 48% to RM27.91 billion in 1998, back to 1993 levels whilst total number of transactions hit a seven-year low, down to 186,077. In Johor, prices of terrace houses fell by 5-10% while in Penang, prices stayed unchanged at RM180,000 - RM400,000. At these prices, take-up rate of new launches was poor at about 40%. Prices are likely to be cut in 1999 to attract buyers. Local demand for low-priced residential properties remained strong Transactions for the year were mostly for properties costing below RM100,000 whilst condominium apartments had the weakest demand. The government launched a month-long Home Ownership Campaign from 12 December 1998 to 12 January 1999 to boost the property market with incentives such as the waiver of stamp duties and a minimum 10% discount from the sale price offered to both local and foreign investors. RM3 billion sales were achieved during this campaign of which foreign sales accounted for a mere RM100 million. For 1999, demand for residential properties is expected to be strongest for properties priced below RM150,000, and more moderate for properties priced between RM150,000 and RM250,000. Australia Botanic Cove The Group acquired a 6.9ha residential site 7 km northwest of Sydney Harbour Bridge in the Hunters Hill municipality for A$25.4 million in February Nestled on a hillside in the suburb of Tarban and only 15 minutes drive from the CBD, the site enjoys picturesque views and proximity to the recreational hive by the waterfront. Botanic Cove has attracted more than 2,300 visitors to its show apartments since its launch. AR Layout KLand 52 17/05/99, 14:29AL

10 53 Named Botanic Cove, the residential project will be developed into 224 units of medium density apartments and town houses. The first phase of Botanic Cove was launched in July 1998, and close to 80% have been taken up by end-april The next phase with 42 more units, which was launched in the first quarter of 1999, has achieved 30% sales. Bayswater Village Bayswater Village is a hotel-cum-retail development with a five-storey basement car park in Kings Cross, Sydney. The hotel, called The Crescent on Bayswater, has 70-rooms operated by Sedona Hotels International. Occupancy at The Crescent improved from 55% in 1997 to 61% in The retail space was fully-leased, while car park operations continued to perform well. Tight supply of residential properties in Sydney resulted in price increases in 1998 The New South Wales market saw a shortage of about 13,800 dwellings in mid-1998, the bulk of which was concentrated in Sydney. As a result, quarterly house prices in Sydney had increased over the year. From March 1996 to June 1998, median house prices had grown by nearly 30% and by end-1998, rental vacancy rates in Sydney were under 3%. Residential prices are expected to peak over the next two years Capital values of residential properties flattened by end-1998 and are expected to increase at a moderate pace in 1999 and 2000 with increased stock coming onstream. Market segments that will see the greatest upside include quality projects, which enjoy good water views and close proximity to the Sydney CBD. Take-up for this sector of the residential market generally tracks the domestic economy, which is forecast to see GDP growth of % in Tourism arrivals will increase towards the 2000 Olympics but will also be matched with a growth in hotel rooms International tourism demand is forecast to grow from the current 26 million visitor nights. This increase in demand will be met by a similar increase in room supply from 16,000 to about 20,000 in 2000, in the run-up to the Sydney Olympics. The increase in supply will, however, limit the growth of room rates until the Olympics draws near. Despite the drop in occupancy due to the Asian downturn, the hotel sector is expected to perform well in the near term. United Kingdom London 45 Marlborough Place 45 Marlborough Place is a luxury residential development in the exclusive St John s Wood area. It is six minutes walk to the St John s Wood Underground Station, and is also close to Regent s Park. There are 33 apartments in this freehold development in 19 different luxurious designs. Currently, 13 units have been sold and another 19 units leased out. 45 Marlborough Place is an exclusive freehold development comprising 33 apartments. Residential house prices fell in second half of 1998 The average house prices have grown by 15% per annum over the last three years until the middle of Prices have since fallen, largely due to layoffs in the banking sector, the slump in Asian purchases, as well as the increase in the supply of newly-built properties. If the interest rates are lowered, the residential house market should be able to enjoy a slow and steady growth for 1999.