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The Asian Real Estate Market 2015

Viewpoints from Japan, China, Korea, Taiwan, Singapore and India

August 2015

Nomura Research Institute

Marunouchi Kitaguchi Bldg. 1-6-5 Marunouchi, Chiyoda-ku,


Tokyo 100-0005, Japan

To create a transparent real estate market in Asia,


Asia
to enhance business activities among real estate firms.

This report has been produced by Nomura Research Institute solely for information purposes. It is not intended to be a
complete description of the markets or developments to which it refers. No warranty for representation, express or implied is
made as to the accuracy or completeness of any of the information herein and Nomura Research Institute shall not be liable
to any reader of this report or any third party in any way whatsoever.
whatsoever

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Japan

Japanese Real Estate Investment Market

China

Chinas market entering an adjustment period

Korea

Increase of liquidity
q
y within slow economic g
growth

Taiwan

Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak


India

Real Estate Market in India Residential, Office, etc.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Japan

Japanese Real Estate Investment Market

China

Chinas market entering an adjustment period

Korea

Increase of liquidity
q
y within slow economic g
growth

Taiwan

Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak


India

Real Estate Market in India Residential, Office, etc.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Population Movements in Japan

Japan s population is aging and shrinking due to a low birth rate


Japans
rate.
The number of households will also be decreasing soon.
Total population peaked out in 2005.
2005 The number of households is increasing for now,
now but it is projected to decrease after 2019
2019.
The population of 65 years or older is expected to level off in 2025 and head downwards in 2040.
Population and Households in Japan
Population
(thousand)
140,000

Households
(thousand)

Actual Forecast

60,000

120 000
120,000

50,000

100,000
40,000
80 000
80,000

014
1564

30,000
60,000

65+
Household

20,000
40,000
10,000

20,000

2060
0

2055
5

2050
0

2045
5

2040
0

2035
5

2030
0

2025
5

2020
0

2015
5

2010
0

2005
5

2000
0

1995
5

1990
0

1985
5

1980
0

1975
5

1970
0

Source: NRI based on National Institution of Population and Social Security Research
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Note: Medium-fertility (medium-mortality) projection

Population Movements in Tokyo

Population continues to increase in Greater Tokyo.


Population inflow into Tokyo is expected to continue.
continue

Net Population Inflow into Greater Tokyo

250

Population
(thousand)

200
150

Inflow

100

Kanagawa
Chiba

50

Saitama
Tokyo

0
1980

1985

1990

1995

2000

2005

2010

50

Outflow
100
150
Source: NRI based on Basic Resident Register Population Migration Report
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Population Movements in Tokyo

Population and households are projected to decrease in Tokyo in 5 to 10 years time.


In the Tokyo metropolitan area
area, total population and number of households are projected to peak out in 2015 and 2025
2025, respectively
respectively.

Population in Greater Tokyo


Population
(thousand)
40,000

Households in Greater Tokyo


Households
(thousand)
18,000

Actual Forecast

Actual Forecast

16,000
,

35 000
35,000

14,000

30,000

Chiba
Saitama

25,000

K
Kanagawa
20,000

Tokyo

15,000

Chiba
12,000
10 000
10,000
8,000

Saitama
Kanagawa
Tokyo

6,000

10 000
10,000

4,000

40
204

2035

2030

2025

2020

2015

2010

200
05

00
200

1995

1990

198
85

0
198
80

0
197
75

2,000

197
70

5,000

Source: NRI based on National Institution of Population and Social Security Research
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Note: Medium-fertility (medium-mortality) projection

Population Movements in Tokyo

Households in Tokyo are expected to increase over the medium term owing to the strength
of one-person households.
The number of single-person households is expected to peak out in 2030.
2030

Number of Households by Family Composition


Households
(thousand)

Actual Forecast

7,000
6,000

Oneperson

5,000

Coupleonly
C
Coupleandchild(ren)
l
d hild( )

4 000
4,000

Oneparentandchild(ren)
3,000

Other

2,000
1,000
0
1995

2000

2005

2010

2015

2020

2025

2030

2035

Source: NRI based on National Institution of Population and Social Security Research
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Note: Medium-fertility (medium-mortality) projection

Population Movements in Tokyo

Population in Tokyo is predicted to increase over the long term only in the three wards along
Tokyo Bay.
Population is expected to increase in the Chuo,
Chuo Koto and Minato wards
wards.
In seven wards, the population is projected to decrease by over 10% between 2010 and 2040.
Population Trends in Tokyo (2010=100)
Ward
Chuo
Koto
Minato
Shinjuku
Nerima
Sumida
Arakawa
Chiyoda
Setagaya
Shinagawa
Edogawa
Bunkyo
Toshima
Ota
Itabashi
M
Meguro
Taito
Shibuya
Nakano
Kita
Suginami
Katsushika
Adachi

2010
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100 0
100.0
100.0
100.0
100.0
100.0
100 0
100.0
100.0
100.0

2015
112.9
102.7
105.0
103.3
103.8
100.8
102.4
106.9
102.1
102.4
101.5
101.8
107.3
101.6
100.9
100 8
100.8
100.6
100.3
99.4
99.4
99 4
99.4
98.2
98.0

2020
115.3
104.4
107.0
104.4
105.1
101.7
103.0
106.9
102.7
102.9
101.7
101.9
106.1
101.6
100.5
100 2
100.2
99.5
98.8
97.7
97.6
97 6
97.6
95.7
95.2

2025
116.6
106.8
107.9
104.8
105.3
102.6
102.8
106.1
102.4
102.7
101.1
101.3
104.5
100.8
99.1
98 8
98.8
97.7
96.6
95.5
95.1
95 1
95.1
92.4
91.6

2030
116.8
108.2
107.8
104.4
104.5
102.7
102.2
104.6
101.5
101.7
99.8
100.1
102.2
99.4
97.2
96 8
96.8
95.4
93.9
92.9
92.2
92 0
92.0
88.7
87.5

2035
116.1
108.8
107.0
103.4
102.9
102.0
101.2
102.2
100.0
100.0
98.2
98.2
99.2
97.5
94.7
94 1
94.1
92.6
90.9
89.8
89.0
88 5
88.5
84.8
83.1

2040
114.4
108.5
105.2
101.6
100.6
100.6
99.7
99.3
97.9
97.8
96.2
95.7
95.3
95.1
91.8
91 1
91.1
89.4
87.4
86.2
85.5
84 5
84.5
80.8
78.7

Source: NRI based on National Institution of Population and Social Security Research
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Note: Medium-fertility (medium-mortality) projection

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

10

Macro Fundamentals of Japan

Japan s economic growth is the lowest compared to other major economies with low
Japans
forecasts for future growth.
IMF forecasts estimate Japans
Japan s GDP growth rate at 1% for the next 5 years
years.

Real GDP growth rate of major economies

15.0

Actual
Actual

Estimate
Estimate

10.0
India
China

5.0

Korea
US
UK
Japan

0.0

5.0

10.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: NRI based on IMF data (2014 Oct. and 2015 Update)
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

11

Macro Fundamentals of Japan

Despite the weak growth, Japan remains one of the largest economies in the world.
Although Japan was overtaken by China and fell to the third place in world nominal GDP,
GDP India
India, Brazil and Russia will still remain behind
Japan by 2020, assuming current growth rates continue.
Nominal GDP of Major Countries
(Billi USD)
(Billion

25,000

Actual

Forecast
US

20 000
20,000
China

15,000

10,000
Japan

5,000

0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: NRI based on IMF (2014 Oct.)
Note: Figures up to 2019 are IMF forecasts and those up to 2020 are calculated with the assumption that the CAGR from 2014 to 2018 will be maintained.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

12

Macro Fundamentals of Japan

Consumer price index became less active


active, despite the rise in price due to the consumption
tax increase.
With consumer sentiment depressed due to the consumption tax increase
increase, the growth of consumer price index began to slow down
down.

Y
Year-on-Year
Y
Change
Ch
iin JJapans
C
Consumer P
Price
i IIndex
d ((excluding
l di ffresh
h ffoods)
d )

4.0
3.0
2.0

Inflation target
set by BOJ

1.0
0.0
1.0
2.0
3.0
Source: NRI based on Japan Ministry of Internal Affairs data
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

13

Macro Fundamentals of Japan

Yen still continues to decline.


Large-scale monetary easing,
easing the first
first arrow
arrow of Abenomics,
Abenomics has rapidly lowered the yen from the end of 2012
2012.

USD-JPY exchange rate


(USDJPY=X)

130
120
110
100
90
80
70

Source: NRI based on Bloomberg data


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

14

Macro Fundamentals of Japan

Trade deficit is expanding, while the current account surplus is shrinking.


Japans
Japan s trade balance recorded deficit for four consecutive years from 2011,
2011 while the current account surplus fell to a record low in
2014.
Japans Current Account
(Trillion yen)
()
35

30
25
20
15
10
5
0
5
5
10
15
2003

2004

TradeBalance

2005

2006

2007

ServiceBalance

2008

2009

Primaryincomebalance

2010

2011

2012

2013

Secondincomebalance

2014 ()

CurrentAccount

Source: NRI based on Japan Ministry of Finance data


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

15

Macro Fundamentals of Japan

Government debt has mounted, raising concerns about a potential financial collapse.
The IMF forecasts that Japans
Japan s ratio of government debt to GDP will peak out but still remain high
high.
A surplus in the primary balance, which is one of the conditions for preventing financial collapse, is expected to be difficult to achieve at
least for the next several years.
Ratio of Government Debt to GDP

Ratio of Government Primary Net Lending/Borrowing to GDP


Actual Forecast

250

Actual Forecast

Japan

UK

2
Germany

200

US

2
2

150
US

100

Japan

4
6

UK

50

Germany

10

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

Source: NRI based on IMF data (2014 Oct.)


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

2003

12
12

Source: NRI based on IMF data (2014 Oct.)

16

Macro Fundamentals of Japan

A financial collapse is unlikely as long as domestic capital remains in Japan and continues
to circulate.
The possibility of Japanese government bonds collapsing is seen to be small since more than 90% of the bonds are held by domestic
investors.
Household financial assets, which are a resource for government bond purchases, have increased due to rising stock prices in recent
years.
Government Bond Investors

Households
Household
s Financial Assets in Japan

100%

(Trillionyen)
1800
1600

80%

1400
1200

60%

1000
1000
40%

800
600

20%

400
200

0%
Japan

US
Domesticinvestors

UK

Germany

Foreigninvestors

Note: Figures for Japan and US are from Dec 2014; for UK and Germany, from 2014 Q3.
Source: BoJ, FRB, ONS, Bundesbank
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

()

0
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: NRI based on Bank of Japan data

17

Macro Fundamentals of Japan

Tokyo continues to be the worlds largest city in terms of population and GDP.

GDP/population estimation in 2025 (Top 30 cities of population)


2025 population 40,000
by city
( in 1000s)
1000 s)

Tokyo

35,000

Delhi
30,000

Shanghai
j g
Beijing
Mumbai
Dhaka
SaoPaulo
Cairo
MexicoCity

25,000
20,000

NewYork
BuenosAires

15 000
15,000

LosAngeles

Paris

10,000
5 000
5,000
0
0

500

1000

1500

2000

2500

2025 GDP scale


by city
in billion USD at
2008 PPPs

Source: NRI based on PricewaterhouseCoopers and UN data


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

18

Macro Fundamentals of Japan

Tokyo has the second largest concentration of world-class enterprises.


Number of Fortune Global 500 companies by city (2014)

Fortune Global 500 companies in Greater Tokyo (within top 200)

Rank

Company

Revenue(Mil$)

23

Japan Post Holdings

152 125
152,125

45

Honda Motor

118,210

51

JX Holdings

111,014

53

Nippon Telegraph & Telephone

109,054

61

Nissan Motor

104 635
104,635

78

Hitachi

95,988

105

Sony

77,532

108

Mitsubishi

75,755

124

Marubeni

70 429
70,429

135

Softbank

66,546

Seoul,14

139

Tokyo Electric Power

66,194

Osaka,8

145

Toshiba

64,907

Shanghai 8
Shanghai,8

148

AEON

64 240
64,240

Houston,7

164

Dai-ichi Life Insurance

60,340

Moscow,7

173

Mitsui

57,302

176

Seven & I Holdings

56,572

184

Nippon Steel & Sumitomo Metal

55,062

199

Mitsubishi UFJ Financial Group

51,667

Beijing,52

Tokyo,41
London,18
Paris,18
NewYork,17
Others,310

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on Fortune Global 500 (2014) data

19

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

20

Overview of Real Estate Investment Market in Japan

Investors activities has been recovering to the 2005-2006 level.


In 2013, J-REIT,
J REIT, the most powerful real estate buyer in Japan, acquired assets of more than 20 billion USD. In 2014, however, J-REIT
J REIT
lost its dominance to other investors such as private-REITs, high-net-worth individuals and corporations with more aggressive attitude
towards acquiring assets. Other professional investors are also being ousted from the Tokyo market.
Acquisitions of Securitized Real Estate
billi yen
billion

10,000
Others

JREIT

8 000
8,000

6,000
7 205
6 242 7,205
6,242
5,159

4,000

2,156

4,439
2,000

1 791
1,791

3,307
2,123
611

2,210

2,236
305

676

895

1,549
1,359

1,772 2,031 1,679


628

439

539
604

792

1,555

2,237

FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on MLIT

21

Overview of Real Estate Investment Market in Japan

Hotel deals has been increasing amongst other key segments


segments, ii.e.
e office
office, residential
residential, retail
and logistics properties.
Factors such as the 2020 Olympic game in Tokyo, weak JPY currency, and strong macro economy in Japan have helped to push the
demand in hotels, attracting more investors to hotel investment.
Allocation of Securitized Real Estate by Asset Class
in 5 years (2009-2013)

Acquisitions of Securitized Real Estate by Asset Class


billion yen

8,000
Office

Residential

Retail

Logistics

Hotel

Others

Others,16.0%
,
%
6,000

Hotel,3.3%
Office,33.8%
1,107

4 000
4,000
835
404
2,000

981

Logistics,
Logistics
13.8%

790

161
267
1,611

686
270
552

1,516

1,293

1,589

746

1,321

808

1,728

2,194

2,124

2,503

479
348
891

710
0
FY2001

FY2002

FY2003

FY2004

FY2005

FY2006

FY2007

FY2008

289
235
556
FY2009

252
441

615

788

452

603

550

768

309
406
512

1,092

FY2010

FY2011

FY2012

Retail,16.0%
,

Residential,
17 1%
17.1%

1,501
FY2013

N t B
Note:
Because the
th utility
tilit off securitizations
iti ti
th
thatt require
i actual
t l TMK iis unclear,
l
th
they h
have nott b
been iincluded
l d d after
ft 2001
2001. B
Because off this,
thi th
the yearly
l ttotals
t l and
d amounts
t will
ill nott match
t h up with
ith th
the d
documents
t
cited for this entry.
Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourisms Survey of the Current State of Real Estate Securitization

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

22

Overview of Real Estate Investment Market in Japan

Lack of assets in Tokyo is likely to cause investment money to head to other regions.
For last few years, it has been extremely difficult for investors to find investment opportunities in Tokyo. In 2014 and 2015, transactions
in the ex-Tokyo area are expected to increase significantly in a trend similar to the one seen in pre-global financial crisis era.

Number of Properties Securitized by Region


Tokyo

GreaterTokyo

FY2013

Osaka

Nagoya

51.9%

FY2012

13.3%

47.9%

FY2011

Fukuoka

15.3%

58.8%

FY2010

12.0%

53.0%

10.5%

FY2008

51.9%

12.7%

41.9%
10%

20%

12.1%
30%

40%

50%

10.5%
60%

6.9%

8.4% 6.9%
8.8% 5.5%
6.4%
70%

17.8%
19.9%

8.0% 4.0%
11.8%

FY2009

0%

10.0% 3.7%
9.5% 5.1%

66.0%

FY2007

Others

14.9%
12.0%
17.2%
17.4%
23.1%

80%

90%

100%

Note: not including securitization of real estate of SPC


Source: NRI based on MLIT
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

23

Overview of Real Estate Investment Market in Japan

Total return recovered to 7%, the 2005 Q1 level.


Prior to the global financial crisis, the total return reached to 7% in 2005 Q1, and hiked till 2006 Q2.
Total return maintained the rate over 10% until 2007 Q1.

Performance Trend in Japan


(%)
20.0
13.8

15 0
15.0
10.0

Total Return

7.3

Income Return

3.7

5.0

7.4
5.0

0.3
2.3

0.0
5.0

Capital Return

7.2

10.0
11.7
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep
Dec
Mar
Jun
Sep

15.0
2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: MSCI Real Estate IPD

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

24

Overview of Real Estate Investment Market in Japan

Cap rates fell sharply and by 2014 most likely reached the 2007 level.
In the Tokyo market, an increasing number of real estate deals have cap rates of 3-4%.
3 4%. Some investors believe that arguing cap rates
is futile as one can expect higher rents. Such market players consider timing and level of rent increase more important rather than cap
rate compression.

C R
Cap
Rate
t T
Trend
d iin JJapan
8.0%

7 0%
7.0%

6.0%
Office Osaka CBD
Logistics Tokyo Multi

5.0%

Residential Tokyo
Retail Tokyo

4.0%

Office Tokyo CBD

OfficeTokyo CBD

OfficeOsakaCBD

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

RetailTokyo

ResidentialTokyo

Aug14

Mar14

Oct13

May13

Dec12

Jul12

Feb12

Sep11

Apr11

Nov10

Jun10

Jan10

Aug09

Mar09

Oct08

May08

Dec07

Jul07

Feb07

Sep06

Apr06

Nov05

Jun05

Jan05

Aug04

Mar04

Oct03

3.0%

LogisticsTokyoMulti

Source: NRI based on Japan Real Estate Institute

25

Overview of Real Estate Investment Market in Japan

Mega deals of over one billion USD have increased.

Transaction
Month/Year

Dec, 2013

Mar, 2014

Asset

Land next to the


Hamamatsucho Station

(Ratio of Acquisition: 17% )

Property Type

Land

Area

Aug, 2014

Oct, 2014

Nov, 2014

Meguro Gajoen

Pacific Century Place


Tokyo Office floors

GEs Residence Portfolio


200 properties

Office

OfficeHotel

Office

Residence

Minato, Hamamatsucho

Chiyoda, Otemachi

Meguro, Meguro

Chiyoda, Marunouchi

All parts of the country

Seller

Kokusai Kogyo

Tokyo Tatemonos SPC

Lone Star

Secured Capital Japan


PAG

GE Real Estate Japan

Buyer

Nippon Life Insurance


Obayashi

Mizuho Bank

Mori Trust

GIC

Blackstone

Transaction
Amount

800 million USD

1,782 million USD

1,300 million USD

1,700 million USD

2,000 million USD

Gross Floor
Area

7,205

34,200
34
200
(Floor Area of Acquisition)

155,820

38,840
38
840
(Floor Area of Acquisition)

NA

Otemachi Tower

Source: NRI based on Nikkei Real Estate Market Report and others

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

26

Overview of Real Estate Investment Market in Japan

Money from
M
f
investors
i
t
with
ith diff
differentt perspectives
ti
have
h
caused
d reall estate
t t prices
i
tto rise
i and
d
capital to diversify in various market segments.
Properties that domestic investors do not favor due to risk concerns have been purchased by foreign and non-professional
non professional (e.g. highhigh
net-worth) investors with different goals, causing real estate prices to rise in the ex-Tokyo area. The trend is undoubtedly due primarily
to the fact that such investors cannot find any good investment opportunities in Tokyo.

Transaction
Month/Year

Jun, 2014

Sep, 2014

Oct, 2014

Nov, 2014

Nov, 2014

Asset

Shinbashi Park Place

Nihonbashi Tomihisa
Daini Building

Parel Royale Shoto

Ginza Granvia Bldg 2

Seiko BldgH

Property Type

Office

Office

Residence

Retail

OfficeRetail

Area

Minato, Shinbashi

Chuo, NihonbashiHoncho

Shibuya, Shoto

Chuo, Ginza

Osaka, Kita Shinchi

Seller

NA

Ascott

NA

Hulic

NA

Buyer

high-net-worth

high-net-worth
(Taiwanese)

high-net-worth

high-net-worth

high-net-worth

Transaction
Amo nt
Amount

NA

NA

NA

NA

NA

Gross Floor
Area

2,646

1,310

2,873

1,340

3,342

Source: NRI based on Nikkei Real Estate Market Report and others

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

27

Overview of Real Estate Investment Market in Japan

Because of the lack of investment opportunities at Tokyo metropolitan area


area,
equity heads to the Tokyo neighboring part and ex-Tokyo area.
Many investors are seeking investment opportunities in Osaka, Nagoya and other regions other than Tokyo, repeating a similar trend
seen between 2004 and 2007. How to build good relations with regional banks is one of the key issues for real estate investors at
present.

Transaction
Month/Year

Jul, 2014

Oct, 2014

Oct, 2014

Oct, 2014

Jan, 2015

Asset

Renaissance Resort
Okinawa

Shinagawa Seaside
(3 properties)

Sumitomo Life Sendai


Bldg

Beppu Kamenoi Hotel

Maebashi Daiichi Life


Bldg
y
Daiichi Life Bldg
g
Oyama

Property Type

Resort Hotel

Office

Office

Hotel

Office

Area

Okinawa

Shinagawa

Miyagi, Sendai

Oita

Mebashi, Oyama

Seller

Ishin Hotel Group

Japan Tabacco

Sumitomo Life

AZ Hotel Chain

Daiichi life

Buyer

Green Oak Real Estate

Idera Capital
Management
Lone Star
Elliott Management

Goldman Sachs

Fortress Investment
Group

KAISER ASSET

Transaction
Amount

130 million USD

600 million USD


(for 3 properties)

NA

40 million USD

8.5 million USD

Gross Floor
Area

40,195

140,000

20,411

19,422

12,000

Source: NRI based on Nikkei Real Estate Market Report and others

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

28

Overview of Real Estate Investment Market in Japan

Fierce competition among commercial banks help boost prices.


Banks
Banks lending attitude toward the real estate industry is nearly the most lenient since 2000 and almost as lenient as in 2006. Many
people in Japan believe that there are too many banks, and competition among lenders is quite fierce. Along with major banks, regional
mid-size banks are trying to reduce spreads and loosen covenants. One big difference from the last peak we saw in 2006, however, is
the non-participation of foreign lenders. One reason why foreign lenders are staying away from the Japanese debt market is the fact
that the CMBS market has been frozen since 2009.
Financial Institutions Lending Attitude DI toward Real Estate Industry
15
10

Loose

5
0
5
10

Tight
15
20
25

35

Mar00
0
Sep00
0
Mar01
1
Sep01
1
Mar02
2
Sep02
2
Mar03
3
Sep03
3
Mar04
4
Sep04
4
Mar05
5
Sep05
5
Mar06
6
Sep06
6
Mar07
7
Sep07
7
Mar08
8
Sep08
8
Mar09
9
Sep09
9
Mar10
0
Sep10
0
Mar11
1
Sep11
1
Mar12
2
Sep12
2
Mar13
3
Sep13
3
Mar14
4
Sep14
4

30

Source: NRI based on BOJ


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

29

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

30

Office Market

Tokyo Area holds 60% of Japans office rental market.


Japan has a stock of around 106 million of available office rental space
space. The Tokyo area holds an overwhelming share of the market
at 64 million , comprising 60% of the total.
Office Floor Space Shares by Major City
100%
2.4%

90%
1.7%

80%
14.9%
70%
4.7%

1.0%

1.8%

(1.95million )
(1.03million )
(5.00million )

60%

1.0%

(1.12million )
(1 85 illi )
(1.85million

(15.91million )

2.1%

1.6%

(1.72million )
(2.23million )
3.3%
(2.54million )
5.5%
(3.57million )
(5.87million )

Osaka Area
17.7

50%
40%
30%

12 major cities
106.73million

Tokyo Metropolitan Area


67.4

59.9%

20%
(63.94million )

10%
0%
Tokyo

Yokohama Saitama

Chiba

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Osaka

Kobe

Kyoto

Nagoya

Fukuoka

Sapporo

Sendai Hiroshima

Source: NRI based on JREI As of Jan.2014


The investigation focus on central area of each city.
The investigation object which are smaller than 3,000 square meter are excluded

31

Office Market

There are five sub sectors in Tokyos Central Business District.


Tokyo
Tokyos
s Central Business District(CBD) has an accumulation of office buildings and is concentrated in an area of 5km wide.

Adachi

Itabashi

Kita

Nerima
Saitama
7.15millionpeople
Tokyo
13.22millionpeople
Kanagawa
9.07millionpeople

Chiba
6.15milionpeople

Arakawa

Toshima
Bunkyo Taito Sumida
Nakano
Shinjuku
Suginami
Chiyoda
Koto
Chuo
Shibuya

Katsushika

Edogawa
30km

Minato

Setagaya
Meguro

Shinagawa

Ohta

30km
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

32

Office Market

Vacancy rates in the Tokyo office market have been improving for two consecutive years.
Retrospectively,
Retrospectively vacancy rates have been experiencing regular ups and downs
downs.
Vacancy rate movement in Tokyo CBD
Y l (1998 - 2014)
Yearly(1998

M thl (J 2013 Jan


Monthly(Jan
J 2015)

14.0%

14.0%

12.0%

12.0%

10.0%

Shinjuku
Chuo

Shinjuku

10.0%

Minato

Minato

8.0%

8.0%

6.0%

Chuo

6.0%
Chiyoda

Chiyoda

4.0%

Shibuya

Oct1
14

Jul1
14

Apr1
14

Jan1
14

Oct1
13

Jul1
13

0.0%
Apr1
13

0.0%

199
98
199
99
200
00
200
01
200
02
200
03
200
04
200
05
200
06
200
07
200
08
200
09
2010
2011
2012
2013
2014

2.0%

Jan1
13

Shibuya

2.0%

Jan1
15

4.0%

Source: NRI based on Miki Shoji Co., Ltd. data


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

33

Office Market

Although rent increase is slow, there has been a clear reversal in the rent trend.
Retrospectively,
Retrospectively the high rent period have been short,
short making office owners
owners negotiation power weaker than that of tenants.
tenants

Rent trends in Tokyo CBD (yen/tsubo per month)


Yearly(1999 - 2014)

Monthly(Jan. 2013 Jan. 2015)

Yen/month, tsubo

Yen/month, tsubo

26,000

26,000

24,000

24,000

22,000

22,000
20,000

16,000

Jan
n15

Novv14

p14
Sep

Jul14

Mayy14

Marr14

10,000
Jan
n14

10,000

Novv13

12,000
Sep
p13

12,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

Shinjuku

14,000

Jul13

Shinjuku

Chiyoda
Shibuya
Minato
Chuo

18,000

Mayy13

14,000

18,000

Marr13

16,000

Chiyoda
Shibuya
Minato
Chuo

Jan
n13

20,000

Note: One tsubo is 3.3 square meters


Source: NRI based on Miki Shoji Co., Ltd. data
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

34

Office Market

The number of Tokyos office workers is declining at a fast rate than the published forecast.

Trend and Forecast of Office workers in Tokyo


(1,000 people)

4,500
4,000

3,818

3,835
3,660

3,648

3,643

3,461

3,565

3,500

3,498

23
wards
23
3,243

3,000
2,500
2,020

1,988

2,000

2 083
2,083

2 078
2,078

2,035

5 Chuo, Minato, Shibuya, Shinjuku)


(Chiyoda,

1,884
1,539

1,500

1,533

1,998
Central 5 wards

1,501

1,473

Central 3 wards

1 467
1,467

1 474
1,474

1,415

2000

2005

2010

(Chiyoda, Chuo, Minato)

1,000
500
0
1990

1995

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

2015

2020

2025

Source: NRI based on Population Census of Japan, Tokyo Metropolitan Government

35

Office Market

Despite the dwindle in the number of office workers, new office supply will continue to grow.

Office Space Supply in Tokyos 23 districts


Supplied f loor area
((1,000
,
))

250

# of buildings

70

Officesupplyarea
Numberofbuilding supplied

216

60
200

183

175

50

154

150
100

100

83

108 104

125

119

114 118

99

92

119

72

56 55

111 110
88

86 85

77
65

40

124

117

91

74

50

121

96

58

36

20
10
0

1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

30

Source: NRI based from Mori Building Companys Mega Office Building Market Trends Survey (Preliminary figure) dated October 22, 2014

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

36

Office Market

Cap rate has been dropping for three consecutive years since 2012.
As of March 2015
2015, office deals with cap rates of 3-4% are commonly carried out
out, resting on investors
investors expectations for higher rent and
NOI, henceforth.
Tokyo office market cap rate trend
6.5%
6.0%
5 5%
5.5%
5.0%
Shinjuku
Shinjuk
Shinagawa
Shinaga

4.5%

Shibuya
Minato(Toranomon)
Chuo(Nihonbashi)
Chiyoda(Marunouchi)

4.0%
3.5%

Oct14

Apr14

Oct13

Apr13

Oct12

Apr12

Oct11

Apr11

Oct10

Apr10

Oct09

Apr09

Oct08

Apr08

Oct07

Apr07

Oct06

Apr06

Oct05

Apr05

Oct04

Apr04

Oct03

3.0%

Chiyoda(Marunouchi)

Chuo(Nihonbashi)

Minato(Toranomon)

Shinagawa

Shinjuku

Shibuya

Source: NRI based on Japan Real Estate Institutes Real Estate Investors Survey
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

37

Office Market

The improvement of the vacancy rate is not leading to the recovery of rents in the ex-Tokyo
ex Tokyo
office market.

Office Vacancy Trend in ex-Tokyo Market

Office Rent Trend in ex-Tokyo Market

20.00%

24,000

18.00%

(yen/tsubo)

22,000

16.00%

Fukuoka

20,000

14.00%

Nagoya
Yokohama

12.00%
Sapporo

10.00%
8.00%

Sendai

18,000

Osaka

16 000
16,000

Tokyo

14,000

Tokyo

6.00%
12,000

Osaka
N
Nagoya
Yokohama

20
014

Sendai
Sapporo

20
013

20
012

20
011

20
010

20
009

20
008

20
007

20
006

Fukuoka
Fukuok

20
005

20
014

20
013

20
012

20
011

20
010

20
009

20
008

20
007

8,000

20
006

0.00%

20
005

10,000

20
004

2.00%

20
004

4 00%
4.00%

Source: NRI based on Miki Shoji Co., Ltd. data

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

38

Office Market

Liquidity is growing as real estate prices rise in ex-Tokyo office market.


Office cap rates in most major cities have decreased due to investors
investors strengthening interest in opportunities outside of Tokyo
Tokyo.
Ex-Tokyo Office Market Cap Rate Trend
9 0%
9.0%
8.0%
7.0%
Sendai
Sapporo

6.0%

Fukuoka
N
Nagoya
Yokohama
Osaka

5.0%
4 0%
4.0%

Octt14

Aprr14

Octt13

Aprr13

Octt12

Aprr12

Octt11

Aprr11

Octt10

Aprr10

Octt09

Aprr09

Octt08

Aprr08

Octt07

Aprr07

Octt06

Aprr06

Octt05

Aprr05

Octt04

Aprr04

Octt03

3.0%

Source: NRI based on Japan Real Estate Institutes Real Estate Investors Survey
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

39

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

40

Residential Market

About 20% of all households in Japan are living in non-public


non public rental apartments
apartments, and the
percentage is trending upwards.
Households living in non-public rental apartments (excluding wooden apartments; hereafter the same in this section)
section), which numbered
3.34 million in 1988, increased by about 2.6 times to 9.96 million (about 20% of all households) in 2013.

Breakdown of All Households by Housing Type (2013)

6,000

NumberofHo
ouseholds(unitt:10,000)

Company
Housing
2%

PrivateRental
Housing,
Others
9%

PrivateRental
House,
Apartment
House(non
wood)
20%

OwnHouse
63%

25%

5,000
4,000

3,760

4,989

4,716

4 421
4,421

4,097

5,238
20%

18%

16%
15%

15%

12%

3,000
9%
2,000

1,411

1,000
334

20%

1,578
490

1,682
650

1,724
750

1,783
879

1,857
996

10%

5%

0%
'88

'93

'98

'03

'08

RatioofHo
ouseholdsLivingginPrivateRen
ntal&
ApaartmentHouse(nonwood)

PublicRental
House
6%

Number of Households by Housing Type 1988 - 2013

'13

HouseholdsLivinginHousing
HouseholdsLivinginRentalHouses
Ho seholds Li ing in Pri ate Rental & Apartment Ho ses (non ood)
HouseholdsLivinginPrivateRental&ApartmentHouses(nonwood)
RatioofHouseholdsLivinginPrivateRental&ApartmentHouses(nonwood)
Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

41

Residential Market

The total number of moving households has decreased


decreased, but the ratio of households moving
to non-public rental apartments is trending upwards.
The number of moving households peaked out in 1994-98 and decreased to about 77% of the peak-time level in 2009-13 .
The number of households moving to non-public rental apartments is also on a decreasing trend, although its ratio to the total number
of moving households is trending upwards.

1,600
1,400
1 200
1,200

39%
1,103

600

48%

45%

44%

1,221

1,186

50%
45%
40%

1 135
1,135
1,039

1,000
800

46%

45%

884

868

782
532
427

35%
939

778
557

698
502

30%
25%

639
466

20%
447

400

15%
10%

200

5%

0%
8488

8993
9498
9903
0408
NumberofMovingHouseholds inPast5Years
NumberofHouseholdsMovedintoRentalHouses
NumberofHouseholdsMovedintoPrivateRental (Apartment)Houses
RatioofHouseholds MovedintoPrivateRental (Apartment)Houses

0913

RatioofHouseholdsLiving inPrivate Rental &


Apartment H ouses

Num
mberofMovingg Households(Unit:10,000)

Housing Choices of Moving Households 1984 - 2013

Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

42

Residential Market

The supply of non-public


non public rental apartment units has increased more sharply than total
housing stock.
The growth of rental apartments (public and non-public combined) outpaced the growth of overall housing as well as the more modest
rise of rental housing in general.
As a result, the ratio of rental apartments to total rental houses increased from 60 to 70%.
Housing
g Growth Rates by
y Type
yp

Housing
g Stock by
y Type
yp 1988-2013

140

70

50
40

54

50
50
44
39

30
30
20

16

18

20
12

21

22
15

14

23
16

10
0
'88

'93

'98

130

130

'03

'08

NumberofHouses
Number of RentalHouses
NumberofRentalHouses
NumberofRental&ApartmentHouses(nonwood)

'13

GrrowthRate(19
988=100)

Ho
ousingStock((Unit:1million
n)

60

61

58

124
120

119

110
100
90

112
112

114
114

107
103

108

112
112

100
NumberofHouses
NumberofRentalHouses
NumberofRental&ApartmentHouses(nonwood)

80
80
'98

'03

'08

'13

Source: NRI based on data from Housing and Land Survey, Ministry of Internal Affairs and Communications of Japan.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

43

Residential Market

Construction of new rental housing declined in 2009 but is now on a recovery path.
The number of new constructions decreased in 2014 as a reaction to last minute surge in demand prior to the tax increase.
The ratio of rental house has increased as the number of new rental housing has leveled off while the total number of new construction
has declined.

Breakdown of New Rental Housing Construction by Region

1,800

45%

1,600

40%

1,400

35%

1,200

30%

1,000

25%

800

20%

600

15%

400

10%

200

5%

0%
RentalHouse

HouseBuiltforSale

RatioofRentalHouse

CompanyHouse

700
600

ProvincialRegion
KinkiRegion
ChuubuRegion
Metropolitan Region
MetropolitanRegion

500
400
300
200
100
0

91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14

OwnHouse

800
NewRentallHousingConstructtion byRegion(Un
nit:1,000)

50%

91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14

2,000

RatioofRentalHouses

erofConstructiionStartsUnitt 1,000
Numbe

New Housing Supply Trend: 1991


1991-2014
2014

Source: NRI based on data from Survey of Construction Work Started, Ministry of Land, Infrastructure, Transport and Tourism of Japan.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

44

Residential Market

Vacancy rates are rising in all of Tokyos 23 wards.


Vacancy rate in the metropolitan Tokyo has continued to decline for the past decade.
In the recent years, however, Tokyo has seen an upward trend of vacancy rates, especially in the 23 wards.
Affected by the Great East Japan earthquake in 2011, vacancy rates in Sendai has seen a significant shrinkage.
Vacancy Rates of Rental Housing (non-wood)
(non wood) in Major Cities
'98

'03

'08

17

'13
RentaalHousingVaccancyRate(Un
nit:%)

20%

15%

10%

5%

16
15
15
14
13

12
11

AllTokyoareas

10

23Tokyodistricts
Tokyocities

Kanagawa

Source: NRI based on data from Data from Housing and Land Survey, Ministry of Internal Affairs
and Communications of Japan.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

2013

Nov

Sep

Jul

Jan

Sep

Jul

Jan

Sep

Jul

2012

May
M

Hiroshima Fukuoka

Mar

Osaka

Nov

Nagoya

May
M

Tokyo23
Wards

Mar

Sendai

Nov

Sapporo

May
M

0%

Mar

8
Jan

Vacancy Rat eofRentalHoussing (nonwood) (Unit:%)

25%

Vacancy Rates of Rental Housing in Tokyo Metropolitan Area

2014

Source: NRI based on data from Report on Rental Housing Market, TAS Corp. (Analyzed by TAS
Corp. Data Supplied by At Home Co., Ltd.).

45

Residential Market

The rent level of non-public rental housing continues to fall.


The rent level of non
non-public
public rental housing rose steadily from 1990 to 2000
2000, after which it gradually declined
declined. The
rent level downward trend continued in 2013.
Rent in the Private Sector (Annual Average) Nationwide and Central Tokyo

Private(A
Annual Average) RentIndex(Base
eYear2010)

108 0
108.0
106.0
104.0
102 0
102.0
100.0
98.0
96 0
96.0
94.0
92.0
90 0
90.0

Japan

88.0

Tokyo23Wards

14

13

12

11

10

09

08

07

06

05

04

03

02

01

00

99

98

97

96

95

94

93

92

91

86.0

Source: NRI based on data from Consumer Price Index, Ministry of Internal Affairs and Communications of Japan.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

46

Residential Market

Occupancy rates of REIT


REIT-owned
owned and private fund-owned
fund owned properties are rising
rising, while their
rent levels remain stable.
Looking at the changes in the REIT-owned and private fund-owned occupancy rate and monthly rent,
rent the monthly rent level has remain
stable although the occupancy rate in Tokyos 3 central districts and its 23 districts has been on an uptrend since 2012.
Occupancy Rates of REIT-owned and private fund-owned Properties

Monthly Rents of REIT-owned and private fund-owned Properties

100%

96%

94%
Tokyo3centraldistricts
Tokyo23districts
Nagoyacity
Osaka city
Osakacity
Fukuokacity

92%

90%

4,500
4,000
3,500
3,000
2,500
2,000

Tokyo3centraldistricts
Tokyo23districts
Nagoyacity
Osaka city
Osakacity
Fukuokacity

1,500
1,000
500

2012

2013

2014

2012

2013

Mar

Jan

Nov

Sep

Jul

May

Mar

Jan

Nov

Sep

Jul

May

Mar

Jan

Mar

Jan

Nov

Sep

Jul

May

Mar

Jan

Nov

Sep

Jul

May

Mar

0
Jan

OccupancyRate(Unit:%)

98%

MonthlyRentLevel(UnitYe
M
en/m2)

5,000

2014

Source: NRI based on data from ARES J-REIT Property Database, Association for Real Estate Securitization of Japan.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

47

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

48

Retail Property Market

Development of large-scale retail stores has started to recover since 2009.

New Retail Space Supply vs. Number of Development Projects


5,000

FloorArea
786

4,500

738

FloorArea(1000m2
2)

730

750

738
654

638

584

3,500
,
3,000

800
705

700

620

600

500
450

500

2,500
4,178
,

2 000
2,000
3,335

1,500
1,000

4,545
3 983
3,983

3,729

400

4,369

300
2,860

2,455
1,919

2,081

2,351

2,824

200

2,193

Num
mberofprojectts(cases)

4,000

731

900

Numberofprojects

100

500
0

0
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Note: The reported numbers for the fiscal years 2002 and 2008 include stores without floor space indication.
Source: NRI based on data from the Ministry of Economy, Trade and Industrys Large-scale Retail Chain Site Expansion Report

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

49

Retail Property Market

For shopping centers


centers, the total floor area for all stores and the floor area per store are both
on the rise.

Overall floor area and per-store floor area for shopping centers
Overallfloorarea
2)
(in1millionm
(i
1 illi

FloorareaperSC

OldSCStandard

60

Overaallfloorarea

11.8
11.8

11 6
11.6

12.1

12.4

30.4

14.1

42.1

40
30.6

12.8

13.6

31.5

33.1

34.6

36.5

14.2
42.7

14.5

14.8

15.0

15.3

16

47.9

44 2
44.2

46.4

14

45.7

12

38.0

10

30

8
6

20

4
10

Floo
orareapershoppingcenter

50

13.2

(in1000m
(i
1000 2/store)
/t )

NewSCStandard

0
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

NB: In the old SC standard, only shopping malls with more than 10 retail tenants were considered.
In the new SC standard, the shopping center must have more than 10 tenants including food stalls, service centers and retail outlets.
On the same note, the shopping center must have more than 1,500 m2 retail space.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on data from the Council of Shopping Centers SC White Book

50

Retail Property Market

Declining tendency of shopping centers sales is mitigating.

Yearly comparison of existing shopping centers sales


()
1

0.3

0.3

0
1
2.2

2
3

2.1

1.6

05
0.5
0.0

0.5
1.3

1.5

1.7

0.1

2.0

3.4

4
4
5
6
7

6.8

8
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: NRI based on the Japan Council of Shopping Centers Overall Sales Statistics Report

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

51

Retail Property Market

Compared to other areas, rent level of Ginza, Omotesando and Shinjuku are still high.
1st floor rent ranking in 13 principal business areas (yen/month/tsubo)

yen/month/tsubo
60,000

Ginza
Omotesando

50,000

Ginza

Shinjuku

NB2

40,000
NB4

30,000
NB1

Ikebukuro

NB3

Omotesando
Shi j k
Shinjuku
Shibuya
Sakae
Ikebukuro

20,000

Shibuya
Yokohama
Shinsaibashi
Oodori(Sapporo)
Sannomiya(Kobe)
Sendai

10,000

Tokyo
Metropolitan
Area

Provincial
Areas

Tenjin(Fukuoka)
Shij k
Shijokawaramachi(Kyoto)
hi (K
)

Sakae(Nagoya)
Late2011 Early2012 Late2012 Early2013 Late2013 Early2014

NB1: Rent in Yokohama is shown to have spiked in the early half of 2012, but this can be attributed to the extremely small sample size
NB2: Rent in Shinjuku is shown to have spiked in the late half of 2012
2012, but this can be attributed to a sample bias toward small
small, high-rent properties
NB3: Rent in Ikebukuro is shown to have dived in the early half of 2013, but this can be attributed to a sample bias toward low-rent properties in unfavorable locations
NB4:Rent in Shibuya, Sakae and Ikebukuro are shown to have spiked in the early half of 2014, which can be attributed to a sample bias towards a small number of
properties with high rent
Source: NRI based on the Japan Real Estate Institute
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

52

Retail Property Market

Cap rates have been falling since 2011


2011. In the Tokyo Metropolitan Area
Area, cap rates are
approaching the all-time low.

Commercial establishment cap rates (expected yield)


8.0%
7.0%
6.0%

Suburban, Nagoya
Suburban, Osaka
Suburnban, Tokyo
Metropolitan ,
Metropolitan, Osaka

5.0%
4.0%

Metropolitan,Omotesando
Metropolitan, Ginza

3.0%
2 0%
2.0%
1.0%
0.0%

NB:
Metropolitan high-class specialty stores:
Length of time after construction -or- large-scale repair/improvement: less
than 5 years
Tenants: Mainly retailers of high-class brands.
Rent system: Mainly fixed-term,
fixed term, variable rental schemes based on the
revenue.
Areas: Along Chuodoori in Ginzas Chuo district.
Along Omotesando in Omotesandos Shibuya district.
Suburban shopping centers:
Sales floor area: around 20,000m2
Key tenants: Prominent general merchandise stores (GMS)
R t system:
Rent
t
Mainly
M i l fifixed-term,
dt
fixed-charge
fi d h
rental
t l schemes
h
Areas: 1-hour Shinkansen ride along key stations to Tokyos Metropolitan
District
Stores for areas outside Tokyo follow similar locational conditions as above.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on the Japan Real Estate Institutes Real Estate Investors Survey

53

Retail Property Market

Accessibility and density level of commercial facilities are the important factors in selecting
locations.
In evaluating a commercial district,
district the most heavily considered factor is its accessibility (i
(i.e.
e inter-district factors)
factors), followed by
quantitative aspects such as choice of items/services and number of shops/facilities within a district.
Intra-district factors are also regarded important (i.e. mobility between shops/facilities). On the other hand, exclusivity of a district is not
heavily considered (i.e. presence of shops/facilities exclusive to the location, lack of similar shops/facilities around home/work).
Important Factors in Selecting Commercial Districts by General Consumers (in Metropolitan Area)
0%

The most heavily


considered factor
Quantitative aspects of
shops/facilities are
considered important

Exclusivity of a district is
not heavily considered

20%

High accessibility

40%

60%

42%

Abundant
choice of items/services

80%

41%

22%

100%
12% 5%

49%

21%

7%

Ample shops/facilities

20%

48%

24%

9%

Wide variety of shops/facilities

19%

48%

24%

9%

High mobility
between shops/facilities

18%

Shops/facilities
Sh
/filiti
exclusive
l
i tto
th
the llocation
ti

16%

Bountiful resting spaces

45%

25%

14%

28%

42%

18%

32%

36%

14%

12%

Proximity from home/work

12%

33%

33%

23%

Lack of similar
shops/facilities around home/work

11%

35%

32%

23%

Presence of visitors from


various occupations and age groups

8%

High frequency of events

7%

High density
of companies 6%

High frequency of
realignment of shops/facilities 5%

n=41,273
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Very
important

30%

31%

26%

34%

24%
20%

31%
33%

33%
31%

Important

37%
44%

Slightly
important

Questionnaire name
Investigation about integrated area
PractitionerNRI
Period of timeJuly 2014
August2014

Not
important

54

Retail Property Market

Large scale development of commercial buildings will proceed mainly around Tokyo station.

Total store area of commercial buildings in metropolitanTokyo


(1,000m2

350

100%

300

80%

250
60%

200
150

40%

Totalarea(Existing)
Newstorerate

15%

20%

8%

7%

6%

Roppongi

AoyamaOmotesando

Nihon
nbashiYaesu
Kyobashi

SShinjuku(West)

Ginza

OtemachiMaruniouchi
Yu
urakucho

Shibuya

0%
SShinjuku(West)

Totalarea(Futureplan)

24%

100
50

36%

34%

0%

NB)
Total area(Existing) includes department stores and specialty stores. Data as of May 2014
Total area(Future plan) is calculated via following formula: Total area(Future plan) = Site area Floor area rate Commercial building rate Shop floor rate
Note that the above-calculation is based on a presupposition that floor area rate, commercial building rate and shop floor rate to be 700%, 20% and 60%, respectively.
SourceNRI based on the Sangyo-Times Commercial Facilities Schedule Guide, Toyo Keizai Shinposha National Supermarket Guide 2015
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

55

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

56

Logistics Property Market

The truck-based
truck based transport volume (in tons)
tons), which forms the bedrock of Japans
Japan s cargo
industry, has continued to decline in recent years.
Truck-based (automobile) transport is the primary transport method that constitutes a large share of Japans
Japan s freight traffic
traffic.
In recent years, the volume of cargo transported via automobile has declined due to the downturn in the quantity of trucks sold for
private use.
Cargo
Ca
go qua
quantity
t ty by transport
t a spo t method
et od ((FY2012)
0 )
Unit: 1 million tons

Coastwisevessels
366,8%

Domesticaviation
1,0%

Railways
42,1%

Automobile cargo
g q
quantity
y movement
1 million tons
7,000

Business

Personal

6 000
6,000
5,000
4,000
3,000
Motorvehicles
4,366,91%

2,000
,
1,000
0
'60 '65 '70 '75 '80 '85 '90 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13

NB: The chronological continuity of data from prior to 2009 could not be guaranteed due to the
changes made to the in tallying methodology in the middle of 2010.
Source: NRI based on the Ministry of Affairs Transport quantity by transport method and the Ministry of Land, Infrastructure, Transport and Tourisms Automobile Transport Statistics Survey
CopyrightC Nomura Research Institute, Ltd. All rights reserved.
57

Logistics Property Market

As the movement to smaller logistics lots progresses


progresses, the quantity distributed in such lots
appears to be in upward trend based on the number of instances.
As the movement to smaller logistics lots progresses across the whole industry
industry, the quantity distributed has increased to a yearly rate of
4.0% based on the number of reported instances.
The increased quantity of distribution in warehouses is remarkably high. This increase is propelled by the increase in distribution
quantity using small lots that are less than 0.1 tons.
Industry-wide (except warehousing) distribution quantity by lot size
(unit: number of instances)
Below0.1t
0

2000

0.10.5t
5,000

10,000

0.51t
15,000

15t
20,000

Above5t
25,000

(thousand
instances)

64.4%

Warehousing distribution quantity per lot size


(number of instances)
Below0.1t
0

2000

0.10.5t
500

69.2%

75.3%

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

1,500

Above5t
2,000

(thousand
i t
instances)
)

CAGR
7.3%

2005

59.2%

CAGR
3.7%

2010

1,000

15t

46.4%

CAGR
4.5%

2005

0.51t

CAGR
12.6%

2010
2010

72 4%
72.4%

Source: NRI based on the Ministry of Land, Infrastructure, Transport and Tourisms Logistics Census

58

Logistics Property Market

Small lot consignments increase


Small-lot
increase, due partly to the expansion of e-commerce
e commerce, which is
expected to continue growing hereafter.
Market size of Business-to-Consumer e-Commerce is expected to surpass 20 trillion yen in 2018
2018.
Market Size of Business-to-Consumer e-Commerce
trillion
yen
30
25.1
25

22.5
20.2

20

18.1
16.2
14.4

15
11.7
10

12 8
12.8

9.7

5
0
2012

2013

2014

2015

2016

2017

2018

2019

2020

NB: Business to-consumer e-commerce: sale of products and services to consumers in general via the Internet
Source: NRI

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

59

Logistics Property Market

While new supply has stopped dwindling


dwindling, facilities are growing larger due to businesses
consolidating their logistics capabilities.
The number of supplied warehouse buildings fell to roughly 23% of the peak level in 1991 (12,000 buildings/year) which has stabilized
in recent years
years.
The number of supplied warehouse buildings for the transport industry is dwindling at a more relaxed pace compared to the rest of the
industry (see figure below left), but the floor space per building is on an upward trend (below right).
This explains the increased need for SCM support for generic enterprises and new/large-scale logistics facilities for logistics
consolidation
consolidation.
Nationwide number of supplied warehouses
including warehouses for transport and transport industry share
Floor space per warehouse building
Transportindustry

Otherthantransport

Transportindustryshare

(Buildings)
60,000

50,000

25%

20%

2,000

Entireindustry

Otherthantransport

Transportindustry

1,500

40,000
15%
1,000

30,000
10%
20,000
10,000

0%
'88
'89
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13

0
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

500

0
'88
'89
'90
'91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13

5%

Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourisms Construction Statistics

60

Logistics Property Market

Development of logistics real estate


estate, which had been shrinking since the Lehman shock
shock, is
now back in full swing.

Order volume for construction of warehouses/logistics facilities by ordering industry


(1billionyen)
600

Realestateindustry

Transportindustry

Others

500
400
300
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note: Only contracts worth 5 billion yen above are included
Source: NRI based on Ministry of Land, Infrastructure, Transport and Tourisms Construction Order Trends, Statistics and Survey

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

61

Logistics Property Market

Vacancy rate in Tokyo area, which was on a rise, has diverted downwards.

Monthly rent offers and vacancy rates of logistics real estate


Tokyoarea

(yen/month/tsubo)
5,000

Osakaarea

Jul.2008

4,500

Rent offer

Jan.2015

Jul.2010

4,000

J ul.2008
ul 2008

Oct.2012

3,500

Jul.2010

Jan.2015
Oct.2012

3,000
0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

Vacancy rates
NB: Logistics facilities which have a total lot area or total floor area of 10,000m2
Source: NRI based on data from Ichigo Real Estate Information Services Survey on the Logistics Facilities Rental Market
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

62

Logistics Property Market

Cap rates have been falling since 2012, with Tokyo hitting all-time low.

Logistics real estate cap rate (expected yield)


Single tenant

Multi-tenant

7.5%

7.5%

7.0%

7.0%

6.5%

6.5%

6.0%

Chiba(inland)

6.0%

5.5%

Tokyo(inland)

5.5%

Chiba(inland)

Tokyo(inland)
Tokyo(bay)

Tokyo(bay)

Occt05
Ap
pr06
Occt06
Ap
pr07
Occt07
Ap
pr08
Occt08
Ap
pr09
Occt09
Ap
pr10
Occt10
Ap
pr11
Occt11
Ap
pr12
Occt12
Ap
pr13
Occt13
Ap
pr14
Occt14

Oct05
pr06
Ap
Oct06
Ap
pr07
Oct07
pr08
Ap
Oct08
Ap
pr09
Oct09
pr10
Ap
Oct10
Ap
pr11
Oct11
pr12
Ap
Oct12
Ap
pr13
Oct13
pr14
Ap
Oct14

5.0%

5.0%

NB: Single tenant: 2-3 floors; total floor area of around 10,000m2
NB: Multi-tenant: 3-4 floors; total floor area of around 50,000m2
Source: NRI based on Japan Real Estate Institutes Real Estate Investors Survey
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

63

Japan

Japanese Real Estate Investment Market

Population Movements in Japan

Macro Fundamentals of Japan

Overview of Real Estate Investment Market in Japan

Office Market

Residential Market

Retail Property Market

Logistics Property Market

Real Estate Investment Products

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

64

Real Estate Investment Instruments

An overall perspective of the Japanese real estate market


Unlisted open-ended private REITs was offered in November 2010, and the size of private REITs market is growing rapidly.

Overview of the Real Estate Investment Instruments in Japan


(tn)
20
15.1

16

14.4

12.7
12

4
0.9

04
0.4

0
ListedREIT

PrivateFund

PrivateREIT

Equity Type
Listed

CMBS

Debt Type
Unlisted

Close-Ended

RMBS

Open-ended

Residential
Mortgage

Commercial
Mortgage

NB: Listed REIT figure is updated as of end of Jan 2015, private fund figure is updated as of end of Dec 2014, unlisted REIT is an estimated figure as of end of Oct 2014,
RMBS/CMBS figure is updated as of end of Sept 2014.
Source: NRI based on the Association for Real Estate Securitization, Sumitomo Mitsui Trust Research Institute Co., Ltd., and the Japan Securities Dealers Association
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

65

Real Estate Investment Instruments

The J-REIT market capitalization has reached approximately


y 10 trillion yen.
y
The J-REIT market began trading on the stock market in Sept 2001 with 2 companies traded and a market capitalization of 2.5 trillion
yen.
As of the end of January 2015
2015, there are 49 companies traded worth approximately 10 trillion yen
yen.

J-REIT Market Capitalization and Number of J-REITs


(bn))
(b
12,000

(No.ofJREITs)
(N
f J REIT )
50

10,000

40

8,000
30
6,000
20
4,000

10

2,000

0
2001/9 2002/8 2003/7 2004/6 2005/5 2006/4 2007/3 2008/2 2009/1 2009/12 2010/11 2011/10 2012/9 2013/8 2014/7
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Market Capitalization

No. of JREITs

Source: Bloomberg

66

Real Estate Investment Instruments

Approximately 75% of J-REITs


J REITs assets are located in the Tokyo Metropolitan Area
Area, and
approximately 50% of J-REITs assets are office properties.
Approximately 75% of real estate owned by J-REITs is in the Tokyo Metropolitan Area
Area.
In recent years, J-REITs have become more diversified in type of property, and Healthcare REIT has started in November 2014.

Asset Mix of J-REITs byy Area and Asset Class

OtherAreas
7.9%
KinkiArea
13.1%
ChubuArea
4.2%

Approx.
12.7
trillion yen

Logistics
10.2%
5Central
Wardsof
Tokyo
37.8%

Others
3.8%

Hotel
3.3%

Retail
18.2%

Approx.
12.7
trillion yen

Office
47.4%

KantoArea
18.9%
23Wardsof
Tokyo
18.2%

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Greater Tokyo Area


74.9%

Residential
17.0%
%
* As of the end of January 2015
Source: NRI based on ARES

67

Real Estate Investment Instruments

The Tokyo
y Stock Exchange
g ((TSE)) REIT Indices have recovered from 2013.
The TSE REIT Indices has dropped sharply from its peak in May 2007, and has recovered rapidly from 2013.

TSE REIT Index, TOPIX, and the Listed Real Estate Industry Index
3,000

2,500

2,000

1,500

1,000

500

0
2003/3 2004/1 2004/11 2005/9 2006/7 2007/5 2008/3 2009/1 2009/11 2010/9 2011/7 2012/5 2013/3 2014/1 2014/11
TSEREIT Index
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

TOPIX

TOPIXRealEstate SectorIndex

Source: NRI based on Bloomberg

68

Real Estate Investment Instruments

J-REIT dividend yyields are currently


y down to around 3%.
J-REIT dividend yields rapidly increased to around 8%, but are currently down to around 3%.
J-REIT dividend yield and Japanese Government Bond 10-year yield
9.0%

8.0%

7.0%

6.0%

5.0%

4 0%
4.0%

3.0%

2 0%
2.0%

1.0%

0.0%
2002/1 2002/11 2003/9 2004/7 2005/5 2006/3 2007/1 2007/11 2008/9 2009/7 2010/5 2011/3 2012/1 2012/11 2013/9
Spread
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

JREITsDividendYield

JGB10YearYield
Source: NRI based on Bloomberg, TSE.

69

Real Estate Investment Instruments

The performance recovered to positive in the capital return.


According to the index based on actual performance of core funds invested in domestic real estate, the performance of real estate
investments in Japan recovered to positive in the capital return.

ARES Japan Property Index (AJPI) and ARES Japan Fund Index (AJFI)
25%

25%
AJPI:IncomeReturn

20%

AJFI:IncomeReturn

AJPI:TotalReturn
20%

15%

AJPI:CapitalReturn

15%

10%

AJFI: Capital Return


AJFI:Capital

10%

5%

5%

0%

0%

5%

5%

10%

10%

15%

15%

20%

20%

25%
2002/12

25%
2002/12

2004/8

2006/4

2007/12

2009/8

2011/4

2012/12

AJFI:TotalReturn

2004/8

2006/4

2007/12

2009/8

2011/4

2012/12

Source: NRI based on The Association for Real Estate Securitization (ARES) ARES Japan Property Index and ARES Japan Fund Index
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

70

Real Estate Investment Instruments

CMBS issuance has decreased drastically since 2008


2008, and at present only RMBS is issued
at a constant pace.
Most recently, about 80% of residential mortgage-backed securities were originated by the Japan Housing Finance Agency.

Asset Backed Securities Breakdown by Type of Backing and RMBS Breakdown by Originator
(100m)
60,000
0%

2004FY1H
2004FY2H
2005FY1H
2005FY2H
2006FY1H
2006FY2H
2007FY 1H
2007FY1H
2007FY2H
2008FY1H
2008FY2H
2009FY1H
2009FY2H
2010FY1H
2010FY2H
2011FY1H
2011FY 2H
2011FY2H
2012FY1H
2012FY2H
2013FY1H
2013FY2H
2014FY1H
HousingFinanceAgency

50,000

40,000
4,370

7,418

30,000
7,679
8,755

6,937

20,000

32,311

1,994

20%

10,338

40%

60%

Banks/TrustBanks

80%

RegionalBanks

100%

Nonbank

Others

563

30,260
2,038

10,000

3,511

980

20,955
14,815

16,935

16,276

12,143

9,702

341

1,701

16,352

11,113
7 537
7,537

1,288

413

8,491

140
153

138

15,064
11,132

8 341
8,341

10,742

11,148

9,741

10,760

0
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf 2ndHalf 1stHalf

RMBS

CMBS

CDO

Lease

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

ConsumerLoan

ShoppingCredit

Accountsreceivable/CommercialBills

Others

71

Japan

Japanese Real Estate Investment Market

China

Chinas market entering an adjustment period

Korea

Increase of liquidity
q
y within slow economic g
growth

Taiwan

Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak


India

Real Estate Market in India Residential, Office, etc.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

72

China

Chinas market entering an adjustment period

Macro Economy and Real Estate Investment

China's Real Estate Investment

Residential Market

Commercial Development and Office Market

Movements of Chinese Real Estate Developers

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

73

Chinas Macro Economy: Economic Growth

Chinas GDP overtook Japan in 2010.


Japan and Chinas nominal GDP
(bn USD)
12,000

10,000

8 000
8,000

6,000

4,000

2,000

0
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Source: IMF

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

74

Chinas Macro Economy: Economic Growth

Real GDP growth rate declined in 2007 and reached below 8% in 2012 and the following
years.
Changes in real GDP growth rate of China and sectoral contribution
16
14
12
10
8
6
4
2
0
-2
2
-4
Net
Exports

-6
00

01

02

03

Investment

04

05

06

Consumption

07

08

09

Real GDP Growth Rate


GDP

10

11

12

13

Source: The National Bureau of Statistics of China

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

75

Chinas Macro Economy: Economic Growth

GDP per capita of Beijing


Beijing, Tianjin
Tianjin, and Shanghai has reached the criteria set for highhigh
income nation, i.e. 12,616 USD.
GDP per capita (b
(by pro
province/municipality
ince/m nicipalit directl
directly under
nder the central go
government(2013)
ernment(2013)
(RMB)

120,000
100,000
High-income country: RMB 78,405

80,000
60,000

National average: RMB 41,908

40,000
20,000

Note: IMF definition of high-income country: GDP per capita USD 12,616 (about RMB 78,405 according to the rate on Friday, May 1, 2015)

Source: National Bureau of Statistics, China


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76

Chinas Macro Economy: Economic Growth

Tertiary industries has been growing with its contribution to GDP growth reaching approx
approx. 50% in 2014
2014.
This growth became the main factor for increasing real estate investment in urban areas.

Trends of Percentage of Tertiary Industryies Aaccounting for in GDP


(100 mil Yuan)

Source) National Bureau of Statistics of China


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77

Chinas Macro Economy: Economic Growth

Beijing has the highest percentage of tertiary industrial contribution


contribution, followed by Shanghai Xizang
Xizang,
Hainan, Tianjin, Guangdong, Guizhou and Zhejiang, all of which far exceed the national average.

Contribution of GDP from different industrial sectors by region in 2013

Source) National Bureau of Statistics of China


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78

Chinas Macro Economy: Population

The productive-age
g population is expected to peak out by
y 2015.

Prod cti e age population


Productive-age
pop lation of China and Japan
350
(1950=100)

Peak

300
250

China
Japan
p

200
150
100
50
0
50 55 60 65 70 75 80 85 90 95 00 05 10 15 20 25 30 35 40 45 50
1990's

2000's
Source: United Nations

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79

China's macro-economic environment: Demographic changes

When demographic dividend of China disappears in 2015, the country has to face increased financial
burden decrease of labor force
burden,
force, consumption slump
slump, etc due to decreased proportion of young
population and high population aging rate.
After 2015, when it is estimated China's demographic dividend disappears, the government has to face increased financial burden,
decrease of labor force
force, consumption slump and other problems due to declining birthrate and aging population
population.
As a countermeasure, the government announced a policy that aims to ease the one-child policy at the end of December 2013.
The one-child policy was implemented in China in 1979. To solve the problems of aging population and decrease in labor force, the
government announced an easing policy, two-child policy, which allows couples to have one more child if any one of them is the only
child in their parents family
family, at the end of December 2013
2013.
In 2014 and after announcement of the two-child policy by the central government, local governments of Beijing, Shanghai, and
Guangdong province announced detailed regulations to "allow couples to have one more child if any one of them is the only child in
their parents family" and started receiving applications for approval of birth of the second child.
It is believed the two-child policy will be implemented throughout China in the future
future.
Change in proportion of young population (<15)

Change in proportion of 65+ population

(%)

(%)

45.0

30.0

40.0

25.0

35.0

20.0

30.0

15 0
15.0
25.0

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2050

2045

2040

2035

2030

2025

2020

2015

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

2050

2045

2040

2035

2030

2025

2020

2015

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

0.0

1960

10.0

1955

5.0

1950

15.0

1950

10.0

20.0

Source: UN World Population Prospects: The 2012 Revision

80

Chinas Macro Economy: Population

Urbanization has proceeded rapidly in China


China, with its urban population ratio over 50% in 2013
2013.
It is expected that Chinas permanent urban residents will reach 60% of the population by 2020.
China
Chinas
s urbanization rate
rate* has risen by more than 26
26.8%
8% points during the past 22 years
years.
The National New-type Urbanization Plan (2014-2020) was issued by the State Council of China on 16th March 2014. The plan highlights
that it is essential to raise the quality of urbanization that comes in line with the Chinese approach to urbanization. The plan also
underlined that by 2020, permanent urban residents will reach approx. 63% of the population, while residents with city hukou will account
for approx. 45% of the total population, with 100 million rural residents settling down in the urban areas.
Population and urbanization rate in china
10,000 People

Note Urban population in 2020 is the target value stated in government policy
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: China Statistical Yearbook

81

China's macro-economic environment: Demographic changes

Urbanization is not only seen in coastal areas


areas, but also in Inner Mongolia
Mongolia, Hubei
Hubei, Chongqing
and other cities in hinterland and northeastern China.
Urbanization rate of China by area (2013)

100 0%
100.0%
90.0%
80.0%
70.0%
National average: 53.7%

60.0%
50.0%
40.0%
30 0%
30.0%
20.0%
10.0%

0.0%

Source: National Bureau of Statistics, China


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82

China's macro-economic environment: Housing conditions

Between 2002 and 2011


2011, the construction area of new houses in urban areas increased by 18%
annually, although decreased after 2011 when the real estate suppression policy was implemented.

Changes in construction area of new houses in urban areas

Changes in housing area per capita in urban areas

(100 million m2)

(m2 per capita)

16

50%

14

40%

12

30%

40

6%

35

5%

30
4%

25

10
20%

20

8
10%
6
0%

4
2
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Construction area of new houses in urban

areas

Growth rate

3%

15

2%

10

-10%

-20%

1%

0%
2002

2003

2004

2005

2006

2007

2008

Housing area per capita in


1
urban areas

2009

2010

2011

2012

2013

Growth rate

Source: National Bureau of Statistics, China

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83

Macroeconomic Environment in China: Consumption Trend

Average growth rate of disposable income per capita has maintained 11% for the last 16
years, with this indicating robust consumer spending.
Disposable Income per capita and Growth Rate in Urban Areas
(RMB)

Source) National Bureau of Statistics of China


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84

China's macro-economic environment: Consumption trend

Population of Intermediate Wealthy has been on a rise and approx


approx. 15% of their assets are
related to real estate investment.

In 2013
2013, the Population of Intermediate in China was 11
11.97
97 million
million, about 1% of the total population
population.

About 15% of the assets of the affluent population is related to real estate investment. This figure may increase in the future.
Changes of affluent population
(10,000 people)

Changes of asset structure of affluent population


(trillion RMB)

Note: Population of Intermediate Wealthy" is defined as people whose disposable assets are RMB 600,000 to 6 million (which is 11.77 ~117.774 million Yen
according to exchange rate as of Friday, May 1, 2015)
Source: 2014 China People Wealth White Paper (Hurun Research Institute)
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85

China's macro-economic environment: Consumption trend

More than half of the affluent population (especially whose in Pearl River Delta
Delta, Guangdong)
are willing to continue investment in real estate.

Investment targets of the population of intermediate


wealthy in China

Real estate investment willingness of the population of


intermediate wealthy by region

Note: Jing
Jing-jin
jin area: Beijing and Tianjin
Tianjin.
Yangtze River Delta: Shanghai, Jiangsu, and Zhejiang provinces.
Peal River Delta: Guangdong province.

Source: 2014 China People Wealth White Paper (Hurun Research Institute)

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86

China's macro-economic environment: Consumption trend

Salary income and transfer income are 64% and 24% of average household income per capita,
respectively Zhejiang and Yunnan show relatively higher property income (including real estate
respectively.
income).
Source of annual household income per capita of urban population (2013)
(RMB)

50,000

Salary
Income

45,000

Revenue
Business

40,000

Asset
Income

35,000

Transfer
Income

30 000
30,000
25,000
20,000
15 000
15,000
10,000
5,000

Note: Salary income: wage income. Business revenue: revenue from commercial buying and selling activities.
Asset income: revenue from moveables and real estate. Transfer income: income from severance pay, pension etc.
Source: National Bureau of Statistics, China
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87

China's macro-economic environment: Consumption trend

Total retail sales of consumer goods has increased by more than 4.5 times between 2001 and 2013,
and the average growth rate after 2008 reached 18%
18%, which stimulated the demand for construction of
commerical facilities.
Total Retail Sales of Consumer Good and Its Growth Rate

(100 mil Yuan)

Source: National Bureau of Statistics, China

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88

China

Chinas real estate market has entered an adjustment period

Macro Economy and Real Estate Investment

China's Real Estate Investment

Residential Market

Commercial Development and Office Market

Movements of Chinese Real Estate Developers

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89

China's Real Estate Investment

Urban fixed asset investment comprises approx


approx. 20% of the entire real estate investment
investment,
with its growth rate reaching approx. 20% since 2000.

Changes of Fixed Asset Investment and Real Estate


Investment in Urban Areas

Growth Rate Comparison of Fixed Asset Investment and Real


Estate Investment in Urban Areas

Source) National Bureau of Statistics of China

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90

China's Real Estate Investment

Ratio of real estate investment over urban fixed asset investments has scored over 50% in
Beijing followed by Hainan Zhejiang and Guangdong
Guangdong, which far exceed the national
average.
The Ratio of Real Estate Investment in Urban Fixed Asset Investment by Region in 2013
(100 mil Yuan)

National Average 20%

Source) National Bureau of Statistics of China


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91

China's Real Estate Investment

The most vibrant region for real estate investment is Eastern Area, accounting for half of the
total investment in China
China, while the Western Area started to be vibrant as well in recent
years.

Fixed Asset Investment and Real Estate Investment by Region


in 2013

Growth Rate of Proportion of Fixed Asset Investment


in Real Estate Investment by region

(100 mil Yuan)

26%
24%
22%
20%
18%
16%
14%

2012
2012

2013
2013

Eastern Area: Beijing, Tianjin, Shanghai, Hebei, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, Hainan
Middle Area: Shanxi, Anhui, Jiangxi, Henan, Hubei, Hunan
Western Area : Sichuan,
Sichuan Guizhou,
Guizhou Yunnan,
Yunnan Shanxi
Shanxi, GansuQinghai,
Gansu Qinghai Neimenggu,
Neimenggu Guangxi,
Guangxi Xizang,
Xizang Ningxia,
Ningxia Xinjiang
Xinjiang, Chongqing
Northeast : Heilongjiang, Jilin, Liaoning
Source) National Bureau of Statistics of China
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92

China's Real Estate Investment

Since the Housing Distribution System was abolished in 1998


1998, the volume of real estate
investment in urban areas has increased, rigorously stimulating the countrys GDP growth.

Change in Growth Rates of GDP and of Real Estate Investment

The
traditional
housing
The traditional housing
distribution
distribution system was
system was
abolished
abolished

Source) National Bureau of Statistics of China

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93

China's Real Estate Investment

Housing
g investment comprises approx. 70% of the entire real estate investment.

The Percentage of Housing/Commercial/Office


Ho sing/Commercial/Office In
Investments
estments in Real Estate In
Investment
estment

Source) National Bureau of Statistics of China


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

94

Land Market in China

Due to policies on restraining the real estate market


market, the land price once decreased in 2011
2011, followed by
a gradual rise afterwards, which is a significant cause of the upsurge in property prices.
Land is owned by Government in China although its management is lead by local governments
governments. As citizens are permitted to land rights
during a certain period, they can possess the ownership of buildings for a maximum of 70 years only if they purchase its land use rights
through local governments.
Except 2012 and 2013, immediately after the restraining policies being released, the residential and commercial land prices have been
showing similar trends, significantly exceeding the overall average.
Change in Land prices in urban areas of China
RMB/

Change in Land price appreciation rates in urban areas of China


%

Source :China urban land price monitoring data


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

95

Chinas Real Estate Finance Market

In most cases
cases, real estate investment projects in China are financed by Real Estate
Investment Trust through banks.
The current real estate finance market in China features of an extremely large primary market of housing loan but very small second
market. i.e. securitization market of mortgage loan that supports the primary market.
Although there are almost 200 listed real estate development companies, few of them are utilizing private real estate funds or REIT.
In 2010, the central government reviewed its policies on real estate market and limited direct financing from banks. As a result, real
estate investment trust and other tools became the main route for investment in real estate projects
projects.
Investment structure of Real estate finance in China

Investor
(Individuals,
companies,
investment
organizations
etc.)

Banks/insurance
companies
Asset
management
products

Open market
(stock exchange etc

Real Estate
Investment Trust
Private real estate
funds
Other tools

Main
Few
Very few

Real estate
development
project

(Finance lease etc.)

Listed
Li
d reall estate
companies
Stocks and bonds
products
Securitized

Few
Trial

(ABN, REITS etc.)

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96

China's Real Estate Investment

The scale of Real estate investment trust in China reached RMB 1


1.3
3 billion at the end of
2014.
The proportion of investments in real estate trusts among all trusts in China reached the peak in 2011 and maintained at about 10%
after 2013.
Changes in the scale of Real estate finance in China (2010~2014)
(100 million RMB)

Scale of investment in real


estate trusts
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Proportion of investments in real estate trusts among all trusts


Source: China Trustee Association/CEIC Database

97

Chinas Real Estate Finance Market

By the end of 2013,


2013 the scale of private real estate funds in China was estimated to be RMB 25~30
million and the investment areas expanded from housing to comprehensive commercial development.
Overseas private real estate funds basically focus on equity investment
investment, but their counterparts in China focus on debt investment in
real estate companies.
Since private real estate funds in China are still in the start-up stage, in most cases they would identify investment target projects first
and then recruit funds for potential LP.
In details
details, private real estate funds are involved in land acquisition and then they work with real estate companies and establish SPC
(project development companies). After selling of at least 80% of the real estate products, real estate development companies repurchase stock and the fund is withdrawn. This kind of fund operation is unique and can only be seen in China.
Scale and number of private real estate fundsRMB

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Main investment fields of private real estate fundsRMB

Source: Made by NRI based on 2013 private real estate funds(RMB) annual reporthinaVenture

98

Chinas Real Estate Finance Market

The first equity REITs was listed in May 2014


2014. Since it was limited to a few institutional
investors, it had many problems in liquidity, fairness and openness.
In May 2014
2014, China Securities Regulatory Commission (CSRC) approved a sale that was equivalent to RMB 5
5.2
2 billion REIT products
by CITICS, the largest securities company in China. The sale was targeted to qualified institutional investors for blocking trading mainly
in Shenzhen Stock Exchange. Investors can obtain dividends from the lease income of two buildings (in Beijing and Shenzhen) owned
by CITICS. This was the first equity REITs in China.
On September 30, 2014, the central bank and CBRC issued a "Notice for Promoting Housing Finance Service", which aimed to promote
REITs in China. In details, the policy aimed to expand market financing tools and support issuance of debt financing products by real
estate companies satisfying certain conditions.
In 2015, although there are products that are similar to REITS, they have problems in liquidity, fairness, and openness.
The first equity REITs in China

Special
Special asset
asset management
management
Share of fund
Share of fund
Owner
Owner

Private
Privatefund
fund

Fund management
Fund management

Project company 1
Project company 1
Building
Building

Project company 2
Project company 2

Beijing CITIC Securities Building


Shenzhen CITIC Securities Building
Beijing CITIC Securities Building
Shenzhen CITIC Securities Building

Value of Assets

Expected Growth of
rental income in the
following 5 years

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Low-risk
Low-risk
oriented
oriented
investors
investors
Senior debt
Senior debt
High-risk
High-risk
oriented
oriented
plan
investors
plan
investors
Inferior
Inferior
creditors
creditors
claim
claim

Expected Growth in
selling income in the
following 5 years

3.511 Billion
RMB

1.527 Billion
RMB

4%-6%Year

3%-5%
Year

8%-11%
Year

5%-8%
Year

Source: Made by NRI Based on Qi Hang Special Assets Management Plan of CITIC

99

China

Chinas real estate market has entered an adjustment period

Macro Economy and Real Estate Investment

China's Real Estate Investment

Residential Market

Commercial Development and Office Market

Movements of Chinese Real Estate Developers

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100

China's Residential Market

China s urban housing can be classified into commercial


Chinas
commercial residence
residence and low
low income
housing with the former accounting for approx. 90% of the supply.
Holiday
y house ((Detached))
Commercial residence
e
(for the middle and
high-income class)

Luxury
commercial
residence

Holiday house (Town house)


Luxury condominium

Ordinary
commercial
residence

Urban
housing

Low income housing


(for the lowincome class)

Public
P
bli rental
t l
housing
Houses that can be freely resold
Houses that can be resold with
conditions

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Ordinary condominium

Affordable
housing
Price-limited
housing

Low price
public housing

Sold at
market
prices
p

Construction size is smaller


than ordinary condominiums
Installation requirements
of common areas as well
as the buildings finishing
standards are also slightly
lower.

Sold at
preferential
prices

Leased at
Preferential
prices

101

Housing Policy in China

Low income housing consists of a)resalable Affordable


Low-income
Affordable and Price-limited
Price limited housings,
housings and
b)unresalable Public rental and Low price public housings.
Affordable
Affordable and Price-limited
Price-limited housings can be resold only in cases where conditions set on the resale of each housing types are met
met.
Overview of low-income housing
Classification

Description

Affordable housing

In order to achieve an affordable price, Government provides developers with


various preferential treatments such as providing land at preferential price,
diminishing their tax, contribution for urban infrastructures development and
various administrative business expenses.
Sizes are strictly controlled; e.g. medium-sized: around 80 , small-sized:
around
d 60 .

Families with the right to purchase are those with a household register as well
as with income of 60,000 Yuan or less.

Price-limited
housing

Used as one of the Government s measures to control real estate


development market and to adjust the housing supply for a certain period.
State-owned companies take responsibility in its construction.
Its selling prices are determined by the government and are usually 2025%
lower than commercial residences.

Public rental
housing

L
Leased
db
by G
Governmentt or institutions
i tit ti
i itits commission
in
i i to
t low
l
and
d middleiddl
income families at market prices
Government provides a certain amount of housing allowance to its occupant
families every month.

Low price public


housing

Leased to low-income
low income families at the lowest lease price determined by
Government.
Provided sizes: 35 for 1LDKs, 45 for 2LDKs, and 55 for 3LDKs.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Resalable or not

Houses are resalable but only after five


years have passed since the purchase.
Purchaser possesses its limited
ownership.

Houses cannot be resold and only can


be leased.
Occupant does not possess its
ownership
ownership.

102

Housing Policy in China

Affordable housings can be provided at drastically cheaper price than ordinary commercial
housings as the price is set according to costs.
It should be noted that affordable housing is sold under Allocated
Allocated land usage rights
rights, which does not require the payment of land grant
charges to the government, and that the percentage of profit allocated to developers from its development is politically controlled under
3% or less.
Comparison of price structure between ordinary commercial housing and affordable housing
Ordinary commercial
housing

Affordable housing

Eviction/compensation costs

Planning/designing costs

Construction costs
for infrastructure within the housing

Construction work costs


for buildings and equipment

SG&A

T
Tax

Unlimited

3% or less

Land grant usage rights

Allocated land usage


rights

Cost structure item

Profit
Land grant charge
Land right type
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103

Chinas Residential Market

Due to urbanization
urbanization, the housing demand in urban areas is hovering at a high level
level,
resulting in an increasing trend over the supply of commercial residences.
Supply of commercial residences slowed down at times due to policy adjustments and fiscal tightening
tightening, although the volume of both
housing demand and construction area have been on the rise during recent 12 years.
The area of commercial residences completion in China
(10,000 )

Source: China Statistical Yearbook


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104

Chinas Residential Market

7.64
7
64 million commercial units are supplied annually in Chinas
China s urban areas
areas, with this being
30 times larger than the number of houses built annually for sale in Japan.
The number of newly completed commercial residences in China in 2013 was 7.49
7 49 million; approx
approx. 3 times larger than that of 12 years
ago (2.14 million in 2000) and 30.9 times larger than the supply of houses built for sale in Japan( 2.47 million) in 2013.
Typical commercial houses have a layout of 2LDK or 3LDK with a completion area of approx. 110 m2.
The number of commercial residence completions and its average completion area
(10,000 House)

( per house

Source: China Statistical Yearbook


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105

Residential Market in China

Approx. 90% of commercial housing is general residential property while the investment
Approx
towards the Affordable housings for low and middle income class is in extremely short supply.
Changes of the Ratio of Housing
Ho sing In
Investment
estment b
by ttypes
pes
100%

80%

60%

40%

20%

0%
98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

13

Note: Since numbers related to affordable housing after 2010 is not provided in the China Statistical Yearbook, the data
here was calculated from selling price and actual construction household

Source) National Bureau of Statistics of China


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106

Housing market in China

To improve housing conditions of low-income


low income population
population, the government accelerated
provision of affordable housing in 2011.
In its 12th five-year planning
planning, the Chinese government plans to build 36 million new and affordable houses
houses. The purpose is to accelerate
provision of public housing. The government aims to build more low-rent houses and economically affordable houses for low-income
population and increase supply of low-cost housing.
According to public data of China Index Research Institute, 60% (20.47 million) of 32 million affordable houses have been completed by
September 2014. Quite an accomplishment within such a short period of time.
Construction plan and completion of affordable housing (2011~2014)
(10,000 houses)

Source: China Index Research


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107

Housing Market in China

Approx. 30% off the


A
th entire
ti housing
h
i supply
l iis concentrated
t t d iin Ch
Chongqing,
i
Ti
Tianjin,
ji Sh
Shenyang, Sh
Shanghai,
h i Ch
Chengdu
d and
d
Beijing. The growth of second-tier cities such as Xian, Nanjing and Qingdao is also attracting attention.

Comparison of Spaces of Completed Residential Properties among Major Cities


10 thousand

Source) National Bureau of Statistics of China


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108

China's Residential Market

Selling price of homes has risen by 2


2.9
9 times during the last 12 years
years, with this trend being
especially evident among luxury properties.
Selling price of commercial residences in China
/

*Since sales prices of the economical housing for low-and-middle income earners in 2011 were not reported in
China Statistical Yearbook 2012, the data here was calculated on the basis of data in 2010 by 110% growth rate.
Source) National Bureau of Statistics of China
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109

Housing Market in China

Sale price of residential properties has been rising at growth rate more than 40% in the last
5 years with the second-tier cities demonstrating this tendency
Sale Price of Commercial Housing in Major Cities (Comparison between 2008 and 2013)
/

Source) National Bureau of Statistics of China


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110

China's Residential Market

Housing price to income ratio is 12 times larger in coastal metropolis


metropolis, such as Shenzhen
Shenzhen,
Hangzhou and Shanghai, significantly exceeding the national average.
Housing price to income ratio has risen by 6 to 8 times compared to 11 years ago
ago,
Ratio in metropolises has risen significantly, with Shenzhen seeing a rise from 5.8 times to 12.9 times.
The housing selling prices to income ratio
(Times)

Source: Statistical material by the Ministry of Land and Resources and the National Bureau of Statistics
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111

House supply policy of China

Although the policy implemented by the government in 2009 had some effects in reducing housing
price it caused increase of stock of houses and deterioration of the overall market conditions
price,
conditions. This is
why the government implemented easing policy in 2014.
Monetary easing policies implemented after the Lehman shock resulted in skyrocketing housing price in Beijing, Shanghai, and other
major cities in China
China. As a countermeasure
countermeasure, the Chinese government implemented a series of policies that made it more difficult for
acquisition of houses after October 2009.
However, since such policies resulted in increase of stock of houses and deterioration of the overall market conditions, the government
had to cancel the housing restriction policies implemented in 43 cities (but not including Beijing, Shanghai, Shenzhen, and Sanya).
Monthly sales area of commercial housing compared with the previous year (after 2007)

(%)

October 2009
Implementation of housing price
suppression policies
Abolishment of tax incentives (real estate
transaction tax and personal income tax)
Implementation of differentiated housing
loan policy
End of 2008
Economic recovery
through reduction of
interest rates and
exemption of real estate
acquisition tax etc.

March ~ April 2010


Purchase of house was limited in 48 cities.
Higher down payment/interest of loan for the
second house.
Restriction of banking loan to developers

January 2011
Further increase of down
payment/interest of loan for the
second house.
Trial introduction of property tax
for the third house in Shanghai
and Chongqing.
Increase of house supply
through provision of affordable
houses.

Easing
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Restriction

September 2014
Decrease of down
payment/interest of loan
for the second house by
the central bank.
Policy for limiting house
purchase was abolished
in most cities.
Promoted expansion of
financing route and
supported banks and
other financial institutions
to issue housing bonds
and REITS.

Easing
Source: National Bureau of Statistics, China

112

Government Housing Policy in China

Excessive housing stock became a significant problem due to real estate suppression policy. In
September 2014
2014, the government announced a real estate easing policy
policy, and housing price plummeted
in many cities.
Since the issuing of the regulatory plan
plan, the property developers were lead to cut the housing prices to encourage sales and increasing
number of cities witnessed a decline of housing prices since September 2011. This demonstrates that the governments restrictions
have been effective in bringing down housing prices.
However, housing prices began to rise in more than 90% of the major cities in 2013. The growth rate is more than 20% in the four major
cities, Beijing, Shanghai, Guangzhou and Shenzhen, with the rate being highest in the history. There lies an acute risk of bubbles.
After the government announced a real estate easing policy that encourages but not limits housing purchase, more and more cities
experienced declination of housing price and worried about how to "digest" the existing housing stock.
The change of cities' number with the housing prices deviation at the link relative ratio in the 70 major cities of China 2011-2015

Source) National Bureau of Statistics of China


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

113

Prospects of China's housing market

Unlike the past,


past the housing market in China in 2015 will be "consumer
consumer centered"
centered instead of "developer
developer
centered", and the main stream will be provision of houses that can satisfy consumers' rigid demand.
Directions of China's housing
g market in 2015

Change from "investment"


investment to "rigid
rigid
demand"
For increase of house sale

Affordable houses with high quality


and habitability

Higher demand for better house that


satisfy needs in higher life stage

Aging population and two-child policy


result in further segmentation and
di
diversification
ifi ti
off house
h
supply
l
market

3Release of house purchase limit in tier

1 and 2 cities
Excessive house supply in tier 3 and 4
cities

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Unlike tier 1 cities where land supply


is limited and tier 3 and 4 cities with
high stock of houses, tier 2 cities will
become the main fighting field of
h
housing
i market.
k t
114

China

Chinas real estate market has entered an adjustment period

Macro Economy and Real Estate Investment

China's Real Estate Investment

Residential Market

Commercial Development and Office Market

Movements of Chinese Real Estate Developers

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

115

China's Commercial Development Market

Commercial development boom in large cities has started since 2008 and the supply of
commercial facilities has dramatically increased.
Change In Nationwide Commercial facilities Supply
10 thousand

Source) National Bureau of Statistics of China


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

116

China's Commercial Development Market

Investment for commercial development has been rapidly growing at an annual rate of 26% on
average since 2000. The volume of investment in 2013 was 20 times larger than that of 2000.
Change in Investment
In estment Amount
Amo nt and Growth
Gro th Rate of Commercial Facilities
(100 mil Yuan)

Source) National Bureau of Statistics of China


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

117

China's Commercial Development Market

Average unit sales price of offices in 2013 has risen by 3 times of that in 1998
1998, and about 40% of the
sales volume are concentrated in the eastern part of China, where it is economically developed.
Changes iin S
Ch
Sales
l S
Spaces/Unit
/U it S
Sales
l P
Price
i off
Commercial Facilities in China
10 thousand

Changes iin S
Ch
Sales
l S
Spaces/Unit
/U it S
Sales
l P
Price
i off
Commercial Facilities by Region (2012
RMB/

10 thousand

RMB/

Eastern Area: Beijing, Tianjin, Shanghai, Hebei, Jiangsu,


Zhejiang, Fujian, Shandong, Guangdong, Hainan
Middle Area: Shanxi, Anhui, Jiangxi, Henan, Hubei, Hunan
Western Area : Sichuan, Guizhou, Yunnan, Shanxi, Gansu
Qinghai, Neimenggu, Guangxi, Xizang, Ningxia, Xinjiang, Chongqing
Northeast : Heilongjiang, Jilin, Liaoning

Source: China Statistical Yearbook


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

118

Chinas Commercial Development Market

Commercial development in developing areas such as Henan


Henan, Guizhou,
Guizhou Xizang,
Xizang Xinjiang
Xinjiang,
Liaoning etc has been especially buoyant in the last 3 years.
Comparison of Sales Spaces of Commercial Facilities by Region
10 thousand

Source: China Statistical Yearbook


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

119

China's Office Market

Office supply in urban areas in China has experienced a downturn after the failure of
Lehman Brothers in 2008, however, a growing trend continues as a whole.
Change in Nation
Nationwide
ide Office S
Supply
ppl
10 thousand

Source: China Statistical Yearbook


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

120

China's Office Market

Investment towards office development has been expanding at an annual growth rate of
more than 18% on average in the last 14 years.

Changes in Investment Amount/ Growth Rate of Office Development


10 mil Yuan

Source: China Statistical Yearbook


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

121

Chinas Office Market

Average unit sales price of offices have doubled between 1998 and 2013
2013, with more than 60% of the
office sales concentrating in the eastern part of China where economy is rapidly developing.

Changes in Sales Spaces/Unit Sales Price of Offices


in China
10 thousand

Sales Spaces/Unit Sales Price of Offices by Area (2013)


RMB/

10 thousand

RMB/

Eastern Area: Beijing, Tianjin, Shanghai, Hebei, Jiangsu,


Zhejiang, Fujian, Shandong, Guangdong, Hainan
Middle Area: Shanxi, Anhui, Jiangxi, Henan, Hubei, Hunan
Western Area : Sichuan,, Guizhou,, Yunnan,, Shanxi,, Gansu
Qinghai, Neimenggu, Guangxi, Xizang, Ningxia, Xinjiang, Chongqing
Northeast : Heilongjiang, Jilin, Liaoning
Source: China Statistical Yearbook
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

122

Chinas Office Market

Approx. 30% of office sales in 2013 was concentrated in Yangtze River Delta Area (Shanghai
Approx
(Shanghai, Jiangsu
and Zhejiang). Office sales in regions such as Heilongjiang and Guizhou have dramatically increased.

Comparison of Office Sales Spaces by Region


10 thousand

Source: China Statistical Yearbook


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

123

China's Office Market

Demand for offices in central Beijing has been increasing in the last 2 years
years.
This has created low vacancy rate, and accordingly, the office rent has risen.
Map of Central Beijing

Changes in Office Rent in Each District of Central Beijing


RMB//Month

Office Stock in Central Beijing


j g as of Dec 2014
10 thousand

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Rent/Vacancy Rate of Offices in Central Beijing of Sep


Sep-Dec
Dec 2014
RMB//Month

Source) Made by NRI based on the published data of DTZ (Debenham, Tewson & Chinnocks)

124

China's Office Market

Vacancy rate is low in 3 districts of Shanghai


Shanghai, Jingan,
Jingan Huangpu and Puding where the highhigh
rise office buildings are concentrated and the rent is high.
Map of Central Shanghai

Changes in Office Rent in Each District of Central Shanghai


RMB//Month

Office Stock in Central Shanghai


g
as of September
p
2013

Rent/Vacancy Rate of Offices in Central Shanghai of Sep


Sep-Dec
Dec 2014

RMB//Month

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source) Made by NRI based on the published data of DTZ

125

Commercial property market in China: Trend of large-scale comprehensive development

Large-scale
Large
scale and comprehensive development of commercial properties was seen in many cities in
China in recent years, particularly in tier 2 and inland cities. There is a risk of excessive construction.
In recent years
years, there was a fast development of "urban
urban complex"
complex , which is a large-scale commercial building that includes houses
houses,
stores, offices, hotels, and entertainment facilities, in many cities in China. Chengdu, Shenyang, and Chongqing are top three cities in
terms of existing and future development volume.

Development
D
l
t off urban
b complexes
l
iin major
j cities
iti iin Chi
China
(as of end of 2013)

Note: The label number is the number of urban complexes.


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Development
D
l
t off urban
b complexes
l
iin major
j cities
iti iin Chi
China
(Estimated development volume from 2014 to 2016)

Source: Public information of Qianzhan Industry Research Institute.

126

Prospects of commercial real estate market in China

In 2015
2015, there will be higher needs for high-quality
high quality and efficient commercial facilities
facilities,
including E-business, which goes beyond comprehensive and large-scale complexes.
Directions of China's real estate market in 2015

1
Urbanization
U
b i ti and
d development
d
l
t off the
th third
thi d industry
i d t
result in higher needs for improved urban service
functions

Instead of traditional commercial facilities, highefficiency, high-quality commercial facilities are


highly needed.

2
Higher influence of E-business on consumers

Higher risk of development of large-scale


commercial facilities due to high vacancy rate
and difficulties in attracting tenants

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Higher needs for change of business category and


introduction of E-business in commercial facilities
due to the increasing popularity of Internet
shopping

Higher needs for medium-scale street-type


commercial facilities (but not large-scale ones)

127

China

Chinas real estate market has entered an adjustment period

Macro Economy and Real Estate Investment

China's Real Estate Investment

Residential Market

Commercial Development and Office Market

Movements of Chinese Real Estate Developers

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

128

Movements of Chinese Real Estate Developers

Despite of the housing suppression policy


policy, top 10 players in housing development in tier 1
and 2, and even tier 3 and 4 cities grew significantly and are enjoying higher market share.
Comparison of Developers Top 10(20102014
2010

Rank
1

2011
2012
2013
2014
Total Sales
Total Sales
Total Sales
Total Sales
Total Sales
Company Name
(100 mil Company Name
(100 mil Company Name
(100 mil
Company Name
(100 mil Company Name
(100 mil
Yuan)
Yuan)
Yuan)
Yuan)
Yuan)
Vanke Group
1,026
Vanke Group
1,215
Vanke Group
1,452
Vanke Group
1,776
Vanke Group
2,120

Poly Group

660

Dalian Wanda
Group

953

Poly Group

1020

Shanghai Greenland
Group

1,625

Shanghai
Greenland Group

2,080

Shanghai
Greenland Group

650

Evergrande Group

804

Shanghai
Greenland Group

1013

Poly Group

1,251

Dalian
Wanda Group

1,501

China Overseas
Land

578

Shanghai
Greenland Group

770

China Overseas
Land

945

China Overseas
Land

1,103

Evergrande Group

1,376

Evergrande Group

527

Poly Group

732

Dalian Wanda
Group

938 Evergrande Group

1,073

Poly Group

1,362

China Greentown

522

China Overseas
Land

708 Evergrande Group

925

1,068

Country Garden

1,250

Dalian Wanda
Group

369

Country Garden

432 China Greentown

547Dalian Wanda Group

844

China Overseas
Land

1,152

Longfor Group

336

Longfor Group

383

Crland China

505

Crland China

688

Shimao Property
Holdings

708

Country Garden

330

China Greentown

353

Country Garden

491

Shimao Property
Holdings

683

Crland China

700

10

R&F Properties

321

Crland China

330

Shimao Property
Holdings

461 China Greentown

660

Sunac China

658

Total Sales of
Developers Top 10
The Percentage of
Developers Top 10
Forge Ahead
Cities
Average of
Developers Top 10

Country Garden

5,319

6,680

8,297

10,771

12,907

10.1%

11.3%

12.9%

13.3%

16.9%

30.6Cites

40.5Cities

53.1Cites

67.2Cites

73.7Cites

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source) Made on the data of Each companys Homepage

129

Movements of Chinese Real Estate Developers

Most major real estate developers in China have switched from house development to commercial
complex development and are conducting diversified businesses in silver industry, culture, tourism etc.

Vanke
(No.1)

2011: Commercial development and house development for the silver population.
2013: The "80% residential + 20% commercial" strategy. Entry in overseas real estate markets in the US, Hong Kong, Singapore, etc.
2014: Started "real estate + network" business through cooperation with information service providers.

Real estate developers aimed to become urban service providers and implemented "asset-light" strategy.

2012: Started business in overseas real estate market.

Green Land
(No.2)

2013: Expanded commercial property business. The target was "more than 50% commercial property by 2015".
2014: Started subway business.
2015:Accelerated business activities in overseas markets (including Japan).

Wanda
(No.3)

Hengda
(No 4)
(No.4)

Poly
(No.5)
(No 5)

2007: Established Wanda Department Store. The target was to "open 110 stores and become the largest department store chain in
China by 2015".
2009: Culture and tourism industry was positioned as the next major business area.
2011: Established a film-making company.
2014: Introduced E-business in operation of commercial facilities.
2015: New policy: "35% real estate business and 65% service business by 2020"
2020". Also
Also, the company aimed to make the proportion
of overseas business to be higher than 20% by 2020.

2010: Started commercial property business.


2013: Started consumer goods businesses such as mineral water, cooking oil, and diary products.
2014: Started retail business such as department store and super market
market.
2015: Started financing business.

2011: Started resort development and house development for the silver population.
gy
2012: "70% residential and 30% commercial" strategy.
2014: Expanded overseas real estate investment and promoted silver, tourism, and commercial property businesses.

Note: Numbers in parentheses are sales ranking of real estate companies in 2014.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

130

Movements of Chinese Real Estate Developers: Overseas investment

Real estate is the third popular overseas business for Chinese companies
companies. Other two are
energy and mining businesses.
Looking at large-scale overseas investment projects (USD 100 million above) of Chinese companies from 2005 to 2013
2013, it is able to see
that 12.3% (67) of 545 projects were related to real estate development. The figure was 30.1% for energy and 22.8% for mining
industry.
Although insurance companies, commercial banks, and investment funds were also investing in overseas real estate. Major Chinese
real estate developers are main players.
Most Chinese investors focus on overseas commercial properties, but not residential properties.
Overseas real estate investment of Chinese companies
(2003-2013)

Overseas investment of Chinas real estate companies


(2003-2013)

Source: NRI analysis of open information.


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

131

Movements of Chinese Real Estate Developers: Overseas investment

Major Chinese Real Estate Developers started overseas investment in 2012


2012. Popular destinations are
North America and Europe where markets are mature and legal environment is well established.
In 2012
2012, major Chinese Real Estate Developers such as Vanke,
Vanke Green Land
Land, Wand
Wand, and Poly started investment in overseas real
estate markets.
Popular destination of overseas investment are North America and Europe where markets are mature and legal environment is well
established. In Asia, popular destination of investment are Taiwan, Singapore, Korea, and Japan recently.
O
Overseas
businesses
b i
off major
j Chi
Chinese reall estate
t t companies
i ((partial
ti l d
data)
t )
Overseas investment area
New York (US)
North
America

Europe

Asia

Others

San Francisco (US)

Chinese real estate


developers
SOHO, Xinyuan,
Wantong, Wanda

Toronto (Canada)

Vanke, Green Land


Vanke, Poly, Wangtong,
Green Land, Zhongkun
Green Land

France

Shouchuang, Green Land

Frankfurt (Germany)

Green Land

Los Angeles (US)

Iceland

Zhongkun

London (UK)

Wanda, COHL

Taiwan

Vanke, Wantong

Singapore

Vanke, Huashan

Malaysia

Country Garden

Jeju Island (Korea)


Tokyo (Japan)
Sri Lanka
Barcelona (Spain)

Green Land, Guangyao


Fuxing
AVIC
Green Land

Madrid (Spain)

Green Land

North Caucasus

Wanda,, Fanhai Lianhe

North Africa
Sydney (Australia)

Poly
Green Land, Yihe

Source: NRI analysis of open information.


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

132

Movements of Chinese Real Estate Developers

Future prospects of Chinese Real Estate Developers


Future p
prospects
p
of Chinese Real Estate Developers
p

1
Reduction of profit rate of real estate
business
Increased investment risk

Rapid growth in real estate business


requires business review for strengthening
expertise etc.

Rapid growth in non-real estate businesses


results in model change
g for diversified
business operation

Cross-industry cooperation and intercompany acquisition

Higher pressure in return of fund of existing


businesses

Discovery of new revenue/business


models (asset-light)

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

133

Japan

Japanese Real Estate Investment Market

China

Chinas market entering an adjustment period

Korea

Increase of liquidity
q
y within slow economic g
growth

Taiwan

Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak


India

Real Estate Market in India Residential, Office, etc.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

134

Korea

Increase of liquidity within slow economic growth

Business trends and Office Market Trends


1-1

Business Trends

1-2

Office Market Trend

Household Economyy and Housing


g market trends

Hotel Market trends

Indirect Investment Market Trends

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

135

Business trends

Slow economic growth is expected to linger in Korea


Korea. Economic growth rate of Korea is
estimated as 3%.
The trend and forecast of GDP and economic growth rate in Korea
GDP CAGR in 90s

GDP CAGR in 00s

expected GDP CAGR after 2011

6.2%

4.2%

3.5%

(unit: trillion KRW)


1,600
1,400
1 200
1,200
1,000

10.7

9.7

8.8 8.9
5.8 6.3

(%)
16.0

12.0
8.8

7.2

7.2
5.8
4.0

800

4.6
2.8

4.0

8.0

6.3

5.2 5.1

3.7
2.3

2.0

2.8

3.7 3.3 3.8 3.7 3.7 3.7

4.0

0.3

600

0.0

400
200

-4.0
40

-5.7
57

-8.0

0
'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Gross Domestic Products
d
(Reall GDP)

Reall GDP Growth


h Rate

(OECD)

Economic Growth(OECD)

Source: NRI based on IMF, OECD, The Bank of Korea, Media Research
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

136

Business trends

Total industry revenue in Korea is 2


2,290
290 trillion KRW
KRW, with manufacturing industry
comprising 55% of the total. Growth rate in all industries have been slowing down.
T t l domestic
Total
d
ti iindustry
d t sales
l (11-13)
(11 13)
(unit: trillion KRW, %)

Non-manufacturing
manufacturing

All

2,262

Manu- Non-manufacturing facturing

2,290

2 103
2,103
1,849
1,600
737
(46%)

864
(54%)

2009

814
(44%)

1,036
(56%)

2010

907
(43%)

1,196
1
196
(57%)

2011

983
(43%)

1 279
1,279
(57%)

2012

0913

9%

10%

9%

1113

4%

3%

7%

1213

1%

-2%

5%

1,030
(45%)

1,260
1
260
(55%)

2013
Source: NRI based on National Statistical Office(KOSTAT)

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

137

Business trends

Sales of Electronic components and communication equipment comprises 26% of total


manufacturing industry revenue.
Sales of Domestic Manufacturing Industries (11-13)
( 11 13)
(unit: trillion KRW, %)

CAGR(11-13)
11%

5%

2011

2012

2%

-5%

-8%

-2%

19%

11%

6%

-4%

0%

11%
-4%

2%

3%

8%

8%

19%

-13%

-17%

Total sales of Domestic Manufacturing Industries(Average)


CAGR(11-13):+3%

2013

325.8

26%
22%
190.6
156.4

150.2
115.0
76.1
48.8

Electronic
components
and
communicatio
n equipment

Car

Chemical Refined
products petroleum
products

Other
Food
Primary Transportat
ion
metal
products
equipment

37.1

Electrical
equipment

33.2

20.3

Other
Nonmetalli
machine
c mineral
and
products
equipment

19.7

Clothing

17.5

Rubber,
Plastic
products

13.6

Metal
goods

11.8

Medicine

11.6

Paper
products

8.8

Beverage

5.2

Textile
goods

3.9
Medical
precision
optical
instrument

3.7

Leather,
bag and
shoes

2.5

Furniture

Source: NRI based on National Statistical Office(KOSTAT)


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

138

Business trends

Sales of Distribution industry is 317 trillion KRW


KRW, comprising 30% of total sales of nonnon
manufacturing industry.
Sales of Domestic non-manufacturing
non manufacturing industries ((11-13)
11 13)
(unit: trillion KRW, %)

CAGR(11-13)
4%

2011

11%

2012

12%

3%

7%

3%

12%

2%

15%
-2%

8%

20%

19%
2%

-5%

Total sales of Domestic Non-manufacturing Industries(Average)


CAGR(11-13):+6.5%

2013

316.7

161.8
146.1
107.1

101 8
101.8
76.7
41.5
22.0

Wholesale
El t i it
Electricity,
and retail
gas, and
Construction
(distribution
steam supply
industry)

Transpor
-tation

Publishing,
b d
broadcast/
t/
Real estate
Communicaand leasing
tion and
service
information
service

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Expert,
technique
and service

Business
support
service

21.1

18.9

4.8

3.4

Sewerage,
t and
d
waste,
Leisure and Accommodat
Educational environment
related
ion and food
al restoration
service
service
service
service

1.7

Fishery

1.7

Mining
industry

1.3

Agriculture

Source: NRI based on National Statistical Office(KOSTAT))

139

Business trends

In terms of aggregate market value of listed companies, information and communication, and semiconductor industry accounts for the highest
highest. That of healthcare industry in past 3 years demonstrates
the highest growth rate at approx. 27%.
Aggregate Market Value by industry (KRX, 11-14)
11 14)
(unit: trillion KRW, %)
27%

CAGR(11-14)

15%

15%

11%

9%

2%

-4%

Growth rate of
aggregate market value of all industries: 4%
10%

8%
-6%

-15%

-18%

Healthcare
highest growth rate of aggregate market value

0%

6%

1%

7%

-13%

330
320319

250
240
237

242

2011
2012

179

2013

132
120113
108

29 30

Car

40

31

Distribution

11 14 17 17

Leisure

31 33

40 47

57

92 97 89

67 62 74
11 13 12

39 37

23

Media/Tele
Consumer
communica
Health care
goods
tion

ICT

Semiconductor

38 41
28 24 20 22 25 36
20
18

Construc- Transportion
tation

Ship
building

56 55 51

46

2014
61 65 67

75

65 66 70 72

79
46 48 53

56

17 19 16 18

steel

Energy/
gy
chemical

banking

Non-bank
financial

Stock

insurance

Source: NRI based on Financial Supervisory Service


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

140

Business trends

5 Major construction companies


companies sales and operating profit margin ratio have slightly risen
risen,
but cannot be expected to grow at a year-on-year basis.
CAGR Portion

Sales and Profit margin ratio of Korean 5 Major Construction Companies


7.9%

7.4%

7.6%

7.4%

6.1%

5.3%
2.3%

4.8%

4.0%

(04 14)
(04-14)

(14)

Total

10.5%

100%

Daewoo

7.5%

16%

GS

8.9%

16%

Samsung 11.7%

24%

Daerim

8.6%

15%

Hyundai 14.1%

29%

2.8%
-0.4%

Profit margin ratio of 5 major construction companies

61
99
9.9

49
45
(unit: trillion KRW)
33

22
4.8

24
5.1

26
5.7

28
6.1

6.6
6.9

36
7.1
7.4

38
6.7
7.9

40

8.8
8.2

70
7.0

79
7.9
8.5

8.5

6.0

7.2

7.3

6.3

6.2

7.2

8.9

9.3

56
5.6

57
5.7

4.9

5.0

5.3

5.2

4.1

4.3

4.9

4.6

4.3
4.3

5.1

5.6

7.3

9.3

10.0

10.1

10.4

10.6

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

68
6.8
5.9

9.0

14.9

13.4

6.0

4.0

9.5

8.4
17.4

'14

Source: NRI based on Financial Supervisory Service


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

141

Business trends

Investment in construction and facilities and its ratio to GDP has topped out in 2011.
Investment on Construction and Facilities, and its ratio to GDP

26.1%

24.7%

25.9%

25.2% 25.4% 25.4%

Since 1991, wane in construction and facilities investment


Especially, falling rate of construction investment is high

24.6%
22.7%

Construction Investment Ratio to GDP(Real)

19 7%
19.7%

18.1% 18.5% 18.3%

19 3% 18.7%
19.3%

18.0%

Facilities Investment Ration to GDP(Real)

11 3% 10.8%
11.3%
10 8%

11.8%

17.2% 16.6%

15.7% 16.2%

14.7%

12.8% 13.1%
11 3%
11.3%

10.2%

10 8%
10.8%

13.5% 12.9% 13.5% 13.1%

8.9%

10.1% 10.1% 9.7%


9.5% 9.6% 9.2% 9.1% 9.2% 9.5% 9.8% 9.5%
9.3% 9.5%
8.6%

126

133

7.1%
Construction Investment
Facilities Investment
(unit: trillion KRW)
105
46

'91

106
46

'92

118
46

'93

125
58

'94

137
69

147
76

150

131

69
41

'95

'96

'97

'98

57

'99

126
75

'00

69

'01

142
74

'02

154

73

'03

156

76

'04

155
80

'05

156
86

'06

158
94

'07

154
93

'08

159
84

'09

153
106

'10

146

143

109

'11

107

'12

153
106

'13

154
112

'14

Source: NRI based on The Bank of Korea, National Statistical Office(KOSTAT))


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

142

Business trends

Though foreign direct investment has dramatically soared since 2006


2006, its total size of investment
and average amount per investment has been reduced.
Size of Foreign Direct Investment
(unit: million USD)
Average amount per investment

5.8
52
5.2

Rapid increase in foreign direct


3.5
2.2

2.2

21
2.1
1.4

2.2

4.1

20
2.0

1.6

1.6

19
1.9
1.4

1.2

1.2

(Unit: billion USD)

'91

'92

'93

'94

'95

35

'13

'14

39
34
31

19

overseas direct investment

35

46

1.1

30

4.3

2.5

2.2

37

4.5

3.5

investment since 2006

1.4

4.2

'96

'97

'98

'99

'00

'01

'02

'03

10

'04

'05

'06

'07

'08

'09

'10

'11

'12

Source: NRI based on National Statistical Office(KOSTAT))


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

143

Business trends

Interest rate consistently dropped to 1% after the bankruptcy of Lehman Brothers in 2008
2008. Low
interest rate is expected to lead increment on liquidity.
Korea Interest Rate (97-14)
( 97- 14)
(: %)
16

10yr Treasury Bond(average)


3yr Corporate Bond(average)
CD 91days

14

Call Rate(1day,average)
Base Rate

12

3yr Treasury Bond(average)


5yr Treasury Bond(average)

10

Consistent downturn in benchmark rate


since 1998

8
6
4.75

5.25
4

4.25

4.5
3 75
3.75

3.25

3 75
3.75

3.25

3
2

'97

'98

'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

2.5

'10

'11

2.75

'12

2.5

'13

1.75

'14

'15

Source: NRI based on The Bank of Korea


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

144

Business trends

Both employment and unemployment rate has been improved since 2009
2009. This is derived
from increase in employment of middle-aged/elderly workers over their 50s.
Employment Rate and Unemployment Rate in Korea

Employment Rate by Age


(unit: %)

Improvement
in Employment Rate

61
44
4.4

60

5.0
4.5

60.2

4.0
60.0
3.6

59.8

3.3

60

3.7 3.7

3.6

3.5
59.8
59 7 59
59.7
59.7
7 3
3.2
2 3.2
32

(unit: %)

(unit: population(million))
3,500

60.2

59.8

59.5
58.6

3,000

58.7

59 1
59.1

59.4

59.5

60

4.0

3.7
3.5

3.4
32
3.2

59.5

58
2,500

3.5
3.1
59.5

59.4

3.0

2,000

289

311

329

349

269

274

430

450

479

508

535

561

585

Number
of
56
employee
over 50s
(36.5%)

648

655

652

655

661

662

664

668

54

604

601

584

583

579

576

574

571

52

399

389

378

371

365

361

357

363

262

26
264

409

59.3

59

59.1

2.5

1,500

59.0

2.0
58.7

59

58.6
58.5

58

1,000

1.5
500

10
1.0
Employment Rate
Unemployment Rate

58

0.5
0.0

'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14

50

'07
10s

'08
20s

'09
30s

'10
40s

'11
50s

'12

'13

over 60s

'14
Employment rate

Note: Employment Rate=(employee/population over age 15)x100, Unemployment Rate=(The Unemployed/Economically Active Population)x100
Source: NRI based on National Statistical Office(KOSTAT)
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145

Korea

Increase of liquidity within slow economic growth

Business trends and Office Market Trends


1-1

Business Trends

1-2

Office Market Trend

Household Economyy and Housing


g market trends

Hotel Market trends

Indirect Investment Market Trends

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

146

Office Market Trend

Office market in Seoul consists of 3 districts: CBD where government offices and corporate
headquarters are located; CBD as a financial district; and GBD where IT
IT-related
related industry is
concentrated.
Office Market in Seoul by Business District
CBD
(Central Business District)

YBD
(Yeouido Business District)

Developed since late 1980s


Lower rent cost comparing to CBD or
GBD
Concentrated by Headquarters of
financial companies such as bank or
securities firms

Seoul City hall

Largest office district with the


longest history in Seoul
Formed in 1960s and is equipped
with all basic infrastructure
Highest rent cost
Densely occupied by corporate
headquarters, Korean(Seoul)
branches of foreign firms,
insurance/security firms, government
offices, embassies and etc.

GBD
(Gangnam Business District)

Formed after mid-1980s


Lower vacancy level comparing to
other districts due to less suppliesIT,
Densely occupied by large Korean
companies and global companies

Source: NRI Analysis


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

147

Office Market Trend

Office supply in Korea has been concentrated in CBD and YBD since 2010 and will expand
to GBD after 2015.
Office Supply in Seoul
CBD Centered (70~86)

GBD Centered

CBD YBD

GBD

(87~09)

(
(10-11)(
)(12-13))

(14-)

160
CBD

GBD

YBD

140
(unit: ten thousand )
120
100
80
60
40
20
0
'70

'72

'75

'77

'79

'81

'83

'85

'87

'89

'91

'93

'95

'97

'99

'01

'03

'05

'07

'09

'11

'13

'15

Source: NRI based on Analyst Report


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

148

Office Market Trend

Large amount of prime office space supply resulted in approx


approx. 9% of office vacancy rate and
85,000 KRW/3.3 of rental fee.
Vacancy Rate of Prime Office Space in Seoul

Rental Fee of Prime Office in Seoul

16.0%

(unit: KRW/3.3/Month)

120,000
Total

CBD

GBD

YBD

Total
total

14 0%
14.0%

GBD

YBD

110 000
110,000

12.0%

100,000

10.0%

90,000

8.0%

80,000

6.0%

70,000

4.0%

60,000

2.0%

50,000

0.0%

CBD

40,000
,
'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Source: NRI based on Analyst Report


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

149

Office Market Trend

The number of major office transaction in Seoul was 51 in 2014


2014. Transaction of large-sized
large sized
buildings contributed to the increase in total transaction value reaching 7 trillion KRW.
Number of Office Transaction and Total Transaction Value in Seoul
(Unit: Number of Transaction)

(unit: trillion KRW)

70

7
CBD

GBD

60

YBD

Oth (Seoul)
Other
(S
l)

BBD

T t lT
Total
Transaction
ti V
Value
l

70
7.0

57
48

50

40

41

35

30

5.6

39

38

4.1

4.2

6
51
5

4.8
4.6

26

25

2.8

2.6
20

5.5

59
6.0

53

52

42

57

58

1.7

2.6

2.2
19
1.9

10

8
0.4

1.2

0
'99

'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Source: NRI based on Analyst Report


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

150

Office Market Trend

Sales p
price of office is approx.
pp
4,600,000 KRW/ and Cap.
p Rate is 5.9%.

Transacted Gross Area by Business District and Sales Price of Office Space per in Seoul
(unit: 10 thousand )

(unit : thousand KRW)

140

7000
CBD

GBD

YBD

Other ((Seoul))

BBD

Sales price per

Cap
p Rate

120

6000
9.2%

100

4 632
4,632
7.9%

80

2,344

6 7%
6.7%

2,488

4,297
4000

3,513

7.3%
2 818
2,818

4,284

3,760

3,658

60

4,103

4,034

6.6%
6.2%

5000

6.8%

3000

6.3%
6.0%

5.9%
5.4%

40

2000

20

1000

0
'04

'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

Source: NRI based on Analyst Report


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

151

Office Market Trend

Investment by foreign institutions induced the rise of average sales price of office space
space.
Average sales size is approx. 10,000 per 3.3 and sale price is 15.3 million KRW/3.3.
Sales Price of Office Space in Seoul per Unit Area by Business District(Transaction in 2014)
(Sale Price: per 3.3 10thousand KRW/3.3)
3000
Average Area of Transaction
g
Wategate
28 900(m2)
28,900(m
State tower
State-tower
building
Namsan
Gran Seoul
2500
(A-dong)
Fine Avenue
A
YG
Tower
T
2000
Olive Tower
Average Sales Price of Transaction
: 1,530 (10 thousand KRW / 3.3m2)
Dongyanglife
Jamsil
1500
building
Hyang-gun
Tower

(unit: 10 thousand KRW/3.3)

1000

1000

500

Acquisition by Foreign Investment Company

3000

2500

1,896 thousand KRW


2000

1,822 thousand KRW


1500

1 339 thousand KRW


1,339

500

Acquisition by Domestic Investment Company


0

0
-

20,000

40,000

60,000

80,000

100,000

120,000

CBD

GBD

YBD

Area of Transaction()
Note: Analyzed 33 Office Transaction mainly made at CBD, GBD and YBD in 2014 / Final Consumption Expenditure=Household Final Consumption Expenditure + General Government
Final Consumption Expenditure / **Expected Figure is Reported by IMF
Source: NRI based on Analyst Report
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152

Office Market Trend

Cap. Rate of office market in 2014 is around 5


Cap
5.9%.
9% Its spread with treasury bond is nearly
3%.
Cap Rate of Office in Seoul and Trend of Treasury Bond
Cap.
(: % )
16%

Spread
Cap. Rate
Treasury Bond(5 year)

14%

12%

11.9%
11.1%
9.8%

10%

9.7%

8.7%

9.2%
7.9%

8%

7.3%
6 2%
6.2%

6.7%

6 3%
6.3%

6%

4.8%

4.4%

4.5%

5.0%

5.3%

6.2%
6
2%
5.4%

6 3%
6.3%

6.6%

6.0%
5.4%
4.3%

4%

6.8%
5.9%

3.9%

4.6%

3.2%

3.0%

2.8%

'12

'13

'14

2%

0%
'00

'01

'02

'03

'04

'05

'06

'07

'08

'09

'10

'11

Source: NRI based on Media Research


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153

Korea

Increase of liquidity within slow economic growth

Business trends and Office Market Trends


1-1

Business Trends

1-2

Office Market Trend


Household Economyy and Housing
g market trends

Hotel Market trends

Indirect Investment Market Trends

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

154

Household Economy and Housing market trends

Population in Korea as well as in capital area is expected to downturn from 2018.

Population in Nationwide

Population in Metropolitan Area

(unit: household(thousand))

(unit: population(thousand))

21000

Household

19000

population

2018

50500
50000
49500

17000

49000

15000

48500

13000

48000
47500

11000

47000

9000

46500

7000

46000
45500

5000
'00

'05

'10

'15

'20

'25

'30

(unit: population

Population

Population

ratio of

in capital
area

capital
area

in noncapital
area

(thousand))

60,000
49.3%

50 000
50,000

49.7%

50.0% 50.2% 50.2%

48.2%

40,000
30 000
30,000

51%
50%
49%
48%

46.3%
45.3%

20,000

47%
46%
45%
44%

10,000
,

43%

42%

1995 2000 2005 2010 2015 2020 2025 2030

Note: Data is estimated based on Population statistics of 2005 / Employees includes people who did searching activities for job for more than 4wekks
Source: NRI based on National Statistical Office
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155

Household Economy and Housing market trends

Due to gradual increase in single person/two person households


households, elderly households with financial
compatibility will become the most significant consumer group in real estate market.
Ratio of Household per number of members
100%
90%
80%
70%
60%
50%
40%
30%

Increase of 1~2
person
household
(41%)

20%
10%
0%
2000

2005

Single person household

2010
2 person household

2015

2020

3 person household

2025
4 person household

2030

2035

Over 5 person household

Note: Predicted Data is estimated on the basis of Census in 2005


Source: NRI based on National Statistical Office(KOSTAT)
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156

Household Economy and Housing market trends

Valorization Policyy maintains Consumer Price Index at approximately


y 1%.

Changes in Consumer Price Index(CPI) Year-on-year


Year on year Ratio
(Unit : Year-on-Year, %)
6

CPI

5.1
1

4.9

4.4
4

37
3.7

4.7

4.1
3.5

3.1

3.6

3.4

3.2

2.5
2.8

CPI for living necessities

5.3

2.8

2.8
2.1

2.5

2.3

3
1.7
2.2

2.2

0.7
1.3

08
0.8
1.3

'13
13

'14
14

0
'00
00

'01
01

'02
02

'03
03

'04
04

'05
05

'06
06

'07
07

'08
08

'09
09

'10
10

'11
11

'12
12

Note: CPI indicates monthly weighted average of 481product categories which standardizes year 2010 as 100
CPI for living necessities indicates weighted average of 142 product categories out of 481 which are designated as daily necessities or purchased frequently
Source: NRI based on The Bank of Korea, Media Reserch
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157

Business trends

Benchmark interest rate


rate, default rate on household debt
debt, and credit card default rate
somewhat fluctuates but continuously descends.
Default rate on household debit in Korea
(benchmark interest rate, unit: %)
10

(default rate, unit: %)


12

10.8
10

10

8
7.5

7.3

6
5.2

4
2.5
2

1.6

1.9

2.2

2.8
2

2
1.3

0.8

1.7
0.7

2.2
0.7

1.8

1.7

0.6

0.8

2.3

2.4

2.2

2.2

0.8

0.8

0.7

0
'00

'01

'02

'03

'04

'05

'06

The Bank of Koreas benchmark interest rate(year-end)


(y
)

'07

'08

'09

'10

default rate on household debt

'11

'12

'13

'14

credit card default rate

Note: Benchmark Interest Rate from The Bank of Korea / Default Rate on Household Debt and Credit Card Default Rate from Financial Supervisory Service (Seasonal Adjustment, Year-End) and IMF
Source: NRI based on The Bank of Korea, Financial Supervisory Service, IMF
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158

Household Economy and Housing market trends

Land Price Index and land transaction volume shows g


gradual upward trend.

Land Transaction Volume and Land Price Index1)


(Lot unit: 10 thousand number of case )

93.5

94.1

93.2

97.1

96.2

95.1

100.2

98 2
98.2

Land Price Index1)

90.0
CAGR
13.8%

264
229

224

233

223

264

224

207

204

Land Transaction
Volume
(unit: Number of Lot)

39

28

26

23

17

19

16

CAGR
27.5%
20

26

National
Seoul

'06

'07

'08

'09

'10

'11

'12

'13

'14

Note: Based on Land Price Index: 2014.12.1 = 100


Source: NRI based on Real Estate Official Statistics Network (http://www.r-one.co.kr)
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159

Household Economy and Housing market trends

Housing
g transaction volume reached its p
peak in 2006. Though
g it had showed g
general declining
g
trend since 2007, it recently started to bounce back.
Housing Transaction Volume(National)
(unit: number
of transaction)

Nationwide

Capital Area

Seoul

Rural Areas

Transaction volume of capital area


accounts for 43% of that of nationwide

1,200,000

(unit: number
of transaction)

800,000

1,082,453
1,000,000

1,005,173

981,238
697,676

867,933

893,790

870,353
799,864
,

800,000

449,867
482,533

600,000

443,923
384,777

475,075

400,000

159,396

147,023

372,814

138,016
88,737

'07

'08

'09

'10

600,000
543,062

488,757

462,111

363,093

114,315

'11

83,257
'12

500,000
400,000
300,000

271,955

0
'06

735,414
463,459

282,503

263,599
200,000

608 424
608,424

517,361

395,278

385,400

851,850

700,000

200,000

111,889

148,266

100,000
0

'13

'14

Source: NRI based on data from Onnara Real Estates (http://www.onnara.go.kr)


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

160

Household Economy and Housing market trends

Total supply of housing units is 730


730,000
000 units
units. Supply of Apartment and Officetel increased,
increased
whereas that of urban-type housing and multi-unit dwelling is on the decline.
Housing Supply By types of housing
(unit: number of
housing supply

Total

900,000

Apartment

Multi-unit dwelling

Officetel

(unit: number of house)

Urban-type housing
854,095

800,000

804 019
804,019
800,000

726,726

700,000
600,000
500,000

658,025

644,512
544,909
412,891

476,462

400 000
400,000

459,887

263,153

468,642

297,183

300,000
200,000
,
100,000

500,000
356,762

376,086

349,661

340,477

152,042
106 251
106,251
25,767

186,637
16,008

219 823
219,823

8,102

7,669

13,596

'07

'08

'09

'10

278,739

'11

400,000
300,000

277,594

274,869

69,000

63,000

32,692

41,170

200,000
100,000

13,532

'06

347,687

124 000
124,000
84,000

163,357

10,097

600,000

504,481

276,989

700,000

'12

'13

'14

Source: NRI based on data from Onnara Real Estates (http://www.onnara.go.kr)


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161

Household Economy and Housing market trends

Average Housing Price Index has slightly increased. Housing Price index in Seoul capital
area recovered from decrease to stagnation
stagnation, and that of in rural areas maintains its
upswing.
Housing Price Index1) (10 years)

Housing Price Index1)) (3years)

(unit: index)

(unit: index)

120

110.0

110
105.0

104.8
103.4

100

102.4
100.5

100.4

100.0

90

100.1
97.6

80

National Average

70

Seoul capital Area

Seoul capital Area

Seoul

Seoul

Rural Area

Rural Area
90.0

60
'05

'06

'07

'08

'09

'10

'11

National Average

95.0

'12

'13

'14

'12

'12

'12

'12

'13

'13

'13

'13

'14

'14

'14

'14

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

Note: Standard of National Housing Price Index: March in 2013 = 100


Source: NRI based on KB Bank
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

162

Household Economy and Housing market trends

Size of auctioned assets has increased by 3


3.5
5 times in recent 10 years
years.
Ration of sale value recovered to 70% in 2014.
Size of Auctioned Assets1) and ratio of sale value2)
(Unit: trillion KRW)

70 8%
70.8%

73.2%

71.8%

70 4%
70.4%
67.0%

71.8%

69.6%

66.8%

67.7%

70 3%
70.3%

67.8%

68.1%

70 4%
70.4%

Ratio of sale value2)

21.5
5.7

2.8

6.4
0.6
0
6 0.7
07
0.4
1.2
1.9

0.7
0.7

1.6
1.4
1.9

1.2
1.7
1.9

3.6

3.3

1.4
2.1

1.2
1
2
1.9

2.3

2.3

2.6
1.0
1.0
2.4

3.4
0.8
0.7
2.7

4.2

49
4.9

3.4

2.4

2.4

'06

'07

'08

2.7

1.6

2.0

2.8

3.6

'02

'03

'04

'05

4.5

5.7

4.9

4.7

4.9

1.0
08
0.8

1.0
0.8

0.9
09
0.9

4.0

3.6

0.9
10
1.0

3.6

3.5

5.4

5.0

4.1

3.9

4.6

4.6

5.1

'09

'10

'11

'12

5.4

4.0

4.6

Apartment
Single/
Multi Household House

1.1
1.2

1.1
1.3

4.2

4.5

4.1

3.8

Shopping Area/Office-tel
/Neighboring Facilities

6.2

6.2

ETC.

'13

'14

Row House/Multiplex
Land/Forest/Field

Note: 1) Size of Auctioned Assets is based on Assessed Value, 2) Ratio of sale value = (Sale value / Appraised Value) * 100
Source: NRI based on Auction Statistics of Supreme Court
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

163

Household Economy and Housing market trends

House lease index has consistently illustrated upward trend


trend. In particular
particular, house lease index
in capital area is higher than nationwide average.
House Lease Index of Nationwide/capital Area (3 years)

House Lease Index of Nationwide/capital Area (3 years)

(unit: index

(unit: index)

120

115
110.5

110

110

109.9
108.4

100

105

105.8

90
100
97.4

80

National Average
Seoul capital Area

70

95

National Average

96.3

Seoul capital Area

95.2

Seoull

Seoull

Rural Area

Rural Area
90

60
'05
05

'06
06

'07
07

'08
08

'09
09

'10
10

'11
11

'12
12

'13
13

'14
14

'12

'12

'12

'12

'13

'13

'13

'13

'14

'14

'14

'14

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

Note: Based on National House Lease Index: October in 2012 = 100


Source: NRI based on Korea Appraisal Board
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

164

Household Economy and Housing market trends

Leasing
g cost is 62% of National Housing
g Price and 60% for Seoul capital area.

National Leasing Cost to Housing Price


(unit: %)
70

CAGR
60

Nationwide
1.0%

50
40
30
20
10
0
'11 3Q

'11 4Q

'12 1Q

'12 2Q

'12 3Q

Nationwide

'12 4Q

'13 1Q

'13 2Q

'13 3Q

Capital area

Seoul

'13 4Q

'14 1Q

'14 2Q

'14 3Q

'14 4Q

Rural area

Source: NRI based on Economic Statistics Bureau in the Bank of Korea, IMF(Global Financial Stability Report, 2013) Report
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

165

Household Economy and Housing market trends

Monthly lease index in Seoul capital area has declined since 2013
2013. Deposit (Jeonsei)-to(Jeonsei) to
Monthly-Rent Conversion Rate also led to the decline of profitability.
Monthly Leasing Index and Deposit(Jeonsei)-to-Monthly-Rent
Deposit(Jeonsei) to Monthly Rent Conversion Rate
(unit: index)

Deposit(Chonsei)-to-Monthly-Rent
9.1 9.1 9.0
9 0 9.0
90 9
9.0
0 8
8.9
9 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8
8.7 8.6
8.5 8.4
8.3 8.3 8.3 8.3 8.3 8.3 8.2 8.2

Conversion Rate (%)


8.1 8.1 8.0
7.9 7.8
7.7

105

100

100

100
98
96
95

95
N i
National
lA
Average

C i l Area
Capital
A

S
Seoul
l

5 metropolitan
li
cities
ii

90
'12 '12 '12 '12 '12 '12 '12 '12 '13 '13 '13 '13 '13 '13 '13 '13 '13 '13 '13 '13 '14 '14 '14 '14 '14 '14 '14 '14 '14 '14 '14 '14
05

06

07

08

09

10

11

12

01

02

03

04

05

06

07

08

09

10

11

12

01

02

03

04

05

06

07

08

09

10

11

12

Source: NRI based on Korea Appraisal Board


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

166

Household Economy and Housing market trends

2015 Housing Policy trend is expected to continue supporting vitalization of housing sales
and stabilization of housing lease.
Current 2 Years
Years Trend of Housing Policy (Since Park Gunhye cabinet started)

2013

Market Situation

Vitalization of
Sales Market

Vitalization of
Leasing Market

Stagnation in Seoul capital area, Upturn


in Non-Seoul capital area
Acceleration in aggravation of shortage
of Jeonsei and Monthly-Rent-Conversion
Abolition of heavy imposition of
transfer tax on owners of more
than one house
Reduction of acquisition tax
Introduction of sharing type of
mortgage

Support of Jeonsei loan


Expanding
E
di supportt ffor llease
business operator
Support for Semi-public rental
housing by National Housing Fund
Launching of Housing choice
voucher p
program
g

2014
Stagnation in Seoul capital area was
slightly ameliorated,. Upturn in NonSeoul capital area was slowed
Persistence of aggravation of shortage
of Jeonsei and Monthly-Rent-Conversion
Amelioration of regulation on house
reconstruction permit on vertical extension
reconstruction
Promotion of housing purchase by improvement
of housing subscription system
Interest rate reduction for fist
fist-time
time housing buyers
Relaxation of Price ceiling regulation on the new
apartment price
Support for rental housing REITs
Change tax system of rent from deduction
to tax credit
Relaxation of regulation and tax support
for Rental housing/Semi-rental housing
Support for rental business corporation
Introduction of loan system for monthly
lease

2015
Recovery of sales volume
overall stagnation is expected to liger
Aggravation of shortage of Jeonsei and
Monthly-Rent-Conversion is expected to
persist
Extension of sharing type of
mortgage (1.27)

Policy for Vitalization


of Sales Market
will be continued

Support for rental business


ti (1 13)
corporation(1.13)

Policy for Stabilization of


Lease Market will be
continued

Source: NRI based on


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

167

Korea

Increase of liquidity within slow economic growth

Business trends and Office Market Trends


1-1

Business Trends

1-2

Office Market Trend

Household Economyy and Housing


g market trends

Hotel Market trends

Indirect Investment Market Trends

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

168

Hotel Market trends

The number of tourists visiting Korea has been growing


growing, reaching annual average of 10%
10%. It
exceeded 14 million with Chinese and Japanese tourists consisting 60% of total.
Numbers of International Tourists Visiting Korea and Expectation
(unit: 10 thousand people, % )

2,500

56.2%

2,000

52.3%

52.5%

55.7%

56.2%

57.1%

58.1%

Percentage of Chinese
and Japanese tourists
within Total International Tourists

59.2%

60.0%

55.0%

51.2%

51.5%
50.0%

1,500

45.0%

1,000

500

602

616

645

689

782

880

980

1,114

1,218

1,420

1,547

1,726

1,927
40.0%

35.0%

30.0%

'05
05

'06
06

'07
07

'08
08

'09
09

'10
10

'11
11

'12
12

'13
13

'14
14

'15(E)
15(E)

'16(E)
16(E)

'17(E)
17(E)

Source: NRI based on Tourism Knowledge and Information System, Media Research
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

169

Hotel Market trends

Economic growth led to an upsurge of Chinese tourists. They account for the largest percentage since
2013 The number of Japanese Tourist has been diminishing owing to diplomatic matters and change in
2013.
exchange rate since 2012.
Number of Chinese Tourists Visiting Korea

Number of Japanese Tourists Visiting Korea

(unit: 10 thousand people)

(unit: 10 thousand people)

700

8,000

The number of Chinese


7,572
6,959
tourists is highly associated
with economic power
6,194
(R2=91.9%)

600

5,429

500

2,000

The number of Chinese


tourists is related with
exchange rate (R2=69.8%)

7,000

600

1,397

6,000

500

4,437
(GDP per Person($))

3,826

613

2 652
2,652

300

1,002

829

2,125

433

600

117

134

188

222

284

244
100

'07

'08

'09

234

224

238

305

302

329

352
275

400

228

1,000

200

'06

1,000

200

2,000

90

913

800

'05

783

1,200

3,000

100

71

1,400

1,238

(KRW-100 YEN)
859

4,000

300

107

1,600

5,000

3,424

1,749

1,394

1,800

1,481

1,265

400

400

200

700

'10

Financial Crisis
Relaxation of Visa Requirement
for Chinese visitors

'11

'12

'13

'14

China
became the
first

'05

'06

'07

'08

'09

Financial Crisis

Source: NRI based on Tourism Knowledge and Information System, Nara Indexes of National Statistical Office(KOSTAT), World Bank(World Economic Outlook)
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

'10

'11

'12

'13

'14

A weak yen Diplomatic tension


began
between Korea
Korean Wave
and Japan
continued

170

Hotel Market trends

Independent Tourists comprise the majority of international tourists


tourists. Though average length
of stay demonstrates upswing, that of Chinese tourists shows downturn.
Types of International Tourist

Average Length of Stay of International Tourists

(unit: %)

(unit: day)

Airtel Package

Group Tour

Total Average

Independent Travel
17 3
17.3

Japanese Tourist
Chinese Tourists
12 6
12.6

62%

60%

64%

66%

62%

63%

65%

64%

66%

12 4
12.4

11.5

10.9
9.5

10.9

8.4
8.1

6.8
27%

29%

28%

26%

27%

27%

27%

25%

11%

11%

8%

8%

11%

11%

9%

10%

'05
05

'06
06

'07
07

'08
08

'09
09

'10
10

'11
11

'12
12

9.9

9.2

7.4

77
7.7
7.7

7.4

6.5

6.7

7.0

3.3

3.1

3.2

3.2

3.3

3.5

3.6

'08
08

'09
09

'10
10

'11
11

'12
12

'13
13

'14
14

6.6

5.6
28%

3.7

3.6

6%

'13
13

'05
05

'06
06

'07
07

Source: NRI based on Ministry of Culture, Sports, and Tourism, International Tourists Reports, Tourism Knowledge and Information System
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

171

Hotel Market trends

Female international tourists in their 20s


20 s visiting Korea are largest in volume
volume, followed by
male international tourists in their 40s and female international tourists in their 30s.
International Tourists by Sex and Age

Top 5 in 2012 (unit : 10 thousand people)


No. 1

Women in their 20s


No. 2

Men in their 40s


No. 3

Women in their 30s


No. 4

M iin their
Men
th i 30s
30
No. 5

Women in their 40s

Top 5 in 2013 (unit : 10 thousand people)

139

109

108

106

99

No. 1

Women in their 20s


No. 2

Women in their 30s


No. 3

Men in their 40s


No. 4

M iin their
Men
th i 30s
30
No. 5

Women in their 40s

147

119

112

111

105

Top 5 in 2014 (unit : 10 thousand people)


No. 1

186

Women in their 20s


No. 2

Men in their 40s


No. 3

Women in their 30s


No. 4

M iin their
Men
th i 30s
30
No. 5

Women in their 40s

153

126

123

119

Source: NRI based on Ministry of Culture, Sports, and Tourism, International Tourists Reports, National Statistical Office(KOSTAT)
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

172

Hotel Market trends

Purpose of international tourists is sightseeing


sightseeing, accounting for 60%
60%. Chinese tourists tend to
mainly visit Seoul and Cheju, and Japanese tourists cover Seoul and Busan.
Purpose of international tourists visiting Korea (2013)

Visit Place of International Tourists in Korea*(2013)


Korea (2013)
(unit : %, Duplicated Answers Adjusted)

Religion

100%

ETC, 0.2%

//Pilgrimage,
g
g ,

90%

1.0%
Education,

Friend/
Family Visit,

5.9%

9.7%

80%

Seoul

Leisure/

49%

47%
60%

70%

Recreation/

Business

60%

/Professiona

Holiday,

l Activities,

48.2%

23 4%
23.4%

50%

Incheon/
Gyunggi

16%

16%
6%

40%

Jeju

Shopping,
Beauty/

10 6%
10.6%

Health/
Medical,

Busan
Tourism Related
59.8%

1.0%

30%

20%

10%

10%

21%

7%

3%

14%
5%

10%

ETC

18%

12%

13%

0%

International Tourists Chinese Tourists

Japanese Tourists

Source:: NRI based on Tourism Knowledge and Information System


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

173

Hotel Market trends

70% of international tourists enter Korea through Seoul (Incheon Airport,


Airport Gimpo Airport,
Airport Incheon
Harbor). The number of tourists entering Korea through Jeju has increased due to Chinese tourists.
Entrance Place by International Tourists
(unit: 10 thousand people)
1,600

1,400

1,200

CAGR of 10~14
(Current 5 years)

ETC
Seoul (Incheon Airport, Gimpo Airport,
Incheon Harbor
Busan(Gimhae Airport, Busan Harbor
Jeju(Jeju Airport)

1,000

43
37

800

20

600

82

28
76

35
80

30

103

45
(4.6%)
115
(11.7%)

71
(6 4%)
(6.4%)
128
(11.5%)

139
((11.4%))

202
(14.2%)

47.0%

142
(10.0%)

8.3%

991
(69.8%)

9.5%

18.8%

140
(11.5%)

91

89

400

616

691

772
((78.8%))

881

865
(77.6%)

(72.4%)

473

491

532

37

39

38

38

37

42

48

51

57

84

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

463
200

Source:: NRI based on Tourism Knowledge and Information System


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

174

Hotel Market trends

Expenditure of Chinese tourists has shown upsurge to 2


2,300$
300$ in 2013
2013, whereas approx
approx.
66% of Japanese tourists spent less than 1,000$ in 2013.
Average
g Expenditure
p
of international tourists p
per p
person

Average
g Expenditure
p
of Chinese/Japanese
p
tourists p
per p
person(2013)
(
)

(unit: $)

(unit: %)

25% of Chinese Tourists spend over than 3 thousand


dollars, and 20% of them do 1,000~1,500 dollars

$2,272
$2,154
$1,940

$1,648

$1,646
$1,558

$1,530

Under $500

$1,410
$1,224

8%

$1,298

19%

16%

17%

$500~

$1,000~

$1,500

$2,000

$1,000

$1,500

~$2,000

~$3,000

15%

7%
$1,173
$1,073

$1,076

$990

$1,081

Chinese Tourist

25%

Over $3,000

5%

4%

18%

25%
41%

Japanese Tourists

International Tourists(Total)

'09

'10

'11

'12

'13

A weak yen
Diplomatic
began
tension
Korean
between
Wave
Korea and
Source: NRI based on International Tourists Reports, Ministry of Culture, Sports, and Tourism
continued
Japan
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

60% of Japanese tourists spend less


than 1 thousand dollars

175

Hotel Market trends

Japanese tourists
tourists accommodation expenses is around 213$ (234
(234,000
000 KRW)/double room/one day
day.
This is higher than that of Chinese tourists, resulting in the rise of hotel room rate.
Expenditure of Chinese and Japanese Tourists by purpose (2013)
(unit: $)

Shopping

$1 431
$1,431

Spend $115.2 per day for


Accommodation(2
person/1 room)

Accommodation

$386

(1.9 person stayed at one room in


7.7 days in average (2013)
Supposed that stayed 6.7 days
using 2 person/1 room)

Food/Beverage

$345

$201

$95

Spend $2,523 in
Total

$340

$65

(per individual tourist)

Recreation/Culture/Sports

Transportation

$266

Spend $212.8 per day for


Accommodation
(2 person/1 room)
(1.9 person stayed at one room in
3.6 days in average (2013)
Supposed that stayed 2.6 days
g2p
person/1 room))
using

$147

$73

$49

ETC
((Including
c ud g Korean
o ea Travel
a e Agency)
ge cy)

$56

Spend $931 in
Total
(per individual tourist)

Note:* For group tourists, as accommodation fee is included in expenditure before Leaving, accommodation expenses is estimated based on individual tourist
Source: NRI based on International Tourists Reports, Ministry of Culture, Sports, and Tourism
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

176

Hotel Market trends

Hotel reached 69% of accommodations where foreign tourists stayed in 2013


2013. The ratio of
non-hotel accommodations such as guest house demonstrates slow increase.
Annual Use Rate of Accommodation by International Tourists
(unit: %)

Hotel use rate(%)


78%
75%

76%

77%
75%

74%

68%

11%
8%

7%

7%

3%

3%

3%

11%

14%

15%

'05

'06

'07

8%
3%

Youth Hostel/Guest House/Inn

6%

8%

4%

67%

11%
4%

2%

2%

16%

14%

15%

16%

18%

'08

'09

'10

'11

'12

Resort/Pension/Residence

69%

11%
6%

15%

'13

ETC(Relatives/Friends/School/etc)

Note: : As types of answers changed from single choice to multiple one in 2011, the number of answers was re-adjusted to the ratio
Source: NRI based on International Tourists Reports, Ministry of Culture, Sports, and Tourism
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

177

Hotel Market trends

Though international tourists travelling to Korea has risen, increase in room supply resulted in decline
of occupancy rate.
rate In addition,
addition decrease of Japanese tourists to Korea led to decline of average room
rate in 2013.
Nationwide Hotel Average Daily Rate 1)

The number of hotel rooms and Occupancy rate in Nationwide

(unit: KRW)
2) ADR(Average Daily Rate)=Room Revenue/Available Rooms

(Unit: 10 thousand people, %)


1) Occupancy Rate(OCC: Occupancy)=Number of Rooms/Available Rooms100

Number of Rooms(Room)

70.0%

Occupancy Rate(OCC, %)

65.8% 65.9%
64.3%

65.0%

85,000

63.7%
79,393

60.4%
60.0%

57.5%

57.3%

130,352
,
128,351

90,000

Chinese tourists average expenses for


accommodation (127,000KRW)
112 378
112,378
109,435

80,000

106,325

104,809

58.2%
74,737

Slight downturn in 2013 due to


decrease in the number of
Japanese tourists and increase
in that of Chinese tourists

100,234 99,363

75,000

70,763

55.0%

68,583
53.3%

119,592

70,000

67,171

50.0%

65,000

45.0%

60,000

'05

'06

'07

'08

'09

'10

'11

'12

'13

'05

'06

Financial Crisis
A weak yen
Diplomatic
Relaxation of Visa
began
tension between
Requirement for
Korean
Korea and Japan
Chinese visitors
Ratio
of China System, Korea Hotel Association
Source: NRI based on Tourism/Accommodation
Industry Report, TourismWave
Knowledge and
Information
continued
became the first
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

'07

'08

'09

Financial Crisis
Relaxation of Visa
Requirement for
Chinese visitors

'10

'11

'12

'13

A weak yen
Diplomatic
began
tension between
Korean
Korea and Japan
Wave
Ratio of China
continued became the first

178

Hotel Market trends

Hotel revenue per available room increased but turned downwards in 2013
2013. Annual revenue per
available room including profits from other facilities rapidly descended in 2013.
Nationwide Hotel Revenue per Available Room1)

Annual hotel revenue per Available Room2)

(unit: KRW)
1) Revenue per Available Room (RevPAR)=occupancy rate * average daily room rate
85,902
(ADR)

(Unit: 10 thousand KRW)


2) ADR(Average Daily Rate)=Room Revenue/Available Rooms

81 760
81,760
78,692

5,040

5,094

72,259
4 783
4,783
66,099
4,576

4,568

61,881

60,056
57 134
57,134
53,425

'05

'06

'07

'08

'09

'10

'11

'12

'13

'09

Financial Crisis
A weak yen Diplomatic
Relaxation of Visa
began tension between
Requirement for
KoreanKorea and Japan
Source: NRI based on Tourism/Accommodation
andof
Information
System, Korea Hotel Association
Chinese visitors Industry Report, Tourism Knowledge
Wave Ratio
China
continuedbecame the first
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

'10

'11

'12
A weak yen
began
Korean
Wave
continued

'13
Diplomatic
tension between
Korea and Japan
Ratio of China
became the first

179

Hotel Market trends

While the number of room in luxury hotel (special first ratings) increased
increased, overall hotel room occupancy
rate has decreased since 2012 which was followed by decline in average room rate in 2013.
Number of Hotel Room by Ratings

Hotel Room Occupancy Rate by Ratings

Average Hotel Room rate by Ratings

(unit: room)

(unit: %)

(unit: 10 thousand KRW)

special first grade


special second grade
first grade

special

25,949

73% 73%

first grade

24,991

24,096
69%

21,785

22,288
64%
62%

18.9

grade

72%

72%

17.6

69%

67% 67%

15.6
14.7 14.4

68%

15 7
15.7

65%

63%

11.5
61% 61% 61%

15,779
14,282

14,280

13,983

14,052

13,992
13 341
13,341

14,292

59%

54%

53%

13 485
13,485

'10

'11

'12

'13

9.0

'05

A weak yen Diplomatic


began
tension
Korean
between
Wave
Korea and
Source: NRI based on Tourism Knowledge continued
and Information
System
Japan
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

'06

'07

8.6

8.9

9.4

9.7

55% 54%

51%

'09

9.0

57%

15,255

18.9

16.3

15.7

70%

67%
65%

special first

'08

'09

Financial Crisis
Relaxation of Visa
Requirement for
Chinese visitors

'10

'11

'12

'13

A weak yen
Diplomatic
Diplomatic
began tension
Korean between
Wave Korea and
continued Japan

6.1

6.1

6.3

'05

'06

'07

6.7

'08

7.1

72
7.2

'09

'10

Financial Crisis
Relaxation of Visa
Requirement for
Chinese visitors

10.5

99
9.9

7.8

'11

8.5

'12

8.1

'13

A weak yen
Diplomatic
began tension
Korean between
Wave Korea and
continued Japan

180

Hotel Market trends

Revenue per available room in every hotel ratings rose until 2012 with a modest decrease in 2013
2013.
Annual revenue per available room including profits from sub-facilities decreased at a sharper rate.
Revenue per Available Room by Hotel Ratings

Annual Revenue per Available Room by Hotel Ratings

(unit: 10,000 KRW)

(unit: 10,000 KRW)

special first grade


special second grade

13 5
13.5

first grade

12.8

12.8

special first grade


special second grade
first grade

11.9

9,801

10.9
9.1

10,556
9,841

9,158

10.1

10.0

10,071

9.2
8.1

5.8
5.1

32
3.2

'05

56
5.6

5.9

6.3

6.5

7.2

7.1

4,466

4 221
4,221

4,537

4,551
3,692

31
3.1

3.4

3.7

'06

'07

'08

3.8

'09

4.4

'10

4.8

'11

Source: NRI based on Tourism Knowledge and Information System


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

5.2

'12

4.8

'13

2,047

2,171

2 267
2,267

'09

'10

'11

2,477

'12

yen
began

A weak
Korean Wave
continued

2,031

'13

Diplomatic

tension
Between
Korea and Japan

181

Hotel Market trends

Increase of hotel supply resulted in visible rise in room occupancy rate in Seoul
Seoul. This led to
sharp decrease in average hotel room rate in 2013.
Number of Hotel Room by Region

Hotel Room Occupancy Rate by Region

Average Hotel Room Rate by Region

(unit: room)

(unit: %)

(unit: 10 thousand KRW)

Seoul
Busan
Jeju

Seoul
Busan
Jeju

28,342
25,710

81%
77%

78%

23,824
22,360

79%

78%

22,150

75% 76%

71%
69%

75%

70%

6,676

6,676

6,810

6 449
6,449

6,729

6,688

6,936

64% 65%

64% 64% 64%

7,464
6,950

54%
52%

52%
50%

'11

'12

'13

'05

'06

'07

'09

13.7
13 1
13.1

12.7

10.4

'10

10 2
10.2

'11

'12

'13

'05

10.5

10.8

85
8.5

83
8.3

'06

'07

11.2 12.1
11.1

9.7

9.5

56%

A weak yen Diplomatic


Financial Crisis
A weak yen
Diplomatic
Relaxation of Visa
began
tension
began tension
Requirement for
Korean
between
Korean between
visitors
WaveIndustry
Korea
and Tourism Knowledge andChinese
Korea and
Source: NRI based on Tourism/Accommodation
Report,
Information
System, Korea HotelWave
Association
continued
Japan
continued Japan
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

10.0

51%

'08

13 2
13.2

12.1 13.1

61%
6,676

13.6
13.0

66%

15.9

15.6
14.9

69%

63%

'10

17.1

78%

4,518 of rooms of hotel in


Seoul increased between
11~13

'09

Seoul
Busan
Jeju

10.0

9.6

9.5

'08

'09

Financial Crisis
Relaxation of Visa
Requirement for
Chinese visitors

'10

'11

'12

'13

A weak yen
Diplomatic
began tension
Korean between
Wave Korea and
continued Japan

182

Hotel Market trends

Revenue per available room of Jeju and Busan has increased.


increased However
However, that of Seoul in
2013 has sharply declined with the citys annual revenue per available room.
Revenue per Available Room of Hotels by Region

Annual Revenue per Available Room of Hotels by Region

(unit: 10,000 KRW)

(unit: 10,000 KRW)

Seoul
Busan
Jeju

Busan

12 6
12.6
11.8

11.7

9.5

8.8

8.4
75
7.5

5.3

5.7
5.2

5.1

5.2

'05

'06

'07

'08

37 2
37.2

60
6.0

37.5

'90

'10

68.0

'11

'12

'13

'09

A weak yen Diplomatic


Financial Crisis
began
tension
Relaxation of Visa
Korean
between
Requirement for
Wave
Korea
and
Chinese visitors Industry Report, Tourism Knowledge
Source: NRI based on Tourism/Accommodation
and
Information
System, Korea Hotel Association
continued
Japan
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

47.9

45.0

7.1

5.3

5.2

48.8

7.7

6.2

83.0

8.3

6.6
5.8

80.6

Increase in the number of hotel in Seoul


led to sharp decline in Annual Revenue
per Available Room of Hotels
(Total Revenue in 2013 is similar with
that of 2011)

10.2

9.4

9.4

82.3

Jeju
77.7

10.5

8.6

Seoul

13.5

39.7
43 1
43.1

44.9

47.1

38.8

'10

'11

'12
A weak yen
began
Korean
Wave
continued

'13
Diplomatic
tension
between
Korea and
Japan

183

Korea

Increase of liquidity within slow economic growth

Business trends and Office Market Trends


1-1

Business Trends

1-2

Office Market Trend

Household Economyy and Housing


g market trends

Hotel Market trends

Indirect Investment Market Trends

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184

Indirect Investment Market Trends

Size of real estate funds has steadily grown


grown, reaching 30 billion KRW by the end of 2014
2014.
Foreign real estate funds also extend to 30% of total real estate funds.
Size of all funds and real estate funds

Size of real estate funds and foreign funds

(unit: trillion KRW)

(unit: trillion KRW)


Total Real Estate Funds Size (Total Net Assets)
()
Foreign
Real
Estate
Size

Funds
()
(Total Net Assets)

Total
Funds
(Total Net Assets)

Size
()
Real
Funds
Size
(Total Net Assets)

Estate

()

30

Foreign Funds Ratio

Real Estate Funds Ratio

24
376
319

318

319

289

308

7.9%

277

242

20

328

6.5%

217

21%

190
4.4%

17%

3.6%
2.2%

21%

12

'05

'06

'07

'08

12
'09

14
'10

20

16
'11

'12

24
'13

30

'14

9
6

3
0

7%
0

'04

'05

'06

'07

23%
20%

19%

1.7%

'04

3.1%

0.5%
1

26%

14

5 9%
5.9%

1.2%

30%

16

7.4%

'08

'09

'10

'11

'12

'13

'14

Source: NRI based on Korea Financial Investment Association


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185

Indirect Investment Market Trends

Private equityy funds account for 96% of the total real estate funds.

Annual Accumulative Investment in REF


REF CAGR(04~07)
25.6%

REF CAGR(08~14)
10.2%

REF()
Size()
REF
REF()
Size (Total Net Assets)
REF
REF Ratio to Private Equity Funds (Total Net Assets)
(unit: trillion KRW)

92.6%

93.7%

94.8%

94.7%

95.5%

87.2%

96.2%
29.629.7

75.6%
24.2
23.2

67.1%
19.919.9
16.416.4
43.4%

14.014.1
11.311.6

27.3%

0.9 0.9
'04

6.8 7.1
2.6 2.6

'05

8.4 8.9

4.1 4.2

'06

'07

'08

'09

'10

'11

'12

'13

'14

Source: NRI based on Korea Financial Investment Association


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186

Indirect Investment Market Trends

Size of REITs increased to 15 billion KRW


KRW, but still a portion of listed REITs stays at around
10% of total REITs.
Annual Accumulative Investment in REITs
REITs CAGR(02~07)
54.9%

REITs CAGR(08~14)
%

Size of
REITs (unit: trillion KWR)
REITs

98

Number
REITs
of REITs

80

Ratio of Listed REITs

70

15.0

72
11.8

48
9.5
19 0%
19.0%

10

12

16
19
5.0

21
4.9

0.6
'02

1.4

1.7

'03

'04

'05

'06

82
8.2

12.5%

33
3.3
1.1

7.6

35
7.0

8 6%
8.6%

'07

'08

'09

8 6%
8.6%

'10

'11

'12

9.7%

'13

10.0%

'14

Source: NRI based on Korea Financial Investment Association, Korea Association of Real Estate Investment Trusts
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

187

Indirect Investment Market Trends

REITs in Korea is mainly consisted of CR REITs and externally managed REITs


REITs, due to
incorporation of distressed assets.
Size of Incorporated Assets by Types of REITs

Number of REITs by Types of REITs

CR REITs

(Unit: trillion KRW)

Externally Managed REITs

CR REITs

(Unit: number of REITs)

Externally Managed REITs

30

Self Managed
g REITs

Self Managed REITs

1.8
25

1.6
14
1.4

20

1.2
15

1
0.8

10

0.6
0.4

0.2
0

0
'05

'06

'07

'08

'09

'10

'11

'12

'13

'14

'05

'06

'07

'08

'09

'10

'11

'12

'13

14

Source: NRI based on Korea Association of Real Estate Investment Trusts


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188

Indirect Investment Market Trends

REITs have traditionally focused on office and housing


housing, however
however, its focus area has
diversified to retails, hotels and distribution in recent years.
Annual Investment Portfolio of REITs (numbers of REITs)
(unit: %)
6
25

5
9

29

23

17
50

18

19

ETC

Hotel

8
62
28
100

45

100

75

31

71

50

40

'06

'07

'08

'09

Retail

Office
32
23

'05

50

44
31

'04

Distribution/Factory

'10

'11

'12

16
'13

22

House

'14

Source: NRI based on Korea Financial Investment Association, Ministry of Land, Infrastructure and Transport, Korea Association of Real Estate Investment Trusts, KORAMCO
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

189

Indirect Investment Market Trends

REITs dividend yyield ratio is 7% in average,


g showing
g stable trend.

REITs dividend yield ratio


Average Profit Margin Ratio

CR REITs

Externally Managed REITs

100

(unit: %)

Listed REITs

93 8
93.8

Increase of Profit
Margin Ratio due to
sales profit

90
80
71.7

70.3
70
60
49.0

50

40.4

40

40.3

40.0
9.9

28.0

30
20
10

89
8.9

71
7.1

8.5
8.5

6.6
6.6

8.7
8.4
8.4

26.1

10.4

11.9

11.1

12 2
12.2

12 1
12.1

6.4

12.2

11.9

8.6

7.4

6.3

7.2

'07

'08

'09

6.0

3.7

7.2

3.8

9.9

9.4

16.2

9.9

6.4

4.9

4.2

5.6

8.3

7.1

9.2

7.0

'11

'12

'13

'14 3Q

10.1
0
'02

'03

'04

'05

'06

'10

Source: NRI based on on Korea Financial Investment Association, Ministry of Land, Infrastructure and Transport, Korea Association of Real Estate Investment Trusts, KORAMCO
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

190

Japan

Japanese Real Estate Investment Market

China

Chinas market entering an adjustment period

Korea

Increase of liquidity
q
y within slow economic g
growth

Taiwan

Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak


India

Real Estate Market in India Residential, Office, etc.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

191

Taiwan

Overview of Office, Residential and Hotel Markets

M
Macro
Fundamentals
F d
t l off Taiwan
T i

Taiwans real estate trend Office, Residence, Hotel

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192

Macro Fundamentals of Taiwan

Effective control area of the Republic of China (Taiwan) is approx


approx. 36
36,000
000 square kilometers
kilometers,
with a population of 230 million.
Overview of Taiwan

Matsu, Kinmen Region


CapitalTaipei
Taoyuang
City

Shinpei
City

Taichung
City
Penghu Islands

Tainan
City
Kaohsiung
City

Country name

Republic of China (Founded Oct. 10, 1912)


(*The relocation of the Chinese Nationalist Party to Taiwan was in 1949)

Era name

Minguo (2014 A
A.D.=
D Minguo 103)

Capital

Taipei (Population: 2.66 million)

Major cities

Shinpei City (Population: 3.97 million) ,Taoyuang ,Taichung, Tainan, Kaohsiung

Area

Approx. 36,200 km A bit little smaller than Kyushu , Japan)

Population

Approx. 23.45million (as of Mar. 2015)

Ethnic Composition

Han Race 98% , Aboriginal 2%

Currency

New Taiwan dollar (NTD) 1 NTDApprox. 3.85 yen (As of Apr, 2015)

Nominal GDP

529.5 billion dollars (2014)

Nominal GDP per capita

22,632 dollars (2014)

No. of Japanese
residents

16,797 (as of Dec, 2013)

Number of Japanese
companies

Japanese Chamber of Commerce and Industry in Taipei member firms: 457 (Mar. 2015)

Number of travelers
b t
between
Japan
J

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Japanese Club member firms: 293 (Dec. 2014)


From Japan to Taiwan from Japan: 1.63 million (2014)
From Taiwan to Japan from Taiwan: 2.97million (2014)

193

Macro Fundamentals of Taiwan

Population has been increasing,


g although
g is expected to peak out within the next 5 yyears.
The population is about to decrease, with the productive workers population expected to peak out in 2015 and the total in 2021.
Population in Taiwan by age-group

Actual

Forecast

25,000

P
Population(tho
ousand)

20,000

15,000

10,000

5,000

0
1980

1985

1990

1995

Ages014

2000

2005

Ages1564

2010

2015

2020

2025

2030

Age65orover
Source: NRI based on the CEPD, Executive Yuan, R.O.C.(Taiwan)

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194

Macro Fundamentals of Taiwan

Population densityy in Taiwan is twice as high


g as Japan.

Comparison of Taiwan and Japan in population distribution

377,944

Landarea(squarekm)

350 000
350,000
300,000
250,000
200,000
150,000
100,000
50,000

36,192

140

Population density

120

Taiwan

Japan

639

600
600

100
80
60
40
23
20
0

700

127

Popullationdensity(peersquarekm)

400,000

Total population
An
nnualhouseholdiincome(NTDtho
ousand)

Land area

Taiwan

Japan

500

1.9

400

337

300
200
100
100
0
Taiwan

Japan

Source: NRI based on the Ministry of Interior of ROC and the Ministry of Internal Affairs and Communication of Japan
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195

Macro Fundamentals of Taiwan

GDP per capita is approx. 60% of that of Japan. Income level is 90%.

Comparison of Taiwan and Japan in the scale of economy

GDP (2014)

Per capita GDP (2014)


36,332

4,500

35,000

4,000
GDP per capita (USD))

Nominal GDP (USD billio


on)

160

40,000

4,616

Ann
nual household income (NTD tthousand)

5,000

Household income (2013)

3,500
3,000
2,500
2,000
1,500

30,000

25,000

0.6

22,598

20,000
15,000
10,000

1,000
530

5 000
5,000

500
0

0
Taiwan

Japan

Taiwan

0.9

140
120

135

120

100
80
60
40
20
0

Japan

Taiwan

Japan

Exchange rate1Yen0.26 NTD


Source: IMF

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: IMF

Source: NRI based on the DGBAS, Executive


Yuan, R.O.C.(Taiwan), Statistics
Bureau of the Ministry of Internal
Affairs and Communications of Japan,

196

Macro Fundamentals of Taiwan

Taiwans GDP g
growth has been on a steady
y rise at approx. 3.5%.
Taiwans economy showed negative growth during IT bubble of 2001 and the financial crisis after Lehman Shock of 2009, but it quickly
returned to stable growth trend.
The reason of stable growth of Taiwans
Taiwan s economy is it keeps successfully in receiving benefits from Chinas
China s economic growth
growth. The
continuing improvement of the relationship between Taiwan and China is expected to bring Taiwan further economic growth.
GDP growth rate
(%)
15
10.76
10

GDP growth rrate


G

5.26

6.19
4.7

5.44

Expected
Value

5.98
4.19

3.67
0.73

1.65

3 51
3.51
1.48

3.78

2.11

1.81
1 81

10
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on the DGBAS, Executive Yuan, R.O.C.(Taiwan)

197

Macro Fundamentals of Taiwan

Relationship between Taiwan and China improved significantly after 2008. In recent years, however,
Taiwan has been met with events which highlighted underlying discontent against China among its
population.
History of Cross-strait relationship under Ma Ying-jiu regime
May 2008

Ma Ying-jiu of the Nationalist Party becomes the 12th President of Taiwan.

Jul..

Chinese tourists to Taiwan was deregulated. (Group tour)

Dec.

p
and p
postal service)) is implemented.
p
The Three Links ((Liberalization in commerce, transportation,

Dec.

Cross-Strait Conference on the Cooperation and Exchange of the Chinese Medicine Industry, which is the project representing the cross-strait industrial
bridge, was held in Taipei.

Apr. 2009

The third summit meeting of cross-strait contact points was held. A memorandum on cross-strait financial cooperation (concerning banks, securities and
insurances) was signed and chartered flights were decided to be increased and become scheduled.

Jul.
Nov.

Chinese investment into Taiwan was deregulated


deregulated. (63 kinds in manufacturing
manufacturing, 24 in service and 11 in public works was released to be invested by
Chinese).
Cross-Strait financial MOU was signed. (Put into effect in January 2010)

Jun. 2010

Signed Economic Cooperation Framework Agreement ;ECFA. At the same time announced the list for bilateral tariff negotiation items.

Jan. 2011

Started waiving import tariffs (so-called Early Harvest list).

Nov.
Aug 2012
Aug.
Aug.

Both sides agreed on industry cooperation in following segments (LED. Municipal Wireless, Cold Chain Logistics, TFT-LCD, EV).
The customs authorities of Taiwan and China signed a Cross-Strait Customs Cooperation Agreement regarding customs service, smuggling crackdown
and
d ttariff
iff reduction.
d ti
Both sides reached a consensus to promote a mechanism of transparency information, loosing investment limitations to promote prosperity.

Jun. 2013

The Cross-Strait Agreement in Trade in Services based on WTO framework is signed. It proposes opening up over 100 services sectors in phases.

Mar 2014

The Cross-Strait Service Trade Agreement Law passed the diet. But anti-the law demonstration was happened on the next day.

April

Legislative Speaker promised to postpone review of the law until legislation monitoring all cross-strait agreements has been passed

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

198

Macro Fundamentals of Taiwan

Taiwan China relation was also reinforced in terms of transportation


Taiwan-China
transportation. Taiwan is now listed as
one of the Asian countries with the most densely air direct links with China.

No. of flights to China

No. of Destinations in China

Widening
Wid
i lilinks
k tto S
Second-Tier
d Ti cities
iti
even Third-Tier cities to build an
extensive flight network.

55

Taiwan

10

20
30
40
Direct links to China
Direct links to China

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

840

Taiwan

44

HK

Flights
Fli
ht b
between
t
T
Taiwan
i
and
d Chi
China
have already outnumbered Hong
Kongs.

800

HK

50

60

Unit: Destinations

200

400
600
Linkages to China

800

1,000

Unit: Flights/week

Linkages to China
Source: NRI based on the Civil Aeronautics Administration of the MOTC,
R.O.C.(Taiwan),

199

Macro Fundamentals of Taiwan

As economic unification between Taiwan and China proceeds


proceeds, regional integration between
greater China and other regional organizations is fast-approaching.
The Chinese economic area centering China has been accelerating its unification as the Greater China
China, with the return of Hong Kong in
1997 and Macau in 1999, the conclusion of the ACFTA with ASEAN in 2002, and the ECFA with Taiwan in 2010.
ECFA between Taiwan and China made tariffs on 539 items in China and 267 items in Taiwan gradually reduced, and investment in the
service industry deregulated. Therefore, increasing of business investment between Taiwan and China is expected.
Unification of the Greater China economy

Return of Hong
Kong and Macau
(1997, 1999)

Conclusion of ECFA
(2010)

Chi
China
Taiwan

Conclusion
of ACFTA (2002)
Removal of tariffs (2010)

Negotiating of economic
cooperation agreement
(from 2011, with Singapore)

ASEAN

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200

Taiwan

Overview of Office, Residential and Hotel Markets

M
Macro
Fundamentals
F d
t l off Taiwan
T i

Taiwans real estate trend Office, Residence, Hotel

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201

Taiwans real estate situation Office, Residence, Hotel

Following
g 7 areas compose major
j office districts of Taipei City.
y
Major office areas in Taipei City
Neihu Science Park district
The area Government aims to develop as a science park
district
Holding a large concentration of IT industry
headquarters.
Its traffic convenience has improved due to the extension
of MRT.
MRT

Songjiang Nanjing

Taipei station
area

Taipei station area


Area centering Taipei station, where the lines of
Taiwan Railways, MRT, and the High Speed
Rail intersect.
The first area in Taipei
p City
y where offices were
developed, with a large concentration of
financial/ insurance industries and government
institutions.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Dun Hua/
Mingsheng
g

Neihu Science
Park district

Dun Hua N./Minsheng


Having the second largest concentration of luxury offices
(Hsin Yi area is the largest) and being home to many
financial service industries.
Traffic convenience significantly improved after the
SongShan airport became an international airport.

Hsin Yi/World Trade Center


Redeveloped under the Hsin Yi Development
Plan

Area
with the highest office rent level in
Hsin Yi/
T
Taipei.
i
i
World Trade Center
Highly convenient, due to the large
concentration of administrative, financial, trade
exhibitory, leisure, and residential functions.
Dunnan

Offices
of many global companies such as IBM
Holding a large number of well-known companies and
and
Microsoft
located .
foreign
g firms.

Dunn
nan

A large concentration of offices, commercial


facilities, and hotels.
Many offices of Japanese firms are also
located .

Taipei SongShan Airport


Songjiang Na
anjing

Zhong Shan North

Zhong Shan North

Area with the highest office density in Taipei.


Holding a large number of offices of Japanese
firms as well as traditional industries, financial
services, and travel industries.

Holding many financial companies, as well as many


traditional industries.
With its traffic convenience, having developed to be
a complex of residential and commercial area.

Source: NRI based on the Taiwan real estate


yearbook and other materials
202

Taiwans real estate situation Office, Residence, Hotel

Office vacancy rates in Taipei City started to decline in 2010


2010, however
however, due significant
increase of supply in 2014, vacancy rate exceeded 8%.
Recent years
years, Overall
Overall, the vacancy rates in Taipei were declining and is about 6% in end of 2013
2013.
in 2014, approximately 360,000sqm office floor completion in Nan-gang and Song-shang district.
Therefore, vacancy rate were rising up to 8% in2014.
Supply of new offices and vacancy rates in Taipei City
180,000

16

Completion of Taipei 101

Taiwan
Cooperative
14
Bank : 32,000ping
China Trust Financial
12
Holding:80,000ping

140 000
140,000
120,000

10
100,000
8
80,000

Completion of Farglory
Financial Center

60,000

cy
(%)
Vacanc
rate (%)

Arreas
of new s
supply
(Ping)

160,000

40,000
20,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Areas of New Supply (Ping)

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Vacancy Rate (%)

Source: NRI based on the Taiwan real estate


yearbook
203

Taiwans real estate situation Office, Residence, Hotel

Average
g office rent of Grade A in CBD is approx. 2,400 NTD/Tsubo .
Overview of major office areas (2014)

District

Supply floor
space
(Tsubo)

A-class office avg.


rent
(NTD/Tsubo/
month)

B-class office avg.


rent
(NTD/ Tsubo /
month)

A-class office
Vacancy rate
(%)

B-class office
Vacancy rate
(%)

Taipei station
district

62,139

2,200

1,691

7.76%

3.69%

Chung Shan North


district

32,932

--

1,746

--

4.35%

Songjiang Nanjing
district

261,293

1,936

1,720

27.36%

7.38%

g
Minsheng
/Dun Hua N.
district

265,576

2,281

1,743

11.20%

6.85%

Dun Hua/Jen-Ai
district

171,115

2,452

1,777

5.23%

4.77%

Xinyi district

282,612

2,927

1,696

10.45%

3.09%

Note: 1 Tsubo = 3.306 square meters

Average rent :2,400


:2 400 NTD/Tsubo/month
Source: NRI based on CBRE data

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

204

Taiwans real estate situation Office, Residence, Hotel

Large
g number of new office spaces are expected to be supplied in 2016.
In 2016, numerous floor areas of office are expected to be supplied into real estate market.

Number of office construction license issuance


and total floor space licensed for construction in Taipei City
70

1,200,000

1,000,000

50
800,000
40
600,000
30
400,000
20
200,000

10
0

m2

60

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: NRI based on statistics by the CPAMI, R.O.C.(Taiwan)

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

205

Taiwans real estate situation Office, Residence, Hotel

New CBD development outside of Taipei Cityy is supplying


y g the market with new office spaces.
The Existing office areas are distributed in central Taipei city.
Based on redevelopment of lands outside center of Taipei City, Xin-Ban area and Nagang area have been new office area of Taipei
metrpolis
metrpolis.

Taipei City

Xin-Ban Fuchung Area


Rent: 1,300NTD/Tsubo
Zin-Ban
Zin Ban Special Zone is located around Banqiao
station which is a terminal station of .TRA, MRT,
Taiwan-HSR.
The highest office in New Taipei City Far Eastern
Building(50F) has been opened in Jul, 2013.

Taipei
Main Sta.
Ximen
Area

New Taipei City

Nanjing E.
Rd.
Area

Dunpei
Area

Dunnan
Area
Zin-Ban
Fuchung
Area
Far Estern
Memorial
Hospital
Area

MRT Far Estern Memorial Hospital Area


Rent:1,200 NTD/Tsubo
New area of office with almost bran-new office.
The most famous office of this area is T-park built
by FEG Group.

Existing Office Area

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Nangang
Area

Xinyi
Area

Nankang Area
Rent:1,200 -1,300 NTD/Tsubo
This Area is expected
p
as a new CBD of Taipei
p
because of being a terminal station of .TSHR and 2
lines of MRT,
Numerous offices have been and will be constrcted
in this area.

New Office Area

206

Taiwans real estate situation (Residential Market)

Total population of Taipei Metropolis (incl,


(incl Taipei City
City, New taipei city and Keelung City) is 7 million
million. Nearly
30% of Taiwan population is accumulated in these three cities.
The location and population of Taipei City ,Keelung City and Shinpei City

Taipei City population: 2.66 million

Keelung
g Cityy
population:
0.37 million

New taipei city population: 3.99 million

SourceNRI based on the DGBAS, Executive Yuan, R.O.C.(Taiwan)


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

207

Taiwans real estate situation (Residential Market)

Over the past 5 yyears, Taipei metropolitan area has been gradually
g
y expanding
g to the west.
Population Changes in Taipei City and New Taipei City over the last five years

Taoyuan
County

Taipei
a pe
city

Shimen

New-Town
region

Keelung
Cityy

Sanzhi

Jinshan

Danshui

Shinpei
City
Yilan
County

MRT
development
region

Wanli

Bali
Linkou

Wugu
L h
Luzhou

Taipei
Sanchong City

Taishan
Xinzhuang
Banqiao
Yonghe
Shulin
Zhonghe
Tucheng

Sanxia

Ruifang

Xizhi
Pingxi

Shenkeng

Yingge
New Taipei City

Keelung
City

Gongliao
Shuangxi

Shiding

Xindian

Pinglin

Legend: Average
annual growth rate

New-Town
region

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Wulai

Source: NRI based on statistics by the Ministry of Interior,


R.O.C.(Taiwan)

208

Taiwans real estate situation (Residential Market)

Construction of MRT is one the major


j reasons for Taiwans accelerating
g urban sprawl.
MRT construction status around Taipei Metropolitan Area
Danshui

Line

D
Danshui
h i

NeihuMuzha Line

Distance from Taipei City :10km


Xin-beitouBeitou

Wugu

Taishan

Sanchong

Xinzhuang

Fu Jen
Univ.
Huilong
Banqiao

Dazhi

Luzhou

New Taipei
Industrial Park
Sanchong
To Taoyuan Airport

Minquan
W. Rd
Taipei
T
i i
Main
Zimen Station
CKS Memorial
Hall

Banqiao

Songshan
Airport

Dingpu

Mar. 1997

Zhonghe
g Line

Guting Nanshijiao

Dec. 1998

Xindian Line

Taipei Main Station Xindian

Nov. 1999

Longshan Temple Taipei City Hall

Aug. 1999

Longshan Temple Xinpu

Aug. 2000

Taipei
p City
y Hall Kunyang
y g

Dec. 2000

Nangang
Elephant Mt.

Muzha
Taipei Zoo

Xindian

Xindian

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

May 2006

Kunyang Nangang
Yongning Dingpu
Nangang
g g Exhibition Center
Taipei Nangang

Dec. 2008
Dec 2014

Luzhou Zhongxiao Xinsheng

Nov. 2010

Fu Jen Univ. Daqiaotou

Jan. 2012

Zhongxiao Xinsheng Guting

Sep. 2012

Huilong Fu Jen Univ.

Mar. 2013

Xinyi Line

CKS Memorial Hall Elephant Mt.

Dec. 2013

Songshan Line

Songshan Ximen

Nov. 2014

Circular Line

New Taipei Industrial Park Dapinglin

Dec. 2015

Taoyuan
y
Airport MRT

Taipei Main Station Jhongli

Jun 2016

Wanta Line

CKS memorial hall Huilong

Dec. 2015

Taipei Nangang
Exhibition Center

Guting

Dapinglin
Nanshijiao
Xiaobitan

Xinpu Yongning

Neihu

Songshan

Zhonghe
Yongning

Danshui Taipei Main Station

NangangBanqiao Line

Zhongxiao
Xinsheng

Jingan

Shulin

Danshui Line

Distance from Taipei City :5m


Luzhou

Xizhi

Section
Year opened
Zhongshan Junior High School
M 1996
Mar.
Taipei Zoo
Zhongshan Junior High School
Jul 2009
Taipei Nangang Exhibition Center

Luzhou Line
Xinzhuang
Line

Feb. 2011

SourceNRI based on the MRT Construction Dep. Of Taipei City


Gov.

209

Taiwans real estate situation (Residential Market)

Together with transition of population


population, land price is also rising up in the west of Taipeis
Taipei s
metropolitan area.
Land price growth rate at major areas in Taipei City and New Taipei City

Legend:
g
Average
g annual g
growth rate

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on statistics by the Ministry of Interior,


R.O.C.(Taiwan)

210

Taiwans real estate situation (Residential Market)

Housing price in Taipei and New Taipei has been on a rise for the past 10 years
years, however
however,
its growth rate has changed into a moderate one in recent years.
Transition of housing price Index
Shinpeii City
Shi
Cit 2014 4Q
Price 416 thsd/tsubo

160

2010100

140

Taipei City 2014 4Q


Price 825 thsd/tsubo

120
Financial Crisis

100
80
60
40
20
0
2003

2004

2005

2006

2007

Taipei City
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

2008

2009

2010

2011

2012

2013

2014

Shinpei
City
Source: NRI based on Cathay Real Estates Housing Index quarterly report

211

Taiwans real estate situation (Residential Market)

Housing price in the city center of Taipei exceed 1 million NTD/Tsubo


NTD/Tsubo. Prime luxury
properties even exceed 3 million NTD/Tsubo.
Unit housing prices at major areas near MRT station in Taipei City and New Taipei City (Unit:10,000 NTD/ Tsubo)

25-55

47-86
67-120
34-45

30-43

45-65

85-125

45-65 60-120

30-52

55-80

35-65

100-205

63-108

85-150

90-300

80 180
80-180
52-80

42-85
45-62

65-93

50-70

23-33
28-51
55-72
Note: Prices at each point indicate market quotations of areas around major MRT stations.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on My Housing.com

212

Taiwans real estate situation (Residential Market)

Rent price is extremely low compared to selling price


price. Cap rate of the majority of properties
in Taipei City even remain under 2%.
Cap rates of properties in Taipei City and New Taipei City
Taipei City

New Taipei City

Location

Zhongshan Dist
(Near MRT Zhongshan
Elementary School Sta.)

Neihu Dist
(Near MRT Neihu Sta.
Sta )

Wenshan Dist
(Near MRT Xinhai Sta.)
Sta )

Address

Banqiao Dist
(Near MRT Banqiao
Sta.)

Layout

2 Room

2LDK

3LDK

Layout

3LDK

Area

30 Tsubo

41 Tsubo

26 Tsubo

Area

33 Tsubo

Age

5 year

2 years

18 years

A
Age

8 years

Price

18 million NTD

29million NTD

24 million NTD

Price

41 million NTD

Rent

29,000 NTD

50,000 NTD

27,000 NTD

Rent

65,000 NTD

Cap Rate

1.9%

2.0%

1.4%

Cap Rate

1.9%

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on interviews with owners, material by 591.com,


etc.

213

Taiwans real estate situation (Residential Market)

Number of construction licenses in Taipei is approx


approx. 5k per year
year, whereas that of New Taipei
City reaches over 20k.
In New Taipei City
City, even though the number of housing construction and the license issuance increase in recent two years
years, therefore
whole supply of housing will still be expected to increase for seasons.
On the other hand, Government is now considering policies to supply reasonable housing and preparing social housing development
with public lands.
Th N
The
Number
b off h
housing
i construction
t ti lilicense iissuance
New Taipei City
800

40 000
40,000

700

35,000

700

35,000

600

30,000

600

30,000

500

25 000
25,000

500

25 000
25,000

400

20,000

400

20,000

300

15,000

300

15,000

200

10,000

200

10,000

100

5,000

100

5,000

0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
()

()

40 000
40,000

800

Taipei City

0
2001200220032004200520062007200820092010201120122013
()

()

Source: NRI based on statistics by the CPAMI, R.O.C.(Taiwan)


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

214

Taiwans real estate situation (Hotel Market)

Number of tourists travelling to Taiwan is increasing significantly


significantly, due to the deregulation of
the mainland Chineses tourism policy towards Taiwan.
Japanese and mainland Chinese tourists account for 57% of the number of tourists to Taiwan
Taiwan.
Government is now planning to implement additional deregulations of tourism restrictions on mainland Chinese, so the number of
tourists to Taiwan is still expected to grow further.
The number of foreign tourists to Taiwan (By place of residence)

12,000
Deregulation of individual tours
of mainland Chinese

10,000

9,910

8,016
8,000

Deregulation of group tours


of mainland Chinese

6,000

7,056
6,087
5,567
,

4,395
3,716 3,845
3,378 3,520

4,000

2,831

2,978

Mainland China
3.99 million

2,950
2 248
2,248

57%

2,000

Japan
1.63 million

0
2001

2002

2003

2004

2005

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

2006

2007

2008

2009

2010

2011

2012

2013

2014

215

Taiwans real estate situation (Residential Market)

Occupancyy rate of hotels in Taipei Cityy has kept its high


g level, exceeding
g 70%.

The number of guest rooms and occupancy rates of tourist hotels in Taipei City
Occupancy rates of
Intl Tourist Hotels

76.8%

74.8%

75.2%

72.0%

71.1%

75.6%

75.5%

78.0%

73.6%

77.4%

12,000
,
+5.0%

10,000

+2.3%

+1.4%

+8.5%

1,263
1,263

1,974

2,040

2,040

2,275

2,330

1,263
,

1 383
1,383

1 357
1,357

8,324

8,013

7,786

7,738

7,898

8,323

8,313

8,313

8,403

2006

2007

2008

2009

2010

2011

2012

2013

2014

8,000

-0.1%

6,000
4,000

8,879

2,000
,
0
2005

Note: Tourist hotels are hotels that meet the criteria set by the Tourism Bureau of the Ministry of Transportation and
Communications, and are broken down into international tourist hotels and general tourist hotels according to their levels.
There are 25 international tourist hotels in Taipei as of the end of December 2011.
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: NRI based on statistics by the Tourism Bureau of


the MOTC,R.O.C.(Taiwan)

216

Taiwans real estate situation (Hotel Market)

Pushed by the increasing number of international tourists


tourists, price of guest rooms is on a rising
trend.

Avera
age
price off
guest
room
ms
er night)

(/
) (NTD/Pe

The average price of guest rooms of tourist hotels in Taipei City


6000

5000

I t
International
ti
l Tourish
T i h Hotel
H t l 2014
Price 4,831 NTD/per night

4000

General Tourish Hotel


2014 Price 3,472 NTD/ per night

3000

2000

1000

0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: NRI based on statistics by the Tourism Bureau of the MOTC,R.O.C.(Taiwan)

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

217

Japan

Japanese Real Estate Investment Market

China

Chinas market entering an adjustment period

Korea

Increase of liquidity
q
y within slow economic g
growth

Taiwan

Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak


India

Real Estate Market in India Residential, Office, etc.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

218

Residential market

Although most of residential units are HDB flats


flats, private residential units are the dominant
properties in the market.
HDB flat is a public housing developed and managed by the Housing and Development Board (HDB) and can be sold to Singapore
citizens only.
On the other hand, private residential properties can be traded by anyone including foreigners.
Housing stock in Singapore
(Units)

1,400,000
1 200 000
1,200,000
1,000,000
800 000
800,000
PrivateResidence
HDB(including EC)

600,000

*EC: Executive Condominium

400,000
200,000
0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014
Source: NRI based on URA

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

219

Residential market

Housing sales peaked out in 2012


2012, with sales in 2014 dropping by half compared to the
previous year.
While the number of private residential units sold in 2013 was 15 thousand
thousand, in 2014 it decreased to 7
7.3
3 thousand
thousand.

New housing sales of private residential properties in Singapore


(Units)

25,000

20,000

15,000

10,000

5,000

0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014
Source: NRI based on URA

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

220

Residential market

Sales price index


index, which followed an increasing trend
trend, has been dwindling since the latter
half of 2013.
Sales price of private residential properties have dropped by approximately 4% in 2014
2014.

Housing price index of private residential property in Singapore


(2009Q1=100)

200
180
160
160
140
120
100
100
80

Nonlanded
Landed

60
40
40
20
0

Source: NRI based on URA


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

221

Residential market

Price drop is primarily caused by property cooling measures that has been gradually
toughened since 2009.
The cooling measures are expected to remain imposed for the time being
being.
Major cooling measures implemented in Singaporean residential market

- 2010
Sep. 2009
Strengthening of a regulation on housing
loans
Feb. 2010
Imposing a seller's stamp duty on selling
residential properties within a year after
acquisition
Lowering the LTV limit to 80% for housing
loans
Aug. 2010
Imposing a seller's stamp duty on selling
residential properties within three
years after acquisition
Lowering the LTV limit to 70% for housing
loans
Increasing the minimum cash payment
from 5% to 10% of the valuation limit

2011 - 2012
Jan. 2011
Imposing a seller's stamp duty on selling
residential properties within four
years after acquisition, and rise in the
SSD rate
Lowering the LTV limit to 50% for housing
loans
Dec. 2011
Dec
Imposing Additional Buyer's Stamp
Duty of 10% on the purchase of
residential properties by foreigners
Imposing ABSD of 3% on the purchase of
properties
p
by
y Permanent
residential p
Residents who already own 1 or more
residential properties and Singaporean
Citizens who already own 2 or more
Oct. 2012
Introducing the maximum tenure of new
housing loans to be capped at 35 years

2013 Jan. 2013


Increasing the ABSD rate and expanding
the application of ABSD
Jun. 2013
Introducing a 60% cap on the Total Debt
Servicing Ratio (TDSR); the monthly total
debt obligations must not exceed 60% of
monthly income
Aug. 2013
Introducing new buying regulation where
permanent residents are demanded to
wait three years from the date of obtaining
PR status,
status before they can buy a resale
HDB flat
Dec. 2013
Introducing a 30% cap on
the Mortgage Servicing Ratio (MSR) for
th purchase
the
h
off E
Executive
ti Condominium
C d i i

Source: NRI based on public information


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222

Residential market

Vacancy rate of non-landed


non landed private homes turned upward
upward, while rent level started to decline
in the latter half of 2013.
Although vacancy rate of non-landed private homes dropped in the latest quarter,
quarter it is still on an upward trend
trend.
Rent level continues to decrease with approximately 2.6% drop in 2014.
Rental index and vacancy rate of non-landed private homes in Singapore
(2009Q1=100)

(%)

140

14

120

12

100

10

80

60

40

20

Rental Index (LHS)

Vacancy Rate (RHS)

Source: NRI based on URA


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

223

Residential market

Number of foreign workers


workers, who would otherwise have been tenants
tenants, is shrinking due to
the tightening foreign worker policies.
It is clear that the number of tenants with capabilities to pay higher rent are running short
short, since the number of foreigners on
Employment Passes (EP) who are subject to higher salary criteria has hardly increased.
Change of work visa holders in Singapore
(Thousand people)

160
140
120
100
80

Work Permit
WorkPermit
SPass

60

Employment Pass
40
20
0
20
20
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014
Source: NRI based on URA

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

224

Office market

Although
g office rent is on an upward trend, recent vacancy
y rate has been rising.
g
Latest median monthly rent of Category 1 office buildings is approximately S$114 per sq. meters, and that of Category 2 is
approximately S$68 per sq. meters.
Median monthly rent and vacancy rate of office buildings in Singapore
Category 2 (Other areas)

Category 1 (Core business areas)


(S$/sqm)

(%)

160

20

140

(S$/sqm)

(%)

160

20

140

120

15

100

120

15

100

80

10

60

80

10

60
5

40
20

40
20

Rent (LHS)

Vacancy Rate (RHS)

Category 1: Office buildings located in core business areas in Downtown Core and Orchard
Planning Area which are relatively modern or recently refurbished, command relatively high
rentals and have large floor plate size and gross floor area.

Rent (LHS)

Vacancy Rate (RHS)

Category 2: The remaining office buildings which are not included in Category 1 office
buildings.

Source: NRI based on URA


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

225

Office market

Although recent supply of new office buildings has been limited


limited, it is expected to increase
significantly.
On one hand
hand, there is an outlook that huge supply in future may curb rent rise as a whole
whole. On the other hand
hand, there is also a view that
the impact on rent of new office buildings will be limited as companies will move to new offices.
Completion of office buildings in Singapore
(Thousand sq. meters)

600

Forecast

500

400

300

200

100

0
2005

2006

2007

2008

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

2009

2010

2011

2012

2013

2014

2015

2016

2014Net2014Gross
201520151

2017

2018

2019
Source: NRI based on URA

226

Office market

Sales price of office buildings has been on an upward trend for more than five consecutive
years.
Latest median sales price of office space in Central Area is approximately S$13
S$13,300
300 per sq
sq. meters
meters, and that of Fringe Area is
approximately S$9,300 per sq. meters.
Median sales price of office buildings in Singapore
(S$/sqm)

14,000
12,000
10,000
8,000
6,000

Central Area
Fringe Area

4,000
2 000
2,000
0

Central Area: Outram, Museum, Newton, River Valley, Singapore River, Marina South, Marina East, Straits View, Rochor, Orchard and Downtown Core.
Fringe Area: Bukit Merah, Bukit Timah, Queenstown, Kallang, Bishan, Marine Parade, Geylang, Toa Payoh, Tanglin, Novena and Southern Islands.
Source: NRI based on URA
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

227

Transaction trend

Cap rates have been on a downward trend since 2009.


Cap rate of non-landed private homes is on the first half of 2%, and that of commercial properties is between the first half and a halfway
of 4%.

Cap rates in Singapore


(%)

Multiple Residence (Upper class)


Multiple Residence (Middle class)

Commercial(Most expensive area)


Commercial(Central/CBD)

Commercial(Fringe area)

0
2005

2006

2007

2008

2009

2010

2011

2012

2013

Multiple Residence (Upper class):Claymore Hill, Ardmore Park


Multiple Residence (Middle class):Holland, River Valley
Commercial (Most expensive area):Raffles Place
Commercial (Central/CBD):Shenton Way, Cecil Street, Robinson Road
Commercial (Fringe area):Tanjong Pagar,
Pagar Maxwell,
Maxwell Anson

Source: Japan Association of Real Estate Appraisers


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

228

Development trend

There are fewer opportunities for new development in Singapore due to shrinking supply of
new development sites.
Singaporean government owns about 80% of country
countryss land and also controls the supply of development sites
sites.
The amount of development sites sold by the government has been on a downward trend since 2011.
Development sites sold by Singaporean government
(sq. m)

400,000
350,000
300,000
250,000

Others
Industrial

200 000
200,000
150,000
100,000

Hotel
Mixed
Commercial/Office
Residential (NonLanded)
Residential(Non
Landed)

50,000
0
*The figure
g
of 1H2015 is based the Confirmed
List of Government Land Sales Program.

Source: NRI based on URA


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

229

Development trend

Singaporean developers are accelerating their overseas business due to a slowdown of and
fewer development opportunities in domestic market.
They are expanding their business in ASEAN,
ASEAN India,
India China,
China USA and UK
UK.

Major development plans in overseas by dominant Singaporean developers in recent years

Capitaland

Keppel

Developing mix-used and retail properties in


China Vietnam
China,
Vietnam, Indonesia
Indonesia, Malaysia
Malaysia, and
India

Developing office and mix-used properties in


I d
Indonesia,
i Myanmar,
M
Vietnam,
Vi t
and
d
Philippines

Developing Serviced apartments in China,


Korea, Vietnam, Philippines, Laos, Turkey,
and France etc.

Developing residential and retail properties in


US

UOL
Developing properties in China and Malaysia
Acquired sites, developing Hotel and mixedused properties in UK

CDL
Developing properties in US, UK, Japan,
China, and Australia
Developing hotels in Japan

Source: NRI based on public information


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

230

REIT Market

S REIT market capitalization recovered in 2009 and has now reached the scale of
S-REIT
approximately S$66 billion.
There are 33 listed REITs as of the end of March 2015
2015.

S-REIT market capitalization and number of REITs


Mil. S$

No. of REITs

70,000

35

60,000

30

50,000

25

40,000

20

30,000

15

20,000

10

10,000

MarketCapitalization
NumberofREITs

Source: NRI based on Bloomberg


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

231

REIT Market

While S-REIT dividend yyield rose sharply


y in 2009, it remains at approximately
y 6% since then.
Recent yield spread is between 3-4%.

S-REIT dividend yield and spread of 10-year Singapore government bond


%

25

20

15

Spread

10

AverageDividend Yield
(Gross)
10yrSGBYield

Source: NRI based on Bloomberg


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

232

Japan

Japanese Real Estate Investment Market

China

Chinas market entering an adjustment period

Korea

Increase of liquidity
q
y within slow economic g
growth

Taiwan

Overview of Office, Residential and Hotel Markets

Singapore Domestic real estate market reaching its peak


India

Real Estate Market in India Residential, Office, etc.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

233

I di
India

R lE
Real
Estate
t t Market
M k t in
i India
I di Residential,
R id ti l Offi
Office, etc.
t

Indias Macro-economic Indicators

Real-estate Market Overview

Key Segments

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

234

Macro-Economic Factor Population Growth

India has one of the largest and rapidly growing population


population, making it an attractive
consumer market.
World Population Trends

Population growth forecast


2.00

China
19%
India
18%

Restt
R
52%

USA
4%
Indonesia
4%
Brazil
3%

World Population
(2013) : 7238 mn

India
17%

2050P
Rest
57%

World Population by
2050 : 9683 mn

1.50
Population g
growth rate (%
%)

2014

1.00
0.50

-0.50

China
14%
Nigeria
4%
USA Indonesia
4%
4%

-1.00
2000
India
Korea

2010

2020
2030
Time (years)
China
Japan

Russia
USA

2040

2050
Brazil
UK

As Indias population grows, the demand for infrastructure will grow further
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: Population Reference Bureau, 2014 Datasheet USA

235

Macro-Economic Factor Rapid Urbanization

India is witnessing
g rapid urbanization and this trend is expected to g
grow steadily.
y
Better pay, work environment and more opportunities are driving working population from small towns and villages to urban centers
resulting in rapid urbanization.

Urban rural population growth trend and forecast


100%

Projected Future Trend

Past Trend

16.0

90%

14.0

80%

12.0

8.8

8.0
7.6

8.5

8.1

8.8

9.0

50%
40%
30%

4.0
2.0

70%
60%

9.2

10.0

6.0

8.1

3.3

3.8

4.3

4.8

2.9
2000

2005

2010

2015

2020

6.1

7.4

8.1

20%

Percentage
e of total population

Total Pop
pulation (00s m
million)

18.0

10%
0%

0.0

Urban

Time
Rural

2030

2040

2050

Urban population as % of total

As urbanization trend continues, demand for urban infrastructure will rise rapidly
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: 1. World Urbanization Prospects: The 2014 Revision, UN Population Division;

236

Macro-Economic Factor Rapid Urbanization

Rapid urbanization has happened across 7 major cities of India


India, all of them having 4 million
plus population.
Indias Top Urban Centres

City

State

Area

Population

Mumbai

Maharashtra

1176 km2

12.47 mn

INR 334,812

New Delhi

Delhi

1483 km2

11.00 mn

INR 360,893

Ch
Chennai
i

T il N
Tamil
Nadu
d

1189 km
k 2

8 42 mn
8.42

INR 324
324,844
844

Hyderabad

Andhra
Pradesh

650 km2

6.80 mn

INR 180,406

Bengaluru

Karnataka

741 km2

5.57 mn

INR 269,537

Ahmedabad

Gujarat

464 km2

4.68 mn

INR 192,163

Kolkata

West
Bengal

1026 km2

4.48 mn

INR 185,840

Mumbai

New Delhi

Chennai

Hyderabad

Bengaluru

Ahmedabad

Kolkata

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

AHI

Top 7 b
T
by metropolitan
t
lit area, urban
b agglomeration
l
ti and
dh
household
h ld iincome
AHI-Average Household Income per annum
Area refers to City Metropolitan Area
INR: Indian rupees, mn : million
Source: CMIE April 2015 Survey Data, Census of India 2011

237

Macro-Economic Factor Age Demographics

Low median age and increasing working-age


working age population are reducing dependability and
providing more hands to drive the economy.
57% of Indias 1.2 billion population is below the age of 30 years in 2012 making it one of the youngest countries in the world.
A structure d
Age
dynamics
i
Most favorable period for development

50

100

45
40

80

30

60

25
40

20
15
10

20

5
0

Percentage of popula
ation

Age (in ye
ears)

35

0
2000

2005

2010

Median age (years)

2015

2020
Time

2040

Dependability ratio (%)

2060

2080

2100

Working age population (%)

Decreasing dependability is likely to further increase infrastructure demand


demand, specially housing
Note: Working age population refers to percentage of population between 20-65 years Dependability ratio is calculated as non-working population by working population
Source: 1. World Urbanization Prospects, the 2011 Revision, UN Population Division; 2. U.S. Census Bureau
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

238

Macro-Economic Factor Income levels

India s per capita GDP and household savings are increasing


Indias
increasing, indicating improvement in
economic condition of society.
GDP per capita at current prices

Average Household Savings per annum


120

2500

100
INR (In Th
housands)

2000

US$

1500

1000

500

80

60

40

20

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Time (years)

2019

2011201220132014

2011201220132014

2011201220132014

Urban

Rural

Overall

Improving economic condition of society will increase demand of better quality infrastructure specially housing
Source: IMF World Economic Outlook Oct14
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: CMIE Consumer Pyramid Retrieved 9th April, 2015

239

Macro-Economic Factor Income levels

India s middle class population is almost half of the total population


Indias
population, and is among the
highest consuming middle-class groups in the world.
Top 10 Countries in Middle Class Consumption

Structure of Population in 2014 by Income

3
No
change

55

RICH
Average HHI: Rs.1.01mn
-33% over 2013

HIGH MIDDLE INCOME


Average HHI: Rs. 0.33mn
-15% over 2013

No change

83

MIDDLE INCOME
Average HHI: 0.14mn
No Change

+2.5% over 2013

129

LOWER INCOME &


POOR
Average HHI: 0.07mn
+16% over 2013

+0.8%
0.8% over 2013

RANK

2009

2020

2030

U.S

4.4

CHINA

4.5

INDIA

12.8

JAPAN

1.8

U.S

4.3

CHINA

10.0

GERMANY

1.2

INDIA

3.7

U.S

4.0

FRANCE

0.9

JAPAN

2.2

INDONESIA

2.5

U.K

0.9

GERMANY

1.4

JAPAN

2.3

RUSSIA

0.9

RUSSIA

1.2

RUSSIA

1.4

CHINA

0.7

FRANCE

1.1

GERMANY

1.3

ITALY

0.7

INDONESIA

1.0

MEXICO

1.2

MEXICO

0.7

MEXICO

1.0

BRAZIL

1.2

10

BRAZIL

0.6

U.K

1.0

FRANCE

1.1

WORLD

21

WORLD

35

WORLD

55

Indias middle class population would majorly drive demand in construction sector
HHI: Household Income per annum
HHI brackets: Rich (above Rs 0.72mn), High middle income (Rs. 0.72-0.18mn), Middle income (Rs.
0.18-0.09mn), Lower Income and Poor (below Rs. 0.09mn)
Source: : CMIE Consumer Pyramid Data Retrieved 13th April, 2015
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Note: Middle class defined as those living in households with daily per capita income between US$10100 per day at 2005 US$ PPP terms.
Source: Brookings Institution, OECD Working Paper no-285, 2010

240

I di
India

R lE
Real
Estate
t t Market
M k t in
i India
I di Residential,
R id ti l Offi
Office, etc.
t

Indias Macro-economic Indicators

Real-estate Market Overview

Key Segments

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

241

Sector Performance Contribution and Growth

Construction sector contributed 8% to Indias


India s GDP.
GDP Market has witnessed steady growth in
past which is likely to continue in future, owing to demographic pressure.
Sector contribution to GDP

Real-estate
Real
estate market size and growth
growth-rate
rate

Total GDP (2013-14) value at current prices: INR 104.8 trillion


200
180

Finance,
Finance
Insurance,
Real Estate &
Business
Services
20%

Agriculture,
forestry and
mining
15%

Trade, hotels,
transport &
communicatio
n
28%

160
140

Manufacturing
14%
Electricity, gas
& water supply
2%

US$ (billion)

Community
services
13%

120
100
180
80
134

60

113

40
Construction
8%

20

50

53

56

2008

2009

2010

67

79

95

0
2011 2012 2013
Time (years)

2014

2015

2020

Note: Real-estate market includes ownership of residential, commercial and industrial


dwellings and related business services
Source: Central Statistics Office (CSO), India 2014
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: 1. Corporate Catalyst India, Real Estate Report 2012


2. IBEF India Nov13 http://www.ibef.org/industry/real-estate.aspx

242

Sector Performance Major Players Performance

While most players have grown in size in FY13-14


FY13 14, maintaining profitability has been an
area of concern for majority of countrys leading developers for second consecutive year.
Performance of Top 15 Real-estate Developers in India by market capitalization
Market

Net Sales

Net Sales

Net Profit

Net Profit

Cap (BSE)

(2013-14)

YoY%

(2013-14)

YoY%

DLF Ltd.

2,88,405

23,859

11%

5,268

5%

Prestige Estates Projects Ltd.

1,04,306

20,052

169%

3,400

163%

Oberoi Realty Ltd.

99,949

6,226

5%

2,951

-10%

HDIL

56,000

7,708

-21%

2,449

68%

Godrej Properties Ltd.

54,684

6,640

56%

977

-20%

Sobha Developers Ltd


Ltd.

40 491
40,491

21 129
21,129

17%

2 065
2,065

5%

Indiabulls Real Estate Ltd.

30,577

849

-76%

1,446

-46%

Omaxe Ltd.

24,646

11,847

-12%

603

-30%

Brigade Enterprises Ltd.

17,678

8,952

15%

898

40%

S t k Realty
Sunteck
R lt Ltd
Ltd.

17 634
17,634

387

21%

1 373
1,373

1893%

Kolte Patil

17,542

1,872

3%

464

-29%

DB Realty Ltd.

17,271

452.6

-2%

-411

-13807%

Purvankara Projects Ltd.

17,051

9,227

13%

1,060

-6%

Anant Raj Ltd.

12,881

4,384

39%

883

-19%

Parsvnath Developers Ltd.

8,769

4,283

-7%

234

-68%

Developer name

Fluctuating financial performance of leading developers explains the volatile state of the Indian real-estate market
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Note: Highlighted numbers indicate negative growth


Source: BSE Company data fetched 08th Apr 2015 | All figures in INR Million | BSE- Bombay Stock Exchange

243

Financing Developments Project Financing Options

Private lending
lending, NBFC lending & PE funds have continued to be the primary sources of realreal
estate financing. Recently REITs and InvITs have been allowed in Indian market.
List of project financing options

Financing options by developers preference

Available Real-estate financing options in India

QIP

Bank Credit

FCCB

NBFC Credit

Private Lending
g

Private Credit

NBFC Lending

REMF

PE funds

AIF

IPO

REIT

Foreign
g Direct Investments ((FDI))

Bank Lending

InvIT

Qualified Institutional Placement (QIP)

ECB

Public Listing (IPO)


External Commercial Borrowings (ECB)
Private Equity (PE)

Foreign Currency Convertible Bond (FCCB)


Real-estate Mutual Funds (REMF)
Alternative Investment Fund (AIF)
Real-estate Investment Trusts (REIT)
Infrastructure Investment Trusts (InvIT)
Source: Content sourced from proprietary information of Jones Lang LaSalle India
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Preference (high to low)


NBFC: Non-banking Financial Company
PE: Private Equity
IPO: Initial Public Offering
ECB: External Commercial Borrowing

QIP: Qualified Institutional Placement


FCCB F
FCCB:
Foreign
i currency b
bonds
d
REMF: Real Estate Mutual Fund
AIF: Alternative Investment Fund
REIT : Real Estate Investment Trust
InvIT: Infrastructure Investment Trust

244

Financing Developments Project Financing Options

Government is also focusing towards specialized financing options for real-estate


real estate sector
development.
Specialized real-estate investment options
O ti
Option
name

B i fD
Brief
Description
i ti

C
Current
t St
Status
t

Real-estate Mutual Funds


(REMFs)

REMFs are mutual fund schemes established in the


form of a trust, which invests directly or indirectly in
real estate assets or permissible assets.

SEBI has allowed fund houses to launch real-estate funds


under April 16, 2008 notification for amendment of SEBI
(Mutual Funds) Regulations, 1996 to permit mutual funds to
launch REMFs.
REMFs

However due to lack of transparency and regulation on land


prices REMF have not generated sufficient investor interest

Prominent REMF players

Real Estate Investment


Trust ((REITs))

REIT is a corporate structure that buys, develops


g and sells real estate assets and allows
manages
various participants small and large to invest in a
professionally managed portfolio of real estate
properties, that are publicly traded.

ICICI Prudential

Kotak Mutual Fund

HDFC Mutual Fund

SEBI approved REITs regulations in September 2014.

REIT was introduced to make available fresh equity in the real


estate sector in India leading to reduced pressure on the
banking system by attracting long term FINANCE from foreign
(presumably) and domestic sources for the sector.

This will help ease the pressure on the balance sheets of cashstarved developers

Infrastructure Investment
Trust (InvITs)

Provides additional framework for investment in


infrastructure in the country and would own and
manage income generating infrastructure projects.

SEBI approved InvITs regulations in September 2014. The


InvITs will invest in infrastructure projects, either directly or
through a special purpose vehicle as mandate by SEBI

Long Term Bonds by


Banks for Infrastructure
financing

Intends to ease raising long


long-term
term funds by banks for
financing infrastructure projects

RBI has allowed banks to issue infra bonds via private


private, public
placement. It has also eased priority sector norms for banks
long-term bond (Jul 2014)

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: Securities and Exchange Board of India (SEBI), News Articles

245

Financing Developments Trends in PE

PE investments have bounced back


back, mainly because investors have shown renewed
interest in residential and leased office spaces, in anticipation of quick capital appreciation.
PE inflows in Real Estate Sector
Values in US$ Billion

2.91
2.57
2.30

1.70
1.29

2005-06

1.23

2006-07

2007-08

0.88

0.94

2008-09

2009-10

0.85

2010-11

2011-12

2012-13

2013-14

Source: Cushman & Wakefield


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

246

Regulatory Developments FDI Policy Conditions

Recentlyy FDI norms in construction sector have been relaxed in order to attract more FDI.
FDI Policy Norms
In view of depleting FDI inflow in construction and real estate sector in last couple of years
years, the current BJP led NDA government brought in relaxed
rules for FDI in the construction sector.
The proposal has been approved by the Union Cabinet in Oct 2014 and notified by DIPP in Dec 2014.

FDI Relaxations

Potential Impact on Sector

Reduced the minimum floor area to 20,000 sq mt from the earlier


50,000 sq. mt.

Allowing smaller projects to qualify for FDI

Brought down the minimum capital requirement to $5 million from $10


million.

In case of development of serviced plots, the condition of minimum land


of 10 hectares has been relaxed.

Encourage development of plots for serviced housing given the


shortage of land in urban agglomerations as well as the high cost of
land

Developers will be exempt from restrictions in area and minimum


capitalization if they commit 30% of the project cost to affordable
housing

Increase the supply of affordable housing across India

Increased the unit size to be considered for affordable housing from 60


square meters (carpet area) to 140 square meters (floor area), on
condition that at least 25% of the units under affordable housing should
be of a floor area not exceeding 60 square meters.

Allowed foreign investors to exit on project completion or 3 years from


the date of final investment subject to the development of trunk
infrastructure such as roads
roads, water supply
supply, street lighting
lighting, drainage and
sewage.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Larger unit size may attract more consumers to buy units under
affordable housing scheme

Easier exit provisions may encourage more investment in Housing


Sector through FDI route

DIPP is Department of Industrial Policy and Promotion; Source: News Articles

247

I di
India

R lE
Real
Estate
t t Market
M k t in
i India
I di Residential,
R id ti l Offi
Office, etc.
t

Indias Macro-economic Indicators

Real-estate Market Overview

Key Segments

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

248

Residential Space Average household member-size

Decreasing average household size and increasing total population is leading to household
shortage in the country.
Households growth rate

1200

250

1000

200
172

169

150

176

180

112

400

50

84

81

40

56

1991

2001

2011
2012
Time (years)

5.5

5.3

4.9

87

91

2013

2014

4.8

4.7

0
Average
household size
(members per
household)

800
600

138
100

40

1400

200
0

Urban

4.8
Rural

No. of househo
N
olds shortage (million)

Urban Household Growth CAGR (1991-2014) : 3.64%


Rural Household Growth CAGR (1991-2014) : 2.08%

Population (m
million)

No. of house
eholds (million
n)

300

Urban-rural housing shortage

34

35

30.1

30

26.7

26

25
18.4

20
15

19.3

20.5

24.3
22
18.7

20

15 1
15.1

10
5
0
2001

2005

2008
2010
Time (years)
Ub
Urban

2012

2014`

R l
Rural

Total Population

With increasing population and decreasing family size per household, the housing demand is ought to grow
Source: CMIE Consumer Pyramid Data Retrieved 9th April 2015
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: 1. Ministry of Housing and Urban Poverty Alleviation


2. Planning Commission working group on rural housing

249

Residential Space Supply Trends

Supply of new residential units in urban centers has been primarily in the mid-price
mid price segment
range with Delhi and Mumbai having the highest inventory.
City-wise
y
Residential launches in Top
p 7 cities ((2009-13))

Supply
pp y Trend by
y Price Band in Top
p 7 cities in 2013
Percentage share per price band

100%

Delhi-NCR

Percentag
ge share of new
w launches

90%
Mumbai

80%
70%

Chennai

60%
Bengaluru

50%
40%

Pune

30%
Hyderabad

20%
10%

Kolkata

0%
2009
Delhi NCR
Delhi-NCR
Pune

2010
Mumbai
Hyderabad

2011
Time (Yearly)
Chennai
Kolkata

2012

2013
Bengaluru

Source: Content sourced from proprietary information of Jones Lang LaSalle India
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Affordable

Low-mid

Upper-mid

Note: Average capital values range


- Affordable housing category: <INR 3.5 million
- Affordable housing category: INR 3.5 - 7.5 million
- Affordable housing category: INR 7.5 - 15 million
- Affordable housing category: >INR 15 million

High-end

250

Residential Space Demand Trends

Overall absorption of residential units is on a declining trend


trend, due to large existing unsold
inventory in the midst of recovering demand, but likely to improve in near-future.
Absorption Trend in Top 7 cities
30.0%

25 0%
25.0%

Absorption R
Rate

20.0%

15.0%

10.0%

5.0%

0.0%

Time (Quarterly)
Note: Term Absorption refers to ratio of space leased to total space
Source: Content sourced from proprietary information of Jones Lang LaSalle India
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Figures represent Top 7 cities by urban population: Mumbai, Delhi-NCR,


Kolkata, Chennai, Bengaluru, Hyderabad, Pune

251

Residential Space Rental and Capital Value Trends

Rental values in Hyderabad have increased the most


most, while in Mumbai it has decreased due
to demand-supply fluctuations. Capital values have appreciated moderately across all cities.
Average Residential Values across major Indian cities
City Name

Average Rental Value


per Month per 1000 sqft.

Annual Rental
Growth Rate

Average Capital Value


per sqft.

Annual Capital
Growth Rate

Delhi/NCR

INR 14,500 - 20,000

0-5%

INR 6,300 - 8,200

0-5%

Mumbai

INR 32,000 52,000

0-5%

INR 12,100 19,500

5-10%

Kolkata

INR 12,000 19,000

5-10%

INR 4,000 8,000

5-10%

Chennai

INR 10
10,500
500 17,000
17 000

0 5%
0-5%

INR 6
6,500
500 10,000
10 000

10 15%
10-15%

Bengaluru

INR 12,000 -18,000

20-25%

INR 4,500 8,500

10-15%

Hyderabad

INR 10,000 16,000

5-10%

INR 4,000 6,000

5-10%

Pune
u e

INR 10,000 13,500

0-5%
0
5%

INR 4,500 6,000

15-20%
15
20%

Note: Values represented above are average for FY12-13 and for indicative purposes only. Actual values may vary by time, specific locality area, property specifications and other factors

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: Content sourced from proprietary information of Jones Lang LaSalle India

252

Residential Space - Performance in FY14-15

Residential market witnessed increased demand for mid & affordable housing as economy
showed recovery signs. However, new supply remained low due to existing unsold inventory
Market Factors

FY14 15 Growth Trend


FY14-15

Reason
Residential segment can be divided into high-segment (luxury), mid-segment
(middle-class) and low-segment (affordable) housing

Demand

Demand for mid and low-segment


low segment housing has increased once again as
consumers interests got revived due to early signs of economy recovering from
slowdown, and interest rates cuts have boosted buyers sentiments.
Around 122,000 new units have been launched between Q1 and Q3 of FY1415 across top 8 cities of India
India, lower than previous year
year, due to existing unsold
inventory.

Supply

Bengaluru, Mumbai and Delhi-NCR accounted for 71% of new residential


launches in Top 8 cities.
Capital values have remained stable in FY14-15 for most of the cities, except
Delhi/NCR, where it has declined, due to over supply

Capital Values

Noticeable Trends

Developers have restrained from announcing new projects, due to availability of


unsold inventoryy

Developers focusing
majorly on mid-segment
mid segment
housing

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Developers have primarily focused on mid-segment offerings in this year, as


investors interest in increasing for such units
Around 68% units launched in first 3Q of 2014 were for mid-segment consumer,
which is 56% higher than 2013.

253

Office Space Supply and Demand Trends

Office space vacancy is forecasted to increase in 2015 due to higher completions in 2014 as
compared to demand growth in this period
Office space
p
supply
pp y and demand in Top
p 7 cities
50

60%

50%

40
40%

35
30

30%

25
20%

20
15

Vacancy (%)
V

Completio
on/Absorption ((million sq. ft)

45

10%

10
0%

5
0

-10%
2005

2006

2007

2008

2009
New Completions

2010

2011

Net Absorption

2012

2013

2014

2015F

Net Vacancy

Note: Figures represent Top 7 cities by urban population: Mumbai, Delhi-NCR, Kolkata, Chennai, Bengaluru, Hyderabad, Pune
Source: Content sourced from proprietary information of Jones Lang LaSalle India
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

254

Office Space Office Rental and Capital Value Trends

Overall, office rental values growth trend has been mixed


Overall
mixed, while capital values have
appreciated across major centres.
Average Office Rental Values across major Indian cities
City Name

Average Rental Value


per sqft./month

Average Rental
Growth Rate (FY13-14)

Average Capital Value


per sqft.

Average Capital
Growth Rate (FY13-14)

Delhi/NCR

INR 114 182

0-5%

INR 19,000 23,000

0-5%

Mumbai

INR 130 166

0-5%

INR 13,000 18,000

0-5%

Kolkata

INR 65 79

0-5%

INR 7,000 10,000

0-5%

Chennai

INR 47 68

0 5%
0-5%

INR 7
7,000
000 10,000
10 000

0 5%
0-5%

Bengaluru

INR 52 72

0-5%

INR 6,000 10,000

5-10%

Hyderabad

INR 38 48

0-5%

INR 4,000 6,000

5-10%

Pune

INR 50 68

5-10%
5
10%

INR 6,000 8,000

10-15%
10
15%

Note: Values represented above are average for FY12-13 and for indicative purposes only. Actual values may vary by time, specific locality area, property specifications and other factors
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: Content sourced from proprietary information of Jones Lang LaSalle India

255

Office Space Asian Rental Value Trends

Apart from Mumbai


Mumbai, Indias
India s other major commercial centres continue to remain cost
competitive against peer Asian hubs.
Office Rental Values Trend of Major Asian Cities
1600

Net Effe
ective Rents (U
USD psm pa)

1400
1200
1000
800
600
400
200
0

4Q13

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

4Q14

Source: Content sourced from proprietary information of Jones Lang LaSalle India

256

Office Space - Performance in FY14-15

Office space market has improved


improved, with both demand and supply witnessing an increase
increase.
MNC companies have expanded office spaces due to renewed interest in India business.
Market Factors

FY14-15
FY14
15 Growth Trend

Reason
Demand for office space picked up in most cities, and net absorption increased
by 34% over previous year, on account of substantial pre-committed absorption
in 2013.

Demand

Companies which had postponed office expansion plans bought new spaces to
take advantage of decreasing rental/capital values
Around 20.4 mn square ft of office space was supplied in 2014, around 9%
higher than previous year. Delhi, Mumbai and Bluru being major beneficiaries

Supply

Many delayed projects got completed in 2014, and improved absorption rate
led developers to complete projects quickly, resulting in increased supply.
Rental trends have been mixed, with rentals declining in 4 of top 8 cities due to
over supply

Rental Values

Noticeable Trends

While in remaining, rentals have increased marginally due to fresh supply of


Grade A office spaces at premium prices, and increase in rents in projects
having high occupancies

Multi-national companies
are increasing
g
investments in India

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

With new and stable union government in place, foreign investors sentiment is
improving and MNCs are expanding office spaces in major cities, as a result of
business expansion in India.
This trend is more prominent for IT, BFSI and Consulting based MNC
companies

257

Retail Space Overall Outlook

Rapid urbanization is driving retail sector growth


growth, hence demand and supply of retail space
is going to increase in future.
Growth of retail sector in India
1,200

1,146

1,000

US$ (Billion))

800

600

518

490

425
400

200

201

204

1998

2000

238

278

321

368

0
2002

2004

2006

2008
Time (Years)

2010

2012

2013

2019E

Source: Indian Brand Equity Foundation


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

258

Retail Space Supply Demand Trends

Retail space vacancy is set to increase due to declining demand of mall space
space, specially for
those malls located in non-prime locations of the cities.
Modern Retail space supply demand trend in Top 7 cities
25%

14.0
20%
12.0
10.0

15%

8.0
10%

6.0

Va
acancy (%)

Completion
n/Absorption (million sq. ftt)

16.0

4.0
5%
2.0
0.0

0%
2005

2006

2007

2008

New Completions

2009

2010

2011

Net Absorption

2012

2013

2014

2015F

Vacancy

Note: Figures represent Top 7 cities by urban population: Mumbai, Delhi-NCR, Kolkata, Chennai, Bengaluru, Hyderabad, Pune
Source: Content sourced from proprietary information of Jones Lang LaSalle India
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

259

Retail Space Asian Rental Value Trends

Major Indian cities are still on the lower side of retail rentals as compared to other leading
Asian cities.
Retail Rental Values Trend of Major Asian Cities
18000

Net Effe
ective Rents (U
USD psm pa)

16000
14000
12000
10000
8000
6000
4000
2000
0

4Q13

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

4Q14

Source: Content sourced from proprietary information of Jones Lang LaSalle India

260

Retail Space - Performance in FY14-15

Retail segment has witnessed increasing demand for mall space due to rising consumerism
consumerism,
but supply declined due to delay in projects. Rental values have increased marginally.
Market Factors

FY14-15
FY14
15 Growth Trend

Reason
Growing consumerism, young population, increasingly brand conscious middleclass consumers and growing per capita income levels, will continue to drive
p
in India
demand for new retail spaces

Demand

Demand of Grade A malls in Tier 2 and 3 cities is rapidly increasing.


In first three quarters of 2014, a total of 1.53 million sqft of new retail space was
added across B
Bluru
luru, Delhi
Delhi-NCR
NCR, Hyderabad
Hyderabad, Kolkata and Pune

Supply

However 14.3 million sq. ft of upcoming supply got deferred due to issues such
as financial crunch of developers, project delays and poor response from
investors and retailers.

Mall rentals have been marginally increased across Top 8 cities of India

Rental Values

Noticeable Trends

Only in Pune rentals have increased significantly, as retailers are increasingly


occupying vacant spaces

E-commerce impact on
offline retail spaces

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

The impact of e-commerce cannot be ignored, as convenience of home


shopping is presiding over visits to offline retail spaces
H
However many offline
ffli retailers
t il
are ttaking
ki tto online
li channels
h
l and
d vice-versa,
i
b t
but
in mid term e-commerce may negatively impact retail spaces in Tier 1 cities

261

Logistics Space Major Manufacturing Clusters in India

India s manufacturing footprint and consumer markets are spread across the country
Indias
country, thus
arising need for domestic trade corridors and logistics hubs.
Indias Manufacturing
g Footprint
p
and Major
j Markets

Automobile
FMCG
Heavy Industries
Life Sciences (Pharma & Bio-Tech)
Automobile
FMCG

Automobile
FMCG
Heavy Industries
Automobile
FMCG
Heavy Industries

New Delhi

Ahmedabad
Kolkata
Mumbai
Pune

Hyderabad
Life Sciences (Pharma & Bio-Tech)

Bengaluru

Life Sciences (Pharma & Bio-Tech)

Life Sciences (Pharma & Bio-Tech)


Automobiles
El t i and
Electronics
dC
Communication
i ti
Aerospace
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Chennai

Automobile
FMCG
Heavy Industries

Source: Content sourced from proprietary information of Jones Lang LaSalle India

262

Logistics Space Major Indian Trade Corridors

Major
j Domestic Trade Corridors and Logistic
g
Hubs are as follows.

Major
j
Domestic Trade Corridors
Delhi-Kolkata

1,452 kms

Chennai-Mumbai

1290 kms

Kolkata-Chennai

1,684 kms

Mumbai-Delhi

1,419 kms

Established & Growing Logistics Hubs


Delhi-NCR

Kolkata

Mumbai

Hyderabad

Chennai

Pune

Bengaluru

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Ahmedabad

Thiruvananthapuram

Surat

Jaipur

Goa

Vadodara

Chandigarh

Nashik

Kochi

Indore

Visakhapatnam

Mangalore

Nagpur

Ludhiana

Coimbatore

Guwahati

Source: Content sourced from proprietary information of Jones Lang LaSalle India

263

Logistics Space Market Size and Rental Growth

India s widely spread agricultural and industrial resources and lack of existing quality
Indias
storage infrastructure are driving Indian warehousing industry.
Rentals of warehousing spaces across major industrial corridors are growing at an average of 5% per annum
Gurgaon-Manesar and Chennai-Bengaluru routes have shown double digit appreciation in rentals
Warehousing Market Size

Warehousing Space Rental Growth Trends


Rental Growth (%)

300.0
250.0

228.3
197.3
171.1
148.8

150.0

Logistic Corrid
L
dors

US$ ((Billion)

200.0

129 4
129.4
112.5

100.0
50 0
50.0

Gurgaon-Manesar

10%

NH 4 (Chennai
NH-4
(Chennai-Bengaluru)
Bengaluru)

10%

NH-91, NH-24, NH-58 (Noida)

6%

NH-4 (Pune-Mumbai)

6%

NH-6 (Dhulagarh)

6%

NH-3 (Bhiwandi)
NH 2 (D
NH-2
(Dankuni-Old
k i Old D
Delhi)
lhi)
NH-7 (Hyderabad)

0.0
2013

2014

2015e
2016e
Time ((Years))

2017e

Source: Netscribes Report 2012 | USD 1 = INR 60


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

4%
3%
2%

2018e
Y-o-Y rental growth (%)

Source: Content sourced from proprietary information of Jones Lang LaSalle India

264

Logistics Space - Performance in FY14-15

Logistics spaces have continued to be affected by slow economic growth in 2014 and lack
of clarity regarding GST implementation.
Market Factors

FY14-15
FY14
15 Growth Trend

Reason

With e-commerce booming in India, the demand for warehousing space near
large local markets has increased significantly

Demand

Rising domestic consumption have also led to demand for warehousing space

Supply continues to decline due to issues related to land acquisition, lack of


supporting infrastructure (power, water, roads) etc to lure investors and
customers

Supply

Delay in introduction of GST bill is also impacting warehousing space supply.

Rental / Capital values of warehousing spaces across major industrial corridors


witnessed a positive trend as land values kept rising and supply decreased.

Rental / Capital Values

Noticeable Trends

Domestic SEZs catching


speed

Difficultly to setup 100% export based SEZ units due to locational and other
regulations is enabling demand for domestic based SEZ spaces.

Demand of temperature
controlled warehouses

Specialized storage requirements for chemicals, F&B category is increasing


demand for temperature controlled warehouses

DMIC to increase
warehousing supply
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

DMIC will comprise of 13 industrial areas driving warehousing supply


DMIC-Delhi Mumbai Industrial Corridor

265

Hospitality Space Market Size and Rental Growth

Travel and tourism industry is growing steadily but requires quality infrastructure support to
be competitive globally .
Indias Position in the World

By Industry
Competitiveness

65th

By Hotel
Infrastructure

By Foreign Tourist
Arrivals

67th

42nd

Source: Travel and Tourism Competitiveness Report 2013

Top 6 cities in Tourist Arrivals by Air

Domestic and International Tourists Arrivals


Contribution of travel & tourism to GDP: ~6.2%

20
1,152

1,200
1,036
1,000
864
753

800
674
600

18
Nu
umber of touris
st arrivals (millions)

Nu
umber of touris
sts arrivals (millions)

1,400

532

568

400
200

18
16

16
14

13

12

11

10
8

2007

2008

2009

2010
2011
Ti
Time
(Years)
(Y
)

Tourist arrivals

2012

2013

5
4

3
2

2
0

0
NCR

Mumbai
Chennai Bengaluru Kolkata
Major Tourist Destinations
Total

Domestic

Hyderabad

Foreign

Source: Ministry of Tourism


CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Source: Airports Authority of India

266

Hospitality Space Present and Upcoming Inventory

Hospitality space inventory is set to grow steadily in future as occupancy rate is getting
stabilized.
Hospitality Space - Supply and Demand Trends
140,000.0

62%

120,000.0

60%

Number of roo
N
oms

56%
80 000 0
80,000.0
54%
60,000.0
52%
40 000 0
40,000.0

50%

20,000.0

Average Oc
ccupancy Rate (%)

58%

100,000.0

48%

0.0

46%
2013

2014

No. of rooms

2015e

2016e

2017e

Occupancy Rate

Note: Figures represent aggregated numbers of Top 8 cities : Mumbai, Delhi-NCR, Kolkata, Chennai, Bengaluru, Hyderabad, Pune, Ahmedabad | Numbers are forecasted for 2015, 2016 and 2017
Source: Cushman and Wakefield
CopyrightC Nomura Research Institute, Ltd. All rights reserved.

267

Hospitality Space - Performance in FY14-15

Hospitality space demand continued to grow


grow, with increasing supply of hotel spaces
spaces. As a
result room rates have remained largely stable due to increasing local competition.
Market Factors

FY14-15
FY14
15 Growth Trend

Reason
Domestic tourism increased by 10% and international by 5.9% over previous
year

Demand

The average occupancy rate across Top 8 cities have improved


improved, indicating
increasing demand for hospitality space

Top 8 cities are expected to add over 44,000 new keys by 2018 end, with Delhi
and Mumbai accounting for 51% of new supply

Supply

Overall, the supply stock across all major cities have grown, with Delhi having
highest y-o-y growth of 16.5% in supply.

Average room rates across most metro cities have not increased considerably
over last year, since increased supply amplified competition and quest for
maintaining occupancy.

Average Room Rates

Overall occupancy rates were in the range of approx. 54-60%

Noticeable Trends

Domestic tourism to majorly


drive hospitality
p
y space
p
demand in India

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Depreciating rupee is likely to further boost domestic tourism as overseas


leisure trips become more expense
A
As a result
lt d
demand
d ffor mid-high
id hi h end
dh
hotel
t l spaces may lik
likely
l iincrease iin nearterm future

268

Authors

Tomohiko TANIYAMA
Author of Real Estate Investment
Products
Taniyama is engaged in consulting and research
projects. His resent research theme is the analysis
of alternative investment market including real
estates and infrastructures, and the development
of new financial instruments and new real estate
economic models.

Keita KAMEI
Author of Logistics Property Market
Kamei is engaged in consulting and research
projects, undertaking real estate, housing , housing
infrastructure-related
loan, and infrastructure
related survey/research,
as well as business strategy planning.

Yue KANG
Author of China
As a Consultant at NRI Shanghai, Kang is
engaged in consulting and research projects such
as urban and regional development, and planning
of real estate business strategy.

YoonJi BAE
Author of Household Economy and
Housing market trends, Indirect
Investment Market Trends in Korea
As a Consultant of Real Estate,, Retail,, Service
Division at NRI Seoul, Bae is engaged in
consulting projects related to Housing/Real estate
business strategy, Making business plan.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

Akira DAIDO
Author of Population Movements in
Japan and Residential Property Market
Daido is engaged in consulting and research
projects such as real estate and housing, electric
industry, and planning of business strategies.

Seiya HARIMA
Author of Macro Fundamentals of
Japan
Harima is engaged in consulting and research
projects such as real estate/infrastructure-related
survey/research, and planning of business
strategies.

JaRyoung CHOI
Lead Author of Korea
As a Executive Director of Real Estate, Retail,
Service Division at NRI Seoul, Choi is engaged in
consulting and research projects such as urban
and regional development, real estate business
strategy and real estate investment strategy,
business strategy planning.

KangTae PARK
Author of Office Market Trends in
Korea
As a Consultant of Real Estate, Retail, Service
Division at NRI Seoul
Seoul, Park is engaged in
consulting projects related to Distribution strategy,
Plan of operation/ Execution support.

Hirokazu SAO
Author of Retail Property Market
Sao is engaged in consulting and research
projects, mainly on real estate, housing and
infrastructure-related cases. Sao undertakes
survey/research as well as business strategy
planning.

Yinhua BAI, Ph.D.


Lead Author of China
Bai is engaged in consulting and research projects
such as urban and regional development, and
planning
l
i off reall estate
t t business
b i
strategy.
t t

JunWon SEO
Author of Hotel Market Trend in Korea
As a Senior Consultant of Infra Business develop
Division at NRI Seoul, Seo is engaged in
consulting projects related to Real estate business
strategy and development, Urban Development.

DongHyun LEE
Author of Business Trends in Korea
As a Consultant of Real Estate, Retail, Service
Division at NRI Seoul, Lee is engaged in consulting
projects related to Distribution/Analysis of
consumer's market and marketing.

269

Authors

Michihiro KONAGAI
Lead Author of Taiwan
Konagai is engaged in consulting and research
projects such as infrastructure development and
business strategy planning in infrastructure market.

Amit KUMAR
Lead Author of India

Yasuyuki ARAKI
Author of Singapore
Araki is engaged in consulting and research
projects such as investment environment analysis
in real estate and infrastructure market, and
planning the business strategies and overseas
market strategy.

Wataru KADOBAYASHI
Author of Real Estate Market India

As a Division Head of Business Strategy


Consulting Division at NRI India, Kumar is
engaged in consulting and research projects such
as infrastructure-related
infrastructure related business strategy
strategy, M&A
and corporate alliances.

As a Group Manager at NRI India, Kadobayashi is


engaged in consulting and research projects such
as infrastructure-related business strategy,
gy,
overseas business, and corporate alliance or M&A.

Anoop KUBBA

Toshiro TAKEKOSHI

Author of Real Estate Market India

Manager, Consulting division

As a Business Analyst in Business Strategy


Consulting Division at NRI Inida, Kubba is engaged
in consulting and research projects related to
infrastructure, real estate industry, economic
policies and regulations.

Takekoshi specializes in infrastructure business,


with particular focus on real estate and energy
industries, advising clients on management and
business strategies, as well as cross border
alliance and M&A.

Aya IMAI

Kazuya SAITO

Editor

Editorial assistant

Imai is engaged in research and consulting with


specific focus on real estate and housing
i d ti
industries,
primarily
i
il conducting
d ti cross b
border
d entry
t
strategy planning.

Saito is engaged in research, particularly market


forecasting, as well as consulting with specific
f
focus
on construction
t ti company. Saito
S it also
l works
k
on the reconstruction of earth quake hit cities.

CopyrightC Nomura Research Institute, Ltd. All rights reserved.

SungYun (Sonny) KIM


Author of Japan and India
Kim has been engaged in real estate related
consulting projects and research for years. His
current interest in real estate investment market
includes behavioral investment, market cycle
theory, demographic impact on real estate market,
real estate securitization, global real estate
investment, and financial crisis.

Arpit MARTHUR
Author of Real Estate Market India
As a Consultant in Business Strategy Consulting
Division at NRI India, Mathur is engaged in
consulting and research projects such as
infrastructure related business strategy and
infrastructure-related
alliances.

Kengo MIZUNO
Managing Director
NRI Thailand
Mizuno specializes in real estate and housing
industry in Thailand.

Contact: Nomura Research Institute, Ltd.


Consulting Division

270

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