Industry Overview

8. INDUSTRY OVERVIEW 8. INDUSTRY OVERVIEW savills Savills (Malaysia) Sdn Bhd Level 9 Menara Milenium Date: 21 February 2017 Jalan Damanlela Bukit Damansara The Board of Directors 50490 Kuala Lumpur ECO WORLD INTERNATIONAL BERHAD MalaysiaSuites 3A.01, Level 3A, The Gardens North Tower, T: +6032092 5955Mid Valley City, Ungkaran Syed Putra, F: +603 2092 5966 59200 Kuala Lumpur, www.savills.com.myMalaysia Dear Sirs, EXECUTIVE SUMMARY OF THE INDEPENDENT PROPERTY MARKET REPORT ON THE LONDON AND SYDNEY PROPERTY MARKET Savills (Malaysia) Sdn Bhd (“Savills”) was commissioned by Eco World International Bhd (“EWI”) to provide an executive summary of the Independent Property Market Report (“Report”) for the specific purpose of inclusion into EWI’s Prospectus, in connection with EWI’s proposed initial public offering and listing of EWI on the Main Market of Bursa Malaysia Securities Berhad. This executive summary of the Report is required for submission to the Securities Commission Malaysia (“SC”) andl or relevant parties, in accordance with the requirements of the Prospectus Guidelines issued by the SC. It is understood that EWI presently has property development projects in London, United Kingdom (“UK”) and Sydney, Australia (“Development Projects”). Accordingly, this executive summary of the Report aims to provide an overview of the real estate industry in London and Sydney. This will include a macroeconomic overview, regulatory overview, property market overview, property development sector overview and submarket analysis of the Development Projects. In accordance with our normal practice, we would state that this executive summary of the Report has been prepared for general information purpose only and do not constitute a formal valuation, appraisal or recommendation. It is only for the use of the persons to whom it is addressed and we accept no responsibility to any third party for the whole or any part of its contents. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent, which will not be unreasonably withheld. We confirm that we are aware of our responsibilities under Section 215 of the Capital Markets and Services Act 2007 of Malaysia. We acknowledge that if we are aware of any significant changes affecting the contents of this executive summary of the Report between the date hereof and before the issue of the securities, we have an on-going obligation to either cause this executive summary of the Report to be updated for the changes and, where applicable, cause EWI to issue a supplementary prospectus, or withdraw our consent for the inclusion of this executive summary of the Report in EWI’s Prospectus. Savilis has prepared this executive summary of the Report in an independent and objective manner and has taken reasonable care to ensure the accuracy and completeness of this executive summary of the Report. We believe that this executive summary of the Report presents a true and fair view of the industry based on our experience in the property market and information that we were able to collect from pUblic and Offices and associates lhroughoullhe Americas, Europe, Asia PacIne, Africa and tile Middle East. Savills (Malaysia) Sdn Bhd (Company no, 333510″P) /£11\’~~ (~RICS VE(1)0232 8. INDUSTRY OVERVIEW (Cont’d)
savills private sources available to us at the time that this executive summary of the Report was prepared, however readers of this executive summary of the Report must be aware that the information obtained from such sources is subject to change and may prove to be incorrect. Our research has been conducted to present a view of the overall industry and may not necessarily refiect the performance of individual companies in this industry. Our findings are based on the assumptions given. As is customary with market studies, our findings should be regarded as valid for a limited period of time and should be subject to examination at regular intervals. We are not responsible for the decisions andlor actions of the readers of this executive summary of the Report. This executive summary of the Report should also not be considered as a recommendation to buy or not to buy the shares of any company or companies. Yours sincerely, SAVILLS (MALAYSIA) SDN BHD
Datuk Christopher Boyd Executive Chairman 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research s8vills TABLE OF CONTENT 1. UK and London Macroeconomic Overview 2 1.1. Market Definition.. .. .. 2 1.2. Economic Overview.. . .4 1.3. Major Infrastructure Projects in London.. . 7 2. UK Regulatory Environment Overview 8 2.1. Property Development: Process and Key Regulatory Bodies.. .. .. 8 2.2. Ownership! Title Restrictions and Holding Tenure.. . 8 2.3. Foreign Ownership. . 8 2.4. Specific Taxation Rules and Exemptions, Incentives and Policies. . 9 3. London Property Market Overview 11 3.1. Residential Property Market Overview.. . 11 3.2. Commercial Property Market Overview.. . 23 4. London Property Development Sector Overview 25 4.1. Activities and Segmentation of The Industry.. . 25 4.2. Market Size! Transaction Activi’ty.. . 25 4.3. Industry Players and Competition.. . 25 4.4. Substitute Products and Services.. . 27 4.5. Industry Reliance! Vulnerability to Imports.. . 27 4.6. Barriers to Entry.. . 27 4.7. Sector Outlook and Prospects . 27 4.8. Factors Affecting the Forecasts. . 29 5. London Submarket Analysis 33 5.1. Embassy Gardens Phase 2.. . 33 5.2. Wardian . . 34 5.3. London City Island Phase 2.. .. 36 6. Australia Macroeconomic Overview 37 6.1. Australia Overview.. . 37 6.2. NSW Overview. . 40 7. Australia Regulatory Environment Overview , 41 7.1. Types of Property Ownership. .. 41 7.2. Overseas Ownership Restrictions.. “., 41 7.3. Tax Legislation.. . 41 7A. Relevant Laws and Regulations Governing the Industry. .. 43 8. Sydney Property Market Overview 44 8.1. Residential Property Market Overview.. . 44 8.2. Office Property Market Overview.. . 56 8.3. Retail Property Market Overview.. .. 61 9. Sydney Property Development Sector Overview 63 9.1. Activities and Segmentation of the Industry.. . 63 9.2. Market Size -Sydney and Australia.. . 63 9.3. Industry Players and Competition.. . 64 9.4. Substitute Products.. ..65 9.5. Vulnerability to Imports. . …. 65 9.6. Barriers to Entry.. . .. 65 9.7. Industry Outlook and Prospects.. .. 65 10. Sydney Submarket Analysis 67 10.1. Overview-WestVillage, Parramatta.. . , 67 10.2. Competitive Positioning and Target Market.. 67 10.3. Competition and Market Share.. . 67 10A. Pricing Analysis. . ,…….. . 68 10.5 Outlook . . .. 66 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 1. UK and London Macroeconomic Overview This seclion provides a general economic overview of the UK and London both historic and projected, 1.1. Market Definition Figure 1-1 below defines the geographical boundaries and boroughs of Greater London as referred to in this executive summary.
There are 33 individual boroughs in Greater London. Figure 1-1 -Greater London
HounsloVv Source: Savills Research Figure 1-2 below defines the geographical boundary and submarkets of the Prime London residential market. Over time the boundaries of the Prime London residential market, as defined by both location and quality of stock, have expanded as demand for prime residential property has increased. Many areas on the fringes of the traditional prime locations are increasingly seeing supply of new prime property, priced at over Great Britain Pound (GBP)1 ,000 per square foot (psf). These new prime locations include areas such as Hammersmith, Canary Wharf, Battersea, Paddington and Southbank where there are currently large volumes of prime residential development underway.
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report

Note,· The shaded areas indicate the boundaries of the respective zones, reo Central. West, South West, North West, North. and East. Source: Savilfs Research Our analysis of Central London commercial markets focuses on the areas shown in Figure 1-3. The London City Island site sits just outside the Canary Wharf submarket However, with the development planned for this area we expect it to become incorporated into the 5ubmarket following development. I Note The shaded areas indicate fhe boundaries of the respective zones, ie, Centra!, West, South West, North West & North & East Source.’ Savills Research 8. INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report savill$) 1.2. Economic Overview Gross Domestic ProdLlct (GOP). Between 2014 and 2015, the GOP in the UK grew by 2.2%, signalling a slow-down in economic growth when compared to the growth rate between 2013 and 2014 (3. 1″/Q). In light of the UK’s decision to leave the European Union (EU), Oxford Economics predicts that this downward trend will continue, with 1.1% growth in 2017. However, as the negotiations to leave the EU progress, GOP growth is set to pick up and increase gradually from 2018 onwards. The International Monetary Fund (lMF) also predicts for the UK economy to grow 1.5% in 2017. More recently, the Office for National Statistics (ONS) recorded quarterly GOP growth of 0.6% in both Q3 2016 and 04 2016, 0.3% and 0.1% above previous expectations for the respective quarter. This represents 16 quarters of consecutive positive growth and the continued expansion of the UK’s economy acts as an important indicator for the economy’s resilience. Full year GOP growth of 2.0% in 2016 is also above expectations. E UK • London .,.<Xl o N <D r-­<Xl o”‘ <D r-­'” 000 o ‘” o ‘””‘ ‘” NN NN ~ “‘N o 0 0ooo o ~ ooooooooo 0 o 0 oo NNN NNNNNNNNNNNN NN NNNN Source: Oxford Economics GOP per capita. In terms of GOP per capita (based on working age population 15-64), London far outstrips the UK. GOP per capita in London is estimated to stand at GBP56,707 for 2015, compared to the UK average of GBP35,018. Growth in GOP per capita in London has also been stronger than the national average with average expansion per annum of 1.2% between 2005 and 2015. Growth averaged 0.7% per annum across the UK over the same period. Going forward, forecasts from Oxford Economics suggest that GOP per capita growth in London will outperform the 2005-2015 average of 1.2% with growth of 1.5% per annum through to the end of 2025. Foreign Direct Investment (FDI). FDI into the UK has been gathering pace since 2012, in line with improving economic conditions. In 2014 net FDI reached an all-time high of USD190.7billion, and reduced to USD114.3biliion. Forecasts suggest that net FOI will be in negative territory over the next nine years, (2017-2025), however it will be marginal. Due to the strengthening outlook for the UK economy, in particular the domestic economy, we do not expect this marginal decline to have any significant material impact on the economy. Figure 1-5 -UK Net FDI ,300,000 ,,,200,000 Forecast ogs 100,000 is 0 ,
,u.. I.II.­• –I.i,..——-~——­-100,000 ,,,,-200,000 <D r-­<Xl o ~ .,. <D r–<Xl o N .,. ~~ooooo N'” NN NN :Q””” ‘” oooooo 0o 0oo “‘ o o ooo 08 ‘” ooo NNNNN NN NN NNNNNNNNN NNN Source: Oxford Economics Currency Performance. As of the end of 2016, GBP was 170% down against the USD where it was in 2015. Since the EU Referendum, the GBP has experienced increased volatility and significant falls against olher currencies, often driven by political announcements and updates on economic performance. The GBP’s volatility is likely to continue throughout the two-year negotiaHon process to leave the EU, which is due 10 commence in March 2017. Although currency devaluation could slow household income growth and affect consumer sentiment. foreign investors will benefit from significant currency advantages. 8. INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report savills Figure 1-6-UK Currency Performance 8.000 “”~ “‘” “‘” USD per GBP -MYRperGBP
~ a. ~ 6.000 .–“”
c ro {ilL x CD 4.000 wCl il’ o 0.000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Bank of Engffind Interest Rates. Given the British electorate has decided to leave the EU, the Bank of England now faces significant economic uncertainty. To tackle any potential negative effects following Brexit, the Bank of England cut the Central Bank Rate to 0.25% in August 2016. Economists expected a further cut to 0.1 % between Q4 2016 and 01 2017 until the Office for National Statistics pUblished new economic dala on 27th Oclober 2016, which indicates thai the UK’s economy expanded by 0.5% in Q3 2016, stronger than analysts’ estimates of circa 0.3%. This unexpected growth in GOP is likely to delay further interest rate cuts. According to Oxford Economics, fhe interest rate is likely to be Gut 10 0.1 % in 2017. The interest rate is likely to remain this level until 2018, after which it will gradually increase to 0.2% in 2019 and 0.7% in 2020. Figure 1-7 -UK Central Bank Rate and 10 year Government Bonds –Interest rate, central bank policy —“Interest rate, 10 year government bonds 6.0 5.0
Forecast *4.0 ~3.0 a:: 2.0 1.0 0.0
COO)O..-Nr0(0 I’­m o N <1″‘ (0 I’­<1 “‘ o 0 0o0 ~ NNNNNN “” “”‘ “‘ 000000000o 0oooooooooo NNN NNNNNNNN NNNNNNNNNN Source: Oxford Economics Inflation. The UK has entered a temporary bout of stagnant inflation (based on Consumer Price Index (CPI) measure) at around 0.1% year-on-year in 2015. In November 2016, inflation rose to 1.2%, up from 0.9% in October 2016. The GBP’s continuous fall since the EU Referendum is likely to push inflation further. Economists expect inflation to rise above the Bank of England’s 2% target throughout 2017 Figure 1-8-UK Inflation Forecast 8. INDUSTRY OVERVIEW (Cont’d)

~ ~ ~ co 0) o 0 000 000 0 0 N N N N N Source: Oxford Economics  0 0 N  ~ .”… 0 N  N 0 N  r0 0 N  ~ 0 N  “‘ o N  (0 0 N  I’­0 N  “” ~ o N  m ~ o N  o N o N  N o N  N N o N  “”‘ N o N  <1 N o N  “‘ N o N  Savills Research  186  5
Independent Market Report: Executive Summary Savilis Research Report s8vills UK Trade. Since 1998, the UK has been running consistent current account defl’cits mainly due to an increase in demand for consumer goods, decline in manufacturing, appreciation of GBP against foreign currenc1es such as USD and the EUfO and deterioration in oil and gas production. The forecast for 2016 suggests that the trade deficit will increase to a total of GBP’l 04.4bn. Going forward, forecasts suggest the trade gap will narrow further over the upcoming years in response to GBP’s devaluation and progressing Brexit negoOations with the EU. UK and London Working Age Population Growth and Employment. London’s working age population stands at circa 5.9m (as of end 2015) having seen an average increase per annum of 1.2% between 2010 and 2015, greater than the 0.2% reported across the UK as a whole. London’s rapid population growth reflects its status as a world city which attracts both domestic and international migrants. The economic strength of London is reflected in its GDP per capita, which far exceeds the national average. In terms of total employment growth, London is forecasted to see an average expansion of 1.0% per annum between 2016 and 2025, exceeding the UK average of 0.5%. The forecast employment expans,ion of the above mentioned sectors will have positive implications on occupational demand for office space in the city, as well as accommodation demand for residential. Likewise, the continued growth in total employment forecast for London between 2016 and 2025, and with it the forecasted fall in the London unemployment rate to 5.4%, will have positive implications on consumer confidence and in turn retail spend. Despite the vote to leave the EU, London and the UK remain one of the most attractive centres of employment. In 2016, the technology and media sector accounted for 13% of office space take-up in City and 36% in West End, and was higher than the take-up of banking, insurance and financial services sector. High-profile investment announcements from GlaxoSmithKline pic and Softbank Group Corporation also reinforce the UK’s and particularly London’s resilience to economic and political shocks, and provide reassurance to both investors and employees. Figure 1-9 -UK and London Total Employment Growth !& UK • London Forecast 5.0% C 4.0%
j 1ij 3.0% 2 ~ 2.0% ~ § 1.0%
c, ddl”‘Jl..idillor·Q) ro 0.0% …………………………..••..•……••~………… .t
~ ~-1.0% c.. ~ -2.0% ~~ -3.0% ,, .1 ..ro “5 -4.0% , 15 U”) <D r–ro o N .,. <D ro 0 N U”) f-ooo 0§ ~ ‘” tjN'” N ooo 0oooo ooo8 o o NN NN NNNN NNN NN NN N Source: Oxford Economics Income Levels and Disposable Income Levels. The occupational profile of Greater London as opposed to the wider UK is apparent in average income levels. The Greater London average in 2015 was circa GBP34,669 per annum, 12.3% higher than the UK average of circa GBP30,860 pointing to greater levels of affluence in London. This differential has been narrowed since the previous peak when the differential was 19% in 2007 as real wage growth has stagnated particularly in the higher earning occupations. Forecasts suggest that this differential will slowly widen with income growth in Greater London set to outpace the UK with average annual increases of 3.4% per annurn through to the end of 2025 with 3.3% per ann urn forecast for the UK. A sirnilar pattern is observed when exarnining real disposable incomes, although the differential between Greater London and the UK is far more pronounced. For example, in 2015 the differentia! between Greater London and UK was 21.4% reflecting an increase from 2007, Going forward, this differential is expected to decrease to 18.1 % by 2020, as regions outside London enhance their economic performance. Greater London’s higher income and disposable income levels emphasise Its generally higher affluence levels compared to the wider UK average.
8. INDUSTRY OVERVIEW (Cont”d) Independent Market Report: Executive Summary Savills Research Report savills 1.3. Major Infrastructure Projects in London In the London Plan (the statutory spatial development strategy for the Greater London area that is written by the Mayor of London and published by the Greater London Authority (GLA)), the GLA identifies the key infrastructure projects in the pipeline. The key currentprojectisCrossrail I,which is currently underconstruction andwill open by2018.Crossrail [I, althoughnot yetfUllyapproved is very likely to come forward as a preferred route has been announced. Crossraill is Europe’s largest infrastructure project and as such is likely to have the most significant impact on London’s real estate landscape. In light of its scale we have summarised the key features of Crossrail I, Crossrailll and Northern Line Extension below: 1.3.1. Crossraill (under construction) • It will deliver the first direct connection from West to East, linking all London’s main employment centres such as Heathrow with Paddington, the West End, the City and Canary Wharf,
• 40 stations will be connected, 10 of which will be new Crossrail stations.
• The central section of the line will operate 24 trains per hour during peak times
• Each train will be able to carry 1,500 passengers with an estimated 200 million passengers travelling on Crossrail I each year.
• It will increase rail-based transport capacity by 10% and will reduce journey times, bringing an extra 1.5 million people within a 45 minutes journey time within Central London.
• The first stations will be opened in 04 2018 and it will be fully operational by 2019.

1.3.2. Northern Line Extension • Extension of the existing Northern line which currently runs from High Barnet or Edgware in North London, through Central London including key transport hubs such as ToUenham Court Road, Kings Cross and Bank, and onto Morden or Kennington in South London.
• According to Transport for London, the extension will help to regenerate the Vauxhall, Nine Elms and Battersea areas by supporting 24,000 new jobs and more than 18,000 new homes
• Two new stations to be built at Battersea and Nine Elms will be opened by 2020.
• Journey times from Nine Elms or Battersea to the West End or the city will, in some cases, be less than 15 minutes.

 

1.3.3. Crossrailll (proposed) • Crossrail II is proposed to run North to South across London and, like Crossrail I, will be a new high-frequency, high-capacity rail line The scheme is still in the early stages in terms of developing the proposals but a preferred route has been announced. No station locations have been finalised, with no dates earmarked for construction, However, SUbject to the scheme getting the go-ahead, current estimates are that it could open to the public some time during the 2030s.
Crossrail2 is expected to unlock 200,000 additional homes across both the South East and London. The London Plan also inclUdes details of other transport infrastructure improvements that are needed, including improvements to roads, bridges and piers. In addition, there are major works that need to be undertaken to ensure the city’s other needs continue to be met, including requirements for electricity, internet access, waste and sewage disposal. A major project that is expected to improve infrastructure access is the proposed Heathrow Airport expansion.
1.3.4. Heathrow Airport Expansion • In 03 2016, the UK Government approved a third runway at Heathrow Airport. The proposed 3.5km long runway is expected to cost approximately GBP17.6bn. A report by the Airports Commission shows that a new runway at Heathrow could add over GBP147bn to lhe UK economy over the next 60 years and create over 76,000 new jobs by the end of 2030.
• If the expansion progresses according to schedule, the new runway could be operational by 2026.

Transport infrastructure improvemenls are distinctly tied to hOUSing. Plans for new transport infrastructure, including new train and tube lines, would not only increase transport capacity but also have the potential to open up new parts of the city for development and regeneration, and boost housing delivery. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 2. UK Regulatory Environment Overview 2.1. Property Development: Process and Key Regulatory Bodies 2.1.1. RegUlation of Property Transactions When a residential property is transacted, it is likely that at least three different advisory companies will be involved, Le. those acting 85 sales agent(s}, those acting as surveyor and those acting as solicitor. If mortgage finance is needed, a mortgage advisorl brokerl proVider may be involved. Where a project involves property development or investment finance, the Prudential RegUlatory Authority1 (PRA), in addition to the Financial Conduct Authority2 (FCA) may be responsible for regulating the financial organisation(s) involved. Property finance, including the provision of debt for commercial and residential projects, is a specialised area of regUlation A range of new lenders have entered the property finance market since around 2009, employing a range of business models. These are not just banks, bUilding societies and insurance companies, but also senior debt funds, peer to peer lenders and special opportunities funds. Each category is subject to its own particular regime of regUlation.
2.1.2. The Property Development Process It is likely that major works being undertaken on the interior or exterior of a building will need to comply with planning and building regulations. Planning regulations determine what you can build, Building regUlations control how you must build it. The construcflon of a new building requires planning permission. Alterations to an existing building may require planning permission or maybe subject to ‘prior approval’ under ‘permitted development rights’. All plans must be consistent with local planning regUlations, which are regulated at a borough level by the boroughs’ own local Development Framework in the context of the London Plan. Strategic planning in London is the shared responsibility of the Mayor, the 32 London borough councils and the Corporation of the City of London. The Mayor must be consulted on planning applications that are of potential strategic importance to london. Planning consents may be subject to planning obligations (including Section 106 (S106) affordable housing requirements, other S106 obligations and Section 278 highway agreements) and Community Infrastructure levy (Cll). There may also be other conditions attached to the planning permission. Plans for new housing should take into account the housing standards set out in the london Housing Design Guide. BUilding regUlations are implemented by the local building control office. 2.2. Ownershipl Title Restrictions and Holding Tenure The principle tenures under which property is held in the UK are: • Freehold -property is held in perpetuity; and leasehold -property is held by a tenant for a defined period under the terms of a lease.
There are three types of freehold title: Absolute -granted where there is little or no room for debate on the ownership of the property;
• Possessory -granted where there is nO documentary evidence of ownership. This can be upgraded to absolute title after 12 years under adverse possession provisions; and
• Qualified -granted where evidence of ownership is SUbject to a fundamental defect.

Recent property tax changes have sought to align the treatment of domestic, non-domiciled and non-natural persons in relation to the purchase, holding and sale of residential property. In July 2015, the Government announced changes to the taxation of foreign non-domiciled persons. These are subject to consultation. 2.3. Foreign Ownership There are no restrictions on foreign ownership in the UK 1 The PRA is part of Bank of England lhat acts as regulatory and supervision body of banks, building societies, credit unions, insurers and major investment firms l The FCA is tasked to mainlain the Integrity of the UK’s financial markets and to regUlate financial firms providing services 10 consumers. Savills Research 8 189 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 2.4. Specific Taxation Rules and Exemptions, Incentives and Policies Focusing on the residential market. there are various taxes, rules and exemptions that apply.
2.4.1. Stamp Duty Land Tax (SDLT) The Autumn Statemene 2015 announced substantial reforms to Stamp Duty Land Tax (SDLT) and restricted tax relief on mortgage interest for buy-ia-Iet (BTL) investors. A SOLT surcharge of 3% was announced which applies to the purchase of second-homes or buy-Io-lels and became effective from 1st April 2016. Large scale investors are not exempt from the surcharge. Mixed used assets will not be affected by the surcharge as they are considered non-residential transaclions. Fi ure 2·1 -SOLT PurChase Price Sole Property Effective Rate GBP125,000 0.0% GBP250,000 1.0% GBP500,000 3.0% GBP1,OOO,OOO 4.4% GBP2,000,000 7.7% GBP5,DDD,DDD 1D.3% Source: HM Revenue & Customs Non-natural persons (corporate structures) are required to pay Stamp Duty of 15% on any transaclion above a value of GBP2,DDD.DDD. 2.4.2. Annual Tax on Enveloped Dwellings (ATED) The ATED, introduced in April 2013 applies to non-natural persons (i.e. companies) who hold a property valued over a certain amount. ATED applies if the property is a dwelling located within the UK, and is valued at more than GBP500,Oaa, GBP1 ,000,000 and GBP2,OOO,000 on 1 April 2012 or at acquisition, if later, for returns/filings from 2016, 2015 to 2016 and 2013 to 2014, respectively. The amount of ATED due is calculated using a banding system based on the value of the property. The charges for the financial year April 2016 to March 2017 are outlined below. Fi ure 2-2 -ATED Char es for 2016 to 2017 Propert Value GBP5DD,DD1 -1.000,000 GBP1,DDD.DD1 -2,000,000 GBP2,DDD.DD1 -5,DDD,DDD GBP5,DDD,DD1 -1D,DDD,DDD GBP1D,DDD,DD1 -2D.DDD,DDD Over GBP20,000,001 Source: HM Revenue & Customs ATED annual charge 2016 to 2017 GBP3.5DD GBP7.DDD GBP23.35D GBP54,45D GBP1D9.D5D GBP218.2DD The following list, which should not be considered eXhaustive, highlights where exemptions may apply: The property is held by a property development company. The property is let out commercially to a third party. The property is owned by a company in its capacity as a trustee (the beneficiary of the trust may be liable). The property is owned by a charity and used for a charitable purpose.
2.4.3. Capital Gains Tax (CGT) CGT is the tax paid on any profit made on a liable asset where the asset has increased in value when disposed of. It is only paid on the total gains above a tax free allowance (the Annual Exempt Amount). The tax free allowance is GBP11, 100 for the tax year April 2016 -March 2017 (GBP5,550 for trusts). The following CGT rates apply as of 6th April 2016: 10% to 28% tax rates for individuals; 20% for companies; 20% to 28% for trustees or for personal representatives of someone who has died; 10% for gains qualifying for Entrepreneurs’ Relief; 28% for CGT on ATED -Ihe Annual Exempt Amount is nol applicable.
3 The Autumn Statement IS a statement outlining changes to fiscal policy made by the Her MaJesty’s Treasury to the Parliament. 4 An individual can qualify for Entrepreneur’s Relief if dispOSing of. 1) all or part of their business as a sole trader or business partner. 2) shares in a company where they have at least 5% of shares and voting rights, 3) assets they lent La their personaL bUSiness or personal company.
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills ………… ..
CGT applies to the sale of property where: The property is not the main residence of the owner including Buy~to~Let properties, business premises, land and inherited property The property is the main residence of the owner but has been let out (excluding a single lodger). The property is the main residence of the owner but part of it has been used for business. The property is the main residence of the owner but is over 5,000 square metres (including all buildings and grounds). CGT applies to gains made on residential property in the UK where the property meets the above criteria even if the property is owned by an individual non-resident for tax purposes. For a non-resident selling UK residential property, the CGT is only payable on the gain made since 5 April 2015. 2.4.4. Income Tax Income tax is payable on the income generated by residential properties owned and let by an individual where the rental income is more than GBP2,500 per annum. The income generated by properties owned by a company is assessed in the same way as any other business income. Figure 2-3 -Income Tax Rates
Tax rate  Taxable income above Personal Allowance (GBP1 0,600  Basic rate 20%  GBPO to GBP31 ,785 (People with the standard Personal Allowance start paying this rate on income over  GBP10,600)  Higher rate 40%  GBP31,786 to GBP150,OOO (People with the standard Personal Allowance start  paying this rate on  income overGBP42,385)  Additional rate 45%  Over GBP150,000
Source: htfps:l;\vvvw.qov.uk 2.4.5. Corporation Tax Corporation Tax is payable on the profits generated by limited companies and most unincorporated associations. Taxable profits include trading profits, investments and profits made from selling assets. Companies not based in the UK, but with UK branches or offices only pay corporation tax on profits from UK activities. From 1 April 2016, the Corporation Tax for company profits is 20%. The corporation tax main rate will be reduced to 19% by 1 April 2017, and 17% by 1 April 2020. 2.4.6. Inheritance Tax The rate of Inheritance Tax is 40% on anything above the GBP325,000 threshold, and may be reduced to 36% if 10% or more of the estate is left to charity. In the summer 2015 BUdget, the Inheritance Tax threshold was increased for home owners passing property to their descendants. In doing so they will effectively increase that threshold to GBP1 million for married couples and those in a civil partnership by 2020/2021, phasing in the additional relief from 2017/2018. Inheritance Tax relief applies to businesses and working farms, as well as buildings, land and works of art which have historic or scientific interest and are made available to the public to view. 2.4.7. Value-added Tax (VAT) The sale of a non-residential freehold or leasehold interest in UK land does not generally attract VAT unless the seller has “opted to tax”. Where a property has been opted for VAT (usually apply at 20%) and is income producing, or is intended to be so, then the asset can be treated as an acquisition of a property rental business and termed a ‘transfer of a going concern’, in which case VAT is not chargeable. However, VAT is applicable for all freehold sale of a new, or partly completed, commercial building. A building is new for 3 years from the completion date. 2.4.8. Buy-to-Let Mortgage Interest Relief In the summer 2015 Budget, a limit on mortgage interest relief for Buy·to~Let mortgages was announced, and IS to be phased in between Apr\l2017 and April 2020. Landlords will only be able to claim tax relief on their mortgage Interest payments at the basic rate of 20%, rather than their marginal rate (higher rate of 40% or the additional rate of 45%). 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 3. London Property Market Overview 3,1, Residential Property Market Overview This section outlines the historic performance of the London residential market and the key drivers underpinning future supply and demand. It provides an outlook for London, including capital and rental growth forecasts. Also covered in this sectlon are risks and projected future trends In terms of market performance as well as supply and demand dynamics. 3.1.1. DefIning the Residential Market Prime London as referred to in this executive summary relates to the upper segment of the residential markets in London, which is largely defined by properties priced above GBP1 ,000 psf. Within the second hand market, the Prime London market Is as shown on the map. Although not strictly defined geographically, these markets represent the higher value residential markets of London. Savills Prime London indices is composed of properties in these areas. A new build development is defined as prime according to value rather than location. Savills Research defines the new build Prime London market as any scheme where values average above GBP1 ,000 psf. This map shows the 33 boroughs that make up Greater London. The dark shaded area shows the area referred to as inner London in this executive summary. The white areas show outer London. The approximate boundaries of Prime London have been overlaid on top of the map in dotted lines. Please refer to Figure 1~2 for a zoom-in map of Prime London markets. The mainstream new build market is defined as schemes priced below GBP1 ,000 psf. The terms ‘Prime’ and ‘mainstream’ refer to pricing threshold of GBP1 ,000 psf and do not refer to a specific property type -second hand and new build property can be defined as mainstream and/or prime, Figure 3~1 ~ London Definitions
Source: Savilfs Research Savills Research 8. INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report savills……:…………………………… .._……… ._ _ .
3.1.2. Long Term Price Performance We have adjusted the Nationwide UK and Greater London House Price Index (HPI) and Savills Prime London Index for inflation by applying the Retail Price Index (RPI). Over the period from 04 1979 to 03 2016, the trend rate of real house price growth across Prime London was 4.1% per year. Real house price growth across Greater London has averaged 3.6% over the same period, compared to the UK 2.1 %. Historically, the price of Prime London property has risen substantially before a period of catch up by the rest of the UK. However, in the last two complete housing cycles from 1993 to 2009 the overall price gap between Prime London and the rest of the UK has widened. Figure 3~2 -Real Capital Value Indices by Location –Real London Nationwide -Real UK Nationwide Real Prime London Savills 600 o mO~N~v~~~romO~N~v~~~romO~N~v~~~romO~N~v~ ~rorororororororororommmmmmmmmmoooooooooo~~~~~~ mmmmmmmmmmmmmmmmmmmmmoooooooooooooooo ~~~~~~~~~~~~~~~~~~~~~NNNNNNNNNNNNNNNN vvvvvvvvvvvvvv~~~~~~~~~~~~~~~~~~~~~~~ 0000000000000000000000000000000000000 Source: Nationwide, Office for National Statistics, Savills Research The outperformance of Greater London compared to the UK reflects the fact that Greater London is a high demand housing market that is physically limited in size, and by low levels of supply, The outperiormance of Prime London reflects the different drivers of the market compared to mainstream markets in Greater London and the UK. Despite an imbalance between supply and demand, mainstream London housing markets, like the rest of the UK, are largely dependent on the domestic economy, the availability of mortgage finance and household affordability constraints. The market is debt rather than equity driven. In contrast, Prime London has been driven by both domestic and international equity and is regarded as one of the premier world cities in which to both live and invest. London’s appeal as a premier world city is a result of the amenities, quality of life and facilities offered. In addition, London is renowned for its global standing in terms of business and trade, and stability in terms of tax and politics. Other drivers include its time zone, use of the English language, historical and global ties and access to the financial markets. Strong international drivers in London’s prime residential markets have generated stronger long term price growth in comparison to growth in the mainstream markets. However, the markets are also more sensitive to international economic and political events, as well as regulatory changes. In light of the EU Referendum, London’s prime residential market faces both challenges and opportunities. As we move forward prime London markets will continue to be shaped by pre-existing constraints. The changed tax environment means buyers will commit only when they are confident that a property is rare, exceptional or represents good value for money, particularly as the risk environment has increased. As a result the market remains exposed to fluctuations in buyer sentiment and general economic pressures resulting from the vote to leave the EU. This points to a slow market over the remainder of 2016 as buyers wait to see how negotiations to leave the EU proceed and the precise economic impact becomes clearer. This brings with it the prospect of further price adjustments, as the market finds a level which brings buyers back to the table in greater numbers. This will present some opportunities for potential buyers who are prepared to take a long-term investment view and who have put themselves in a strong position to buy. The significant devaluation of the GBP offers potential buyers additional advantages when purchasing property in foreign currencies. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills …………………………………
3.1.3. Short Term Price Performance As stated, historically. the price of prime London property has risen substantially in the first half of a housing market cycle before a period of catch up by the rest of the UK. However, in the last two complete housing cycles, the overall gap between prime London and the rest of the UK has widened. Arguably, following the UK’s Dutperformance of prime London between 2002 and 2005, a new housing market cycle began. Growth stalled at the end of 2004, but rather than prices faJling, dramatic price increases occurred in prime Central London (peL). This strong growth continued to 2014, despite the credit crunch which occurred between the end of 2007 and 2009. However, the prime London housing markets entered a new phase in the middle of 2014. Following a period ofstrong growth, during which they absorbed a series of tax increases but were left looking fairly fully priced, values initially plateaued. They then adjusted in line with the further stamp duty rises introduced in December 2014. In the aftermath of these changes, and in the run up to the EU Referendum, the direction of travel differed between subsectors of the market. Lower value stock showed modest price growth, mid value property values broadly flatlined and values of high value stock gradually declined further. In this period taxation continued to shape the market. Though the additional stamp duty costs of 2014 were broadly factored into values, increased exposure to other capital taxes for non-UK owners also weighed upon the market. A further 3% stamp duty surcharge for second homes and investment stock caused a spike of activity in the run up to ils inlroduction on 1 April 2016. Thereafter it combined with pre EU Referendum uncertainty to subdue the market. As a consequence, prices in prime Central London were -10.6% below their 2014 peak at 03 2016. Across the remainder of the prime London housing market they were 3.6% below the 2014 peak. Importantly, successive tax changes made the market less fluid and increasingly restricted activity to the most committed buyers and sellers. Within the mainstream markets, prices have grown 1% between 02 2016 and 032016, indicating a slowdown compared to previous quarters. This credit driven market has benefitted from low interest rates and mortgage availability. Prices in the mainstream markets were slower to recover than Prime market following the crash in 2008. However, since June 2012, when mainstream London prices surpassed their previous peak, growth has accelerated. Despite the vote to leave the EU, annual growth remains positive and house prices in London are now 55% above the 2007/08 peak. Figure 3·3 -Quarterly Price Growth, Q3 2016 • Nationwide London fJ All Prime London .c i’ 7%” ‘” u 2% ” ‘:5. >­~ -3% t ‘”=>
a -8% ~~~www~~~~oooooooo~~~mooOO~~~~NNNN~~nn~~~~~~~~~~w OOOOOOOOOOOOOOOOOO~~~~~~~~~~_~~~~~~~~~~~~~~~~ 000000000000000000000000000000000000000000000 NNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNNN nV~N~v~Nnv_Nnv_Nn~~Nnv~Nnv~Nnv~Nnv~Nnv~Nnv~Nn 000000000000000000000000000000000000000000000 Source: Nationwide, Savills Research 3,1.4. Rental Market Performance In the five years prior 10 the EU Referendum. the prime London market has seen marginal rental growth of just 0.3%, with rents falling by -1.9% in the 12 months before the Brexit vote. The third quarter of 2016 saw average prime London rents fall -1> 7%. This reSUlted in year on year falls of -3.5%, the largest annual fall since 2009. The Central London rental market has experienced the largest price falls of all the London regions, with average quarterly values dOi’JIl -3.0%. This leaves the market -6.0% below its September 2014 peak before the slamp duty changes were introduced in December of that year. The impacts of Brexit on the prime rental market will be dependent upon the economic consequences of Brexit, most importantly on financial and business services. Tenants in the financial sector currently account for approximately a third of the prime rental market in London, though this proportion has been steadily decreasing over the last 10 years as more diverse sectors such as Tech, Media & Telecommunications are attracted to London. Oxford Economics forecast a drop in the number of employees in the UK finance sector over the next few years, which may impinge on corporate relocation demand, especially in the mid-market. The underlying uncertainty is expected to temper rental growth prospects. with tenants more budget conscious. Those tenants are also likely to be offered more choice, particularly given the high development pipeline in London and the potential for some of the new build stock to be re-directed to large scale insliiulional investors as managed rental stock. Savills Research B. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills Figure 3-4 -SaviJJs Prime London Rental Index Growth _ All Prime LoncJon —-pel .c
j 6,0% 2 4.0% :§'”2,0% c 0.0% ~ -2.0% ~-4.0% ~ -6.0% ~ -8.0%
a Source: SaviJIs Research 3.1.5. Residential Yields & Value The following graph shows residential yields according to the Investment Property Databank (IPD) index. Yields have compressed sUbstantially across London over the last decade, with the lowest gross yields found in Central London. Factors of the compressing yield include the increase in London property prices compared to the incomes of renters. Figure 3-5 -Gross Residential Yields in London 8″/0
–Central London —Inner London “~, “..,” Outer London 2% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: {PO Across London growth in residential yield has varied. Central more affluent boroughs recovered strongest since the crash in 2008, however in the last year growth has accelerated in the outer boroughs and slowed in these inner boroughs. The average residential values across all boroughs in London are detailed as below: Figure 3-6 -London Average Residential Values by Borough, August 2016 Average value at Average value Price above Annual growth (Aug
Area Quarterly growth~c-:;c-_:-:;-;=c:-:=c-_-,;2″,00:;;7’C10;;8:7’pe;,;a:ck~_~A;c;uC2g~u”S,;:t0’2’00cO’6c-_~2~O~O~7’C/O;o8c;’p~e~a~k 2~O~1~5 -Aug~2~01~62) -;;-= _ Barking and Dagenham GBP194,731 GBP276,575 42% 17.7% 3.4% Barnet GBP344,856 GBP536,339 56% 13Y’/o 4.3% Bexley GBP219,448 GBP326,249 49% 18.9% 4.1% Brenl GBP300,125 GBP496,404 65% 13.0% 2.2% Bromley GBP292,902 GBP439,602 50% 14.1% 3.9%\ Camden GBP520,769 GBP796,203 53% 0.2% -62% City of London GBP468,253 GBP864,238 85% 12.0% 7.2% CilyofWestminster GBP559,119 GBP1,004,544 80% 6.8% 1.7% Croydon GBP247,553 GBP364,863 47% 19.1% 4.7% Eallng GBP309,471 GBP494,818 60% 12.8% 4.1% Enfield GBP256,425 GBP390,354 52% 16.2% 3.3% Greenwich GBP240,546 GBP381 ,377 59% 13.6% 4.5% Hackney GBP327,167 GBP541,294 65% 4.1% -0.3% Ham~~~~~~~h and GBP513,994 GBP775,291 51% 0.1% 11% Haringey GBP325,761 GBP553,894 70% 16.1% 4.9% Harrow GBP306.548 GBP456,599 49% 11.7% 1.7% Havering GBP244,142 GBP347,134 42% 19.6% 3.8% Hillingdon GBP265,698 GBP411,996 55% 17.5% 3.9%
Savills Research 195

8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills Area  Average value at 2007/08 peak  Average value August 2016  Price above 2007/08 peak  Annual growth (Aug 2015· Aug 2016)  Quarterly growth  Hounslow  GBP273,176  GBP399,805  46%  12.9%  3.7%  Islington  GBP415,542  GBP667,400  61%  3.0%  2.4%  Kensington And Chelsea  GBP817,321  GBP1,279,266  57%  -2.5%  -1.0%  Kingston upon Thames  GBP324,881  GBP497.596  53%,  13.6%  3.5%  Lambeth  GBP318,361  GBP527.464  66%  9.0%  2.6%  Lewisham  GBP242,356  GBP416,615  72%  17.1%  3.3%  Merton  GBP313,584  GBP522,061  66%  13.5%  4.1%  Newham  GBP236,101  GBP365.228  55%  22.8%  7.1%  Redbridge  GBP276,649  GBP406,599  47%  18.3%  3.8%  Richmond upon Thames  GBP431,198  GBP678,627  57%  9.8%  3.2%  Southwark  GBP304,713  GBP525.352  72%  10.6%  1.7%  Sutton  GBP257,941  GBP377.305  46%  17.0%  4.8%  Tower Hamlets  GBP319.135  GBP468.254  47%  10.1%  0.7%  Waltham Forest  GBP247,906  GBP428,035  73%  197%  3.7%  Wandsworth  GBP394,137  GBP617,237  57%  8.3%  2.7%
Source: HM Land Registry, Savills Research 3.1.6. Transaction Volumes Unlike prices, transactions across London have failed to return 10 long term average pre-peak levels seen prior to 2007/2008 Figure 3-7 -London Transactions By Borough, July 2016 , 2007/08 Peak transactions Pre-peak averag-e–(2005~2007) Tjlll~2016′ % pre-peak i t” ~~rkin:~ _all~ _1J~g,~,~.~~.m 437 294 153 52% Barnet 706 543 265 49% 555 399 251 63% Brent 471 328 120 37% f3rc:nnl,~Y__ 866 651 __ 370 57% Camden 437 321 I 97 30%’ j E:I,~~I~X”. 33 25 624% ._~.~()Y.~~_Il. C,ity_,~JJ::9.!:1.~2D,,, 895 637 364 57% ~!3:I,i,llg 680 506 169 33% Enfield 647 504 201 40% Greenwich 581 431 205 48% Hackney 383 273 112 41% H_~,.r.n_m~rsmith and Fulham 416 324 128 40% _….__.. _..I:i._~_r.i_IlJJ_~y. 468 356 170 48%
Harrow 432 330 162 49%! _HIlI,I~ring 544 406 289 71%’ HUlin,gdon 581 433 226 52% . _’j I. Hounslow 552 374 153 41% 467 311 144 46% I _.~~_Il,~!Il_~~?,Il,And Chelsea 406 327 87 27% Kin_g,~,tC?,Il_,l..lJ?on Thames 442 325 179 55% Lambeth 700 520 249 48%> Lewisham 650 479 276 58% Merton 497 373 167 45% Newham 484 362 121 33% Redbridge 595 455 221 49% Richmond upon Thames 567 413 181 44% Southwark 540 437 242 55% Sutton 504 380 227 60% Tower Hamlets 536 439 166 38% Waltham Forest 528 406 218 54% Wandsworth 945 731 305 42% Westminster 588 481 106 22%
!_J!:’Ji.l’19~°rl Source: Land Registry, Savilis Research Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills According to Land Registry data over 2015 the total value of all transactions in London was GBP58.3biliion, of which more than 90% are attributed to transactions in the secondary market. Over the last 10 years, new build transactions have annually accounted for approximately 8% of the residential sales in London both by value and by volume. 3.1.7. Supply and Demand The supply of new homes in London has fallen drastically short of demand since the early 2000s. Although supply levels have been steadily growing since their 2011 trough, in 2014/15 (the latest year for which data is available from the GLA) the total net housing supply in London of conventional completions was 27,819. This still leaves a significant shortfall of 14,000 homes when compa red to the London Plan’s revised minimum target of 42,000 homes per year from 2015 to 2025. It is accepted that demand for housing is significantly in excess of the London Plan’s minimum target. According to the ‘Further Alterations to the London Plan’ (published in March 2015), when the backlog (i.e. historic shortfall of delivery) is taken into account, the requirement for housing rises to 62,000 homes a year from 2015to 2025. High levels of demand for housing in London are driven by employment growth in excess of the UK average, an ongoing status as a global centre offinance and the expansion of a world class higher education sector. This leads to significant levels of in-migration and levels of income growth above the UK average. Based on our analysis of residential development sites across LondonS, and assuming affordable housing delivery over the next five years continues at the average rate seen over the last five years, we are forecasting that total completions of homes will average 36,500 per annum during the five years 2016 to 2020. Our estimate of demand for new homes in London before the EU Referendum result was 64,000 per annum as at March 2016. This is based on analysis of projected growth in workplace employment, household projections by type and income distributions. It is estimated based on affordability of Londoners for both renting and owner occupation. This will leave a five year shortfall of just under 140,000 homes against the Savills Research estimate of 64,000 homes per annum It is still too early to assess whether demand estimates will need to be revised downwards as a result of the EU Referendum, however, even if considerable curbs on EU migration are implemented, there will still be a supply/demand imbalance in London.
3.1.8. Supply and Demand by Market Segment Our analysis of future supply against demand during the five years to 2020 indicates that the supply shortfall will continue in the mid and lower mainstream market segments below GBP700psf. Annual future supply has been estimated based on our knowledge of all schemes in planning as well as those pre planning where we believe some units will be delivered to market in the next five years. We have taken into account phasing of larger sites and made assumptions for smaller sites based on previous delivery levels. Savills Research calculales a minimum of 64,000 new homes are needed a year. Recent analysis indicates that supply is increasing towards the top of the market (>GBP1 ,000 psf) where price growth has pushed property values upwards. The mainstream price brackets are still experiencing a large supply-demand imbalance. We estimate a shortfall of circa 16,500 homes per annum in the mainstream markets based on an annual demand for 38,500 homes in these market segments. Fi9ure 3-8 -Supply Shortfall By Price Band (Below GBP1,OOO psf) 25,000 2′ 20,000.§ 20,000 17,000 ~ 14,500:§ 15,000 ~ 10,000
7,000 7;0’00·1························· c o :.g 5,000 3.000’ii
E jllWi%W~i\~dj}l80
w Lower Mainstream Mid Mainstream Upper Mainstream •z (GBP450psf) (GBP450-700psf) (GBP700-1,000psf)
• Occupier demand ~., 2016-2020 average annual forecast supply Source: Savills Research using MoliorLondon, CACI Ltd and Oxford Economics ~ Considering almost 900 slles expected to deliver between 2016 and 2020, logether wilh assumed delivery from smaller sites of less than 10 market units in Prime boroughs, less than 20 units in inner boroughs and less than 50 Units in outer boroughs. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 3.1.9. Prime London New Build Supply In the last two years development in the Prime London markets has increased and transaction levels have picked up. It is unclear whether the volume of prime supply expected to come forvvard in the next few years can continue to be met by demand. a risk which we will be monitoring going forward, however this is mainly an issue which will affect fringe prime areas and supply above circa GBP1 ,000 psf. It is important to note that we could see a revision downwards of our 5 year prime supply estimates as a result of the EU Referendum in June 2016. GJven that 25% of the prime supply pipeline is currently under construction, developers may choose to delay commencing construction depending on their funders’ requirements. We define the prime new build categories as follows: Lower Prime: GBP1 ,000 -GBP1 ,500 psf. inclUding South West Riverside, Fulham, City Fringe and Midtown Upper Prime: GBP1 ,500 -GBP2,000 psf, including South Bank, Fitzrovia and Victoria Super Prime: GBP2,000+ psf including Knightsbridge, Belgravia, Mayfair, Kensington and Chelsea As shown in Figure 3-9, there are very high levels of forecast supply above GBP1 ,000 pst. However, as can be seen from Figure 3-8,91% (58,500 of the 64,000 new homes needed as calculated by Savills Research) of annual occupier demand tor housing in London is at price points below GBP1,000 pst. At these price points, particularly below GBP700 pst there is a significant undersupply of new housing. Demand for homes above GBP1 ,000 pst has not been included in Figure 3-8 as a significant proportion of demand at this levei is discretionary and not reliant on a person’s income (the measure we have used to calculate demand by price band). In addition at these levels a high proportion of demand is from overseas buyers. It is not possible 10 accurately calculate or forecast the extent to which this demand will increase in line with increasing supply, but currently new build prime sales are holding up. We expect an additional 7,000 prime units on average to be available for sale each year between 2016 and 2020. Figure 3-9 -Total Net Supply in Prime Markets, Historic and Forecast • Lower Prime (GBP1 ,000-GBP1 ,Soopsf) ~ Upper Prime (GBP1 ,500-GBP2,Ooopsf) ;-” Super Prime (>GBP2,000psf) ~ 7,000 T –.———-.-.——.-­:g 6,000 {———–~-‘,–.. ~-~.~.-‘”–…'””–“. ~ 5,000 L,,-_ ~ 4,000 l·
:l2: I [; 3.000 ii~:~~~ !.~••~~_III~-~II § i 2009/10 I 2010/11 I 2011/12l 2012/13 I 2013/14 jI Annual Monitoring Report (Year to March) Savills Estimat~Savilis Forecas~
Source. Savills Research, Annual Monitoring Reporl, Molior (all prices at 2015 values) 3.1.10 Key Prime Drivers Whereas the mainstream markets are driven by affordability and mortgage access, buyers in the Prime markets tend to have better access to equity. As such, international equity-rich buyers make up a greater proportion of purchasers in the Prime markets. Prime Central London in particular is a target for investment by Ultra High Net Worth individuals from across the globe. The UK’s vote to leave the EU and subsequent political and constitutional turmoil that followed generated a considerable degree of uncertainty in the market. Accordingly, the strength of the underlying economy, the prospects tor the financial and business services sector and, in some cases, the cost and availability of mortgage debt presents unknowns. Discretionary buyers at the lop end are more sentiment driven. The prospects tor the City of London as an employer and wealth creator are criticaL Uncertainty around this issue is likely to impact on buyer appetite in the short term at least. It is still too early to gauge the impact of the EU Referendum on different international buyer groups as Article 50 of the Lisbon Treaty has not yet been invoked. For the domestic buyers, there will be a greater emphasis on value for money and for best in class products. Overall, those who are not needs-based buyers will most likely adopt a wail-and-see approach until there is more certainty in the market. For international buyers, the weak GBP could present a buying opportunity and early anecdotal evidence suggests that there has been a recent uptick in enquiries from China and Pacific Asia buyers, particularly for development product. The true strength of market demand is only likely to become clear over a period of months. In the meantime, committed sellers will need to be both realistic and flexible in their price expectations, responding 10 changes in market sentiment. Savills Research 198 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 3.1.11. Buyer Profiles in the Prime Second Hand Markets British buyers are the dominant purchasing group in every prime London region and UK buyers have continued to have the greatest presence of any nationality in the Prime Central London market. Foreign buyers as a whole accounted for 54% of all buyers in Hi 2016. Buyers from Western and Eastern Europe dominate the international market, across all price bands. 2011 2012 2013 2014 2015 H1 2016 Source: Savills Researcl1 As the value bands increased, international buyers are more prevalent at the top end of the market, accounting for 78% of buyers in the GBP5 million and above market between 2012 and H1 2016. After Western Europeans, purchasers from North Africa and the Middle East, Eastern Europe and the CIS and North America account for a significant proportion of buyers in second hand prime Centra! London property. This is a reflection of London’s continued status as a safe haven and the fact that it draws wealth from a number of regions across the world. Figure 3~11 -Importance of International Equity in Central London, Prime Central London, 2012 -H1 2016 100% 90% 80% ElJOthers ill 70% 0>
IJ Europe 260%
” 8 North Africa & the Middle East ~ 50% 0.. 40%
‘” • China and Asia Pacific 30% _UK 20%
10% 0% GBP 5 million+

 

8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills London continues to be the preferred global destination for wealthy people to invest and Jive. Despite the vote to leave the EU, London remains a key centre due to its global standing, amenities, quality of life and faclJities; buyers often have an existing network of business contacts, friends and family in London which also attracts them. Demand is from both first and second home owners, as well as investors. Growth in global wealth, especially in emerging economies, is aiding more and more foreign purchasers to invest in London. Overall, buyers in the second hand London market are consistently motivated by the prospect of buying a main residence, with 46% of purchasers buying property for this reason. Those buying PCl property as a second home or for an investment account for 28% and 26% of buyer respectively. The UK, US and Western European markets are more likely to be owner occupiers, living and working in london, while investors and second home owners are mostly from Africa, Eastern Europe, China and Pacific Asia, and the Middle East. 3.1.12. Buyer Profiles in the Prime New Build Markets The proportion of UK buyers in the Prime london new build market has fluctuated over the past four years. In 2012 and 2013, UK buyers accounted for around 20% of prime new build purchasers. In 2014, 40% of new build Prime london sales were to UK purchasers and in 2015, this figure rose to 43%. The trend has continued into the first half of 2016 where 45% of purchasers were from the UK. The increase in numbers of UK buyers in prime can partly be attributed to the Mayoral Concordat brought in during 2014 which stipulates to developers who sign up that new build schemes are to be launched in the UK before, or at least at the same time, as overseas. Part of Sadiq Kahn’s manifesto is to build more stringently on this marketing strategy. Although the detajls have not yet been officially released, we could expect to see an even greater proportion of UK buyers in the new build market going forward. Figure 3w 12 -Prime New Build Purchaser Nationality (GBP1 ,OOOpsf+) 100% 90% 80% iii Others (North America. Latin America, Africa & South Asian sub-continent) 70% [;] North Africa and the Middle Cl 60% East'” ‘”-” 50% mEurope u ‘” 40%a. ‘” ~ _China and Asia Pacific 30% 20% 10% 0% 2011 2012
Source: Savilis Research Nevertheless, the prime new build market is dominated by purchasers from China and Pacific Asia, reflecting concentrated marketing efforts in these regions, but also an appetite for investment and a willingness to commit to sales “off-plan” before scheme completion. Buyers from China and Pacific Asia are particularly accustomed to investing in new build regeneration schemes at home and understand that they can benefit from long term capital growth in london. Good access to the financial district is a key factor motivating choice among both investors and owner-occupiers. 2013 2014 2015 H12016 8. INDUSTRY OVERVIEW (Conl’d) Independent Market Report: Executive Summary Savills Research Report savills New build purchasers from China and Pacific Asia are dominant in the lower value bands within the Central London market. They account for 45-50% of all purchasers in value bands up to GBP1 ,5 million and above. Above those prices, purchasers from Eastern Europe and The CIS and North Africa and the Middle East replace China and Pacific Asia as the highest proportion of buyers. During the first half of 2016 the overall proportion of buyers from ChIna and Pacific Asia has reduced slightly, but the overall volume of buyers has increased compared to the same point in 2015. In light of the UK’s vote to leave the EU, there remains a question mark over investment into prime property from Western Europeans. On average since 2009, buyers from Europe have only accounted for circa 6% of prime London new build sales. The current weakening of SSP against the Euro could present a buying opportunity for Western European buyers.
Source: Savifls Research Figure 3-14 -Nationality of Purchasers of New Build by GBPpsf, 2010-H1 2016  8 Others (North America, latin America, Africa & South ASian sub-continent) . DEurope  El North Africa and the Middle East  _China and PacilicAsia  .UK

Lower  Mid Mainstream  Upper  lower Prime  Upper Prime  Super Prime  Mainstream  (£450 ­ Mainstream  (£1,000 ­ (£1,500 ­ (£2,000psf-i-)  (Less than  £700psf)  (£700 ­ £1,SOOpsf)  £2,000psf)  £450psf)  £1,000psf)  Source: Saviffs Research
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills Overall. buyers in the new build London market are equally motivated by the prospect of investment as well as their own use of Ihe property. The UK and Western European markets are more likely to be owner occupiers. living and working in London, while investor buyers are mostly from China and Pacific Asia, North Africa and the Middle East and, although a much smaller proportion of the market, Latin America. Figure 3-15 -Motivations of Nationalities Purchasing New Homes in Prime London, 2010 -H1 2016 mlnVestor aO\wlerOccupier 100% 90% 80% 70% OJ
‘” 2 130%'”c:t’ 0-5m”
‘” 110% 30% 20% 10’% 0% China and NorthAfrtca LalinAmerica !’.lorthAmerica South Asian Africa Easlem PaaflcAsia and the Middle slllJ-continerll EtrOpeal)j East ll1e ClS Source: Sa vilis Research Participation of investors is strong in Upper Mainslream, Lower Prime and Upper Prime market. These investors are not only purchasing for rental income, but they are also investing in a second home, a property for their children to live in whilst studying in the UK and also as a way of preserving capital. N Investor • Owner Occupier Lower Mainstream Mid Mainstream Upper Mainstream Lower Prime Upper Prime Super Prime «GBP450psD (GBP450 -700psD (GBP700-(GBP1 ,000­(GBP1 ,500­(GBP2,00Dpsf+) 1,000psD 1,500psD 2,000psD Source: Savilis Research Savills Research 202

8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills »._.. . .. 3.1.13. Rental Demand The prime market tenant profile consists mostly of renters who rent due to relocation and preference, rather than affordability or lack of access to mortgages Figure 3·17 -Tenant’s Reason to rent by Price in Prime London, 2010 -2013
Less than GBP500 (per GBP500 to GBP1,OOO GBP1,001 to GBP2,OOO >GBP2,OOO (per week) week) (per week) (per week) Source: Savills Research The profile of tenants change as we move up through the price bands. In the higher price bands (i.e. moving up towards Ultra­Prime JeUings) there are slightly fewer UK tenants and more European and North American tenants. The reason for renting remains broadly unchanged through the price bands. Tenants moving ‘due to relocation’ can also include those who are seeking temporary accommodation for employment purposes as well as those seeking a lifestyle change. Less than GBP500 (per GBP500 to GBP1,OOO GBP1,001 to GBP2,000 ;:.GBP2,OOO (per week) week) (per week) (per week)
Source: Savills Research
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 3.2. Commercial Property Market Overview 3.2.1. Take-up In 2015, Central London take-up surpassed the long-term average for the third successive year, reaching 11,781,660 sq ft, with a further 1,056,957 sq ft of take-up recorded in the Docklands. Central London take-up at the end of 032016 reached 7,159,020 sq ft, with an average transaction size of 11,951 sq ft. This is 21 % below the 9,006,639 sq ft of take-up recorded at the end of 03 2015 Following on from 2015’s total annual take-up of lAm sq ft, the City has seen take-up slow this year with 4m sq ft being transacted by the end of 03 2016. This is 32% below the 5.8m sq ft of take-up recorded by this point last year. A fall in take-up compared with last year was always forecasted to happen, and inevitable when the three previous consecutive years had all surpassed 7m sq ft annually. However, the EU Referendum being held at the mid-year point also affected take-up, possibly causing delays for decision making. 54% of take-up recorded in 2016 so far has been in the City Core. Take-up for 03 2016 picked up slightly with 1.3m sq ft being transacted compared with the 0.97m sq ft transacted in 02 2016. The largest deal of Q3 2016 was Wells Fargo & Company buying and occupying 33 Central, EC4, which was the only deal above 100,000 sq ft at 227,689 sq f1. The next largest deal was Amazon.com Inc committing to their option space tn Principal Place, E1 of 85,791 sq ft at a rent of circa GBP52.00/sq ft. Similarly, take-up in the West End reached 4.3m sq ft in 2015, its second highest ever total. Take-up in the West End held stronger due to the traditional occupier base of the West End relying less on both the Banking and Insurance & Financial services sectors, who will have been the main sectors delaying decisions until post EU Referendum. The largest transaction to complete In the West End in 03 2016 saw Apple Inc commit to 500,000 sq ft in Battersea Power Station. 0 00000000 0 0 0 0 0 0 0 0 0 00;0;0;0;0;o0 NNNN NNNNNNNNNNN NN Source: Savills Research 3.2.2. Commercial Supply Three consecutive years of above average take-up have steadily eaten into Central London’s supply pipeline with the Central London vacancy rate at the end of 04 2015 standing at just 3.9%, its lowest ever level. The first half of 2016 saw a bit of a relief for what has been a constrained market, and we have seen this continue into 03 2016. The City has seen supply rise by 17% since the start of the 2016 with the current vacancy rate at 5.5% (6.8m sq ft), the highest it has been since January 2015. yet still low in comparison with the 10-year average of 6.8%. Supply in the West End has also began to slightly rise with 4m sq ft of available space. equating to a vacancy rale of 3.3%, which is also low in comparison to the 10-year average of 4.2%. We anticipate the vacancy rate to continue to gently rise over the course of the next 12 months as take-up returns to average levels. However the true development pipeline for both markets does not signal impending oversupply to the levels seen post Global Financial Crisis. 3.2.3. Commercial Rents The high levels of demand, combined with the falling vacancy rate, has resulted in substantial rental growth across Central London over the last few years and this has partly continued into 2016. The average Prime rent in the City in 2016 is GBP77.44 per sq ft, a 4.4% increase on 2015’s average Prime rent of GBP74.15 per sq f1. Similarly, the Average Grade A rent for 2016 is GBP60.50 per sq ft, 10% above 2015’s average Grade A rent of GBP54.94 per sq ft. 03 2016 witnessed the highest rent ever achieved in the City at GBP1 07.00 per sq ft, with Kames Capital Management Ltd acquiring the 43rd floor at the Leadenhall BUilding. EC3.
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills The West End has continued to see strong rental levels in 2016. The average prime rent at the end of 03 2016 was GBP108.63 per sq ft, 2% above 2015’s average prime rent of GBPI 06.98 per sq ft, Similarly, the average Grade A rent at the end of 03 2016 stood at GBP77.13 per sq ft, 6% above 2015’s average Grade A rent of GBP73.07 per sq ft. The average Grade B rent has also increased rising 7% from GBP53.64 per sq ft in 2015 to GBP57.26 per sq ft at the end of 03 2016. The highest recorded renl in 032016 outside of St James’s was GBP105.QO per sq ft, the transaction saw Gemfields pic acquire the part 4th floor at 1 New Burlington Place tolalling 11,700 sq ft on a 10 year lease.
120 –~_.~~—~~—-­
,—-..~_._, r-‘-“”~”-,-~–­00 m a ~ N <D aa aa ;; ;; ;; ;;'” ;;” ;;”‘ ;;NN NNNNNNN Source: Savills Research 3.2.4. Investment Central London turnover reached GBP18.9bn in 2015. At the end of 03 2016 there has been GBP1 0.9bn transacted, which is 16% down on the same point in 2015 but 8% up on the 10-year average total for the first three quarters. In the City turnover at the end of 03 2016 reached GBP5.4bn, 20% below the same point last year. However, the 12-month rolling turnover for the City is currently at GBP9.2bn, which is 24% up on the long-term average. To date in 2016 in the City, Asian purchasers have accounted for the highest level of turnover (44%), followed by UK purchasers (21%) and European (20%). The percentage share for US purchasers is still relatively low at 9%, while Middle Eastern purchasers have only accounted for 3% of City turnover. Investment in the West End has remained robust, 032016 witnessed GBP2.14bn of turnover. bringing total year-fa-date turnover to GBP5.39bn, 12% below the GBP6.12bn of turnover recorded at the end of 03 2015 but still 22% above the long-term average. Asian investors have been the most active so far in 2016 accounting for 27% of total turnover. They are closely followed by UK investors which have accounted for 26% of turnover with European investors accounting for 19%. Following the UK’s vote to leave the EU, sentiment surrounding London commercial property has dropped, and therefore we are not anticipating significant amounts of transactional activity for the remaining quarter. Il is likely annual Central London turnover will finish 2016 at around the GBP14bn, as opposed to the GBP18.9bn achieved last year. However. as the GBP is now cheaper for foreign investors, London commercial property will be seen as a very atlractive proposition to overseas buyers in partiCUlar. Currently, the average prime Savills yield for the City is 4.25%, which moved out 25bps following the EU Referendum result Meanwhile. the average prime Savills yield in the West End is 3.50%, which moved out 50 bps. We are anticipating a gentle softening of yields over the next 12 months as uncertainty surrounding our trade deal with lhe EU conlinues. However, we feel some investors may be slightly too over optimistic regarding future discount, as landlords on average currently have a much lower loan-lo-value ratio than they did following the Global Financial Crisis and will therefore not be in a similar distressed position. Furthermore, many landlords feel1he currency depreciation has already granted foreign investors with any discount they already expected, and with non-domestic investment accounting for 75% of turnover so far this year, there is substantial demand from overseas to keep the yields at a relatively low figure, Savills Research 205 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 4. London Property Development Sector Overview 4.1. Activities and Segmentation of The Industry 4.1.1. Activities of the Industry The property industry is generally classified into property development and property investment EWI’s core business in the UK is in property development. The property development industry in the UK is highly regulated and is governed by local authority and national government regulations as discussed in Section 2. The genera! activities or processes are: 1. Identification of site
2. Due diligence in issues such as zoning, planning and environmental matters.
3. Application for approval of the development scheme, and appointment of a builder and a quantity surveyor to conduct and price the works as the approval is granted.
4. Commencement of project marketing.
5. Building would commence sUbject to agreed costs, finishes and completion timeframe.
6. Completion would occur within agreed costs and timeframes delivering agreed finishes.
7. Sales of all dwellings would conclude and the development handed over to new owners with fuJI settlement taking place.

4.1.2. Segmentation of the Industry The property development industry is generally segmented into five categories. i.e. residential, retail, office, industrial and hospitality. EWI is primarily involved in the development of residential properties. 4.2. Market Size! Transaction Activity Before the EU Referendum, 39,000 units of GBP1 ,000psf+ homes were expected to be delivered in total over the five years to the end of 2020. This would represent a 110% increase on the previous five years average. Much of that supply is concentrated in areas of major regeneration at price points between GBP1 ,000psf and GBP1 ,500psf. By contrast at the very top end of the market, above GBP3,000psf, the supply of new homes is much more limited. Super prime supply that is typically located in the established parts of Central London, only accounts for 3% of the expected five year pipeline. Though the gap has now closed as more completions have come on stream, sales outpaced construction completions by an average of more than 2 to 1 between 2011 and 2015, reflecting strong demand. As a consequence, up to 60% of schemes currently under construction are already sold which will serve to mitigate future delivery volumes. Furthermore purchases in the early phases of marketing will often have been at discounts to current values. That level of domestic demand will be of some comfort to the development industry, while a cheaper GBP should support continued overseas investment activity. Despite the vote to leave the EU, London remains a key centre due to its global standing, amenities, quality of life and facilities. It continues to be the preferred global destination in which wealthy people invest and live. In 2015 alone, the prime London new build market saw overseas investment from over 50 different countries. Savills expects the market to be more discerning in terms location and product offering and how pricing stands up to these fundamentals. Specifically the volume of prime completions will test rental demand and yield expectations and, if sales rates are to slow, lead to higher volumes of standing stock That is likely to mean developments will be pushed out and delivered over a longer period. Importantly, only 23% of the 39,000 unit five year pipeline is currently under construction, while 58% of the total pipeline is yet to start construction despite having full planning permission. Although there is cost involved in putting construction on hold, this substantially lessens the risk of oversupply. 4.3. Industry Players and Competition The tables below highlight the top 20 players in the London development market in terms of market share, based on 3 measures: i) the total number of units forecast to be delivered this year (2016), ii) all known units under construction, and iii) the number of units Savills Researctl forecast to be delivered over the next five years. Units being constructed as part of a joint venture have been recorded under the specific joint venture, rather than being attributed to each individual company. Different branches of the same company have also been listed separately_ As can be seen, the list includes a variety of companies including well known housebuilders, Housing Associations and international companies. The top 20 players in London account for 55% of all private units under construction and 27% of all private units to be marketed between 2016 and 2020 The joint-venture group between EWI and Ballymore Group has an approximate market share of 3% by number of private units under construction. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills Figure 4-1-Eco Wortd-Ballymore Group’s Market Share Market Share by: Approximate Market Share Number of Private Units Under Construction 3% Number of New Units to be Marketed in 5 Year Pipeline
Source: Saviffs Research using Malior Approximate Private Units Appro~imate Mark.€t Shar~ Company Name · . 2016 (ProportIon of all private unItsFt f dIorecas or e Ivery In forecast for 2016) Figure 4-2 -Top 20 London Property Development Companies by Number of Private Units to be Delivered as at 2016
Galliard Homes  900  4%  Barratt London  653  3%  Berkeley Homes Urban Renaissance  549  2%  Telford Homes  438  2%  London Legacy DC IOlympic Park Legacy Company  434  2%  St George Central London Ltd  425  2%  Places for People Homes  406  2%  Sellar Design + Development  396  2%  Countryside  386  2%  St James  361  2%  Notting Hill Housing  300  1%  StWilliam  285  1%  Qatari Diar Delancey  271  1%  Bellway Homes Thames Gateway  268  1%  London &Quadrant Housing Trust  267  1%  Berkeley Homes NE London  252  1%  Essential living  ~7  1%  Higgins Homes  235  1%  Taylor Wimpey East London  233  1%  Greenland (UK) Investment  231  1%  Source: Savilis Researcf7 using Mofior
Figure 4-3 -Top 20 London Property Development Companies by Number of Private Units Under Construction All P’ t U “t Approximate Market Share Company Name d rlva e n~”s (Proportion of all private units under un er construe IOn construction) Berkeley Homes Urban Renaissance 3954 5% Ballymore Group 3500 50/0 Barratt London 3352 5% St George Central London Ltd 3277 5% Oxley Holdings I Ballymore 2809 4%, ~,ef~el~y Homes NE London 3%, 3%”EWi,:B,aIlYrrJpre’,Group Bellway Homes Essex Galliard Homes Canary Wharf Group Battersea Power Station Development Company Countryside TaylorWimpey I Countryside St Edward Knight Dragon Developments Persimmon I St Modwen Telford Homes St George West London Ltd Lendlease Notting Hill Housing Source: Savilfs Research using Molior 3% 1868 3% 1784 2% 1461 2% 1440 2% 1397 2% 1321 2% 1170 2% 1123 2% 1091 2% 1088 1% 1067 1% 1065 1% 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills Figure 4-4 -Top 20 london Property Development Companies by Number of New Units to be Marketed in 5 Year Pipeline C N All Private Units Approximate Market Share (Proportion ornpany arne Forecast (2016-2020) of private units forecast 2016-2020) Berkeley Homes Urban Renaissance 2945 2% Barratt London 2914 2% Countryside 2556 2% Galliard Homes 2347 2% Ballymore Group 2082 2% London Legacy DCI Olympic Park Legacy Company 1996 2% Telford Homes 1868 1% London & Quadrant Housing Trust 1721 1% 5t William 1607 1% Meyer Bergman 1602 1% Qatari Diar Delancey 1580 1% Notting Hill Housing 1571 1% Canary Wharf Group 1548 1% 5t James 1412 1% 5t George Central London Ltd 1289 1% Land Securities Group PLC 1153 1% Lovell 1150 1% London Borough of Camden 1115 1% Ouintain Estates & Development 1086 1% Peabody 1068 1% Savills Research using MoHor 4.4. Substitute Products and Services Although there are no practical substitutes for residential, commercial and leisure properties in the UK, there is a range of choices within each asset class which are not limited to the list below: Residential-price, property type (e.g. apartment, house, bungalow), tenure (e,g. private rent, social rent, owner occupation). Commercial-price, property type (e.g. retail park, office, business park, leisure) 4.5. Industry Reliance! Vulnerability to Imports According to the Department for Business, Energy & Industrial Strategy, imports of construction materials increased by GBP107 million in the second quarter of 2016 to GBP3.76bn compared to the previous quarter, an increase of 2.9%. Over the period from Q1 1984 to 02 2016, construction materials imports have increased by an average of3.5% per quarter. The top 5 import markets (China, Germany, Italy, Spain, and the Netherlands) comprised 49% of total construction materials imports in 2015. 18% of all imports were from China. Rising inflation, currency devaluation, and uncertainty around the post-Brexit tariffs-regime are likely to increase the cost of importing various goods from EU member states, effectively increasing the cos! of purchasing construction materials. To what extent costs could be inflated remains to be seen. However, any increase in construction material costs will inevitably inlla te construction costs. 4.6. Barriers to Entry The more prominent barriers related to property development industry in London are: Cost of capital where access to debt and equity vary dramatically between listed companies, unlisted companies, private development companies and smaller developers. Scale, track record and risk are all factors contributing to different costs of capital. Economies of scale have a bearing as larger developers are able to deploy capital and resources across a range of locations, projects and sectors as required. Absolute cost advantages where smaller developers have lower corporate overheads and lower profit requirements. Ownership of prime and favourable land. 4.7. Sector Outlook and Prospects 4.7.1. Prime London Capital Value Forecast In the period of the past 24 monlhs, the prime London housing market has faced a number of chailenges as a result of a changing political and fiscal environment as well as tighter mortgage regulation. The reform of stamp duty in 04 2014 and the subsequent 3% ‘Additional Homes’ surcharge has had a more identifiable impact on the prime London market than could have been anticipaled. As such, the market will continue to be shaped by pre-existing constraints. The changed tax-environment means buyers will commit only when they are confident that a property is rare, exceptional or represents good value for money particularly as the risk environment has increased. Savills Research 208

8″ INDUSTRY OVERVIEW (Cont”d) Independent Market Report: Executive Summary Savills Research Report  s8vills  Figure 4-5 -Comparison of Property Tax Regimes, (GBP2 million property)  30% .,-.~.~  -­ -.~.­ ~-~..­ – –.-.-.-~..• ~..  .  .

_Cost of Selling 0 Cost of Occupation lEI Cost of Buying ~ 25% ” e …._—_._—_ _ __ .:::J 20% Q. ~” o.~ 15% ~a. ~ 10% ~ <V 5% Q. 0% Hong Kong Singapore
As a result, the market remains exposed to fluctuations in buyer sentiment and general economic pressures resulting from the vote to leave the EU. This points to a slower market over the remainder of 2016 as buyers wait to see how negotiations to leave the EU proceed and the precise economic impact becomes clearer. This brings with it the prospect of further price adjustments, as the market finds a level which brings buyers back into the market This will present some opportunities for those prepared to take a long-term investment view and who have putlhemselves in a strong position to buy_ Opportunities could also arise for those buyers (both international and domestic) who are not denominated in GBP given the weakness of GBP. But against this context of potential opportunities for some buyers, sellers will need to be swift in responding to a market that is likely to distinguish between the best stock in the best locations, good quality prime housing and average properties. From 2019 onwards, when there is likely to be more political and economic certainty, we would expect any pent up demand to return to the market. followed by a return to long-term historical trend rate of growth in 2020 and 2021, albeit accounting for a marginal slowdown in the run up to the General Election in 2020. As such, Savills forecast growth of 20.8% and 14.6% in PCl and prime london respectively between 2017 and 2021.
Figure 4-6 -Prime London 5 Year Capital Values Forecast -0.4% 3.3% 0.0% 0.0% 8.0% 3.2% 20.8%5.0% 6.5% Other Prime 3.3% 2.3% -5.0% -1.0% 3.7% 14.6%0.0% 6.0% 4.0% 5.0% london L.. __ New York Paris london (post SOLT) Tokyo Shanghai Moscow Source: Savills Research 4.7.2. Mainstream london Capital Value Forecast Brexit negotiations are expected to be concluded by early 2019, bringing to an end the two-year period of greatest uncertainty. As buyer confidence returns, low mortgage rates should mean there is capacity for a small bounce-back in house prices. It is anticipated that economic growth will return to trend from 2020, but this is likely to coincide with some gradual upward pressure on interest rates. Brightening economic prospects should lift consumer sentiment, but increasing interest rates will work as a brake on potential house price growth in this period.
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills 4,7.3. Mainstream London Rental Forecasts The outlook for rents is stronger and more stabie than for house prices over the next five years. Like the sales market, the rental market faces uncertainly. However, mainstream rental values are more closely linked with jncomes than WIth measures that drive house price gro\rVIh such as interest rates and mortgage availability. Rental growth will slow next year because of lightening affordability and the effects of Brexit. Greater uncertainty, higher inflation, and a weak pound will impact how much households can spend on rents. However, the barriers 10 home ownership remain high. Renting will remain the tenure of choice for younger households. 4.8. Factors Affecting the Forecasts There are risks to our forecasts from the domestic and global economy, financial and fiscal regulations, and terrorism. The following sections address the key factors and risks that have informed our forecasts, focusing on PCL, and how these risks will affect the competitive environment in which the Prime London market sits globally. 4.8.1. Key Market Risks and Drivers 1) EU Referendum The UK’s vole to leave the EU will have an impact on the prime markets. Whilst it [s still too early to fully anticipate what the effects will be as Article 50 has not yet been invoked, there are likely 10 be concerns around the impact on GBP and GBP assets, the competitiveness of London as a financial centre, the attractiveness of London as a European base for global companies, work permit and immigration restrictions for EU citizens, and the adjustment of trade regulations and tariffs, all affecting European companies and employees in London. Longer term, the impact of Brexit on London’s real estate markets will depend almost entirely on how it affects the UK and London economies. Central to this for the residential market is what happens to costs of borrowing, given how sensitive housing affordabHity in the capital is to interest rates after such a long period of wage-busling hOUSe price growth. The olher key factor is what Brexit would do to London’s position as a global financial centre in terms of the employment it supports, the demands this puts on London’s housing stock and the corresponding weatlh generation that feeds through into house prices. 2) Property Taxalion and Policy Despite significant changes to property taxes in recent years, PCL has largely been reSilient. Nevertheless, Ihe Government has introduced a number of successive tax reforms since December 2014: a) Mortgage interest relief on buy to lei properties reduced_ b) Removal of long term non-domicile status (those who have been in the UK for more than 15 of the last 20 years) c) Charging of inheritance tax on residential property held in an offshore structure. d) 3% Stamp Duty surcharge on second homes and buy to let properties, 3) Sadiq Khan as London’s Mayor Housing is al the top of Sadfq Khan’s policy agenda. During his campaign, Khan promised to provide more affordable homes, to increase investment, support housing associations, identify public land for development, and to introduce a “living rent” (1/3 of income). He also pledged to support local buyers rather than foreign investors (“first dibs for Londoners”). Whilst there is no concrete plan on how to achieve this, Khan suggested that developers might be obliged to market new properties in London for an initial period of six months before they can be marketed abroad. With James Murray as the deputy mayor for housing, many observers expect a tough approach to private development. However, Murray already emphasised that he wlll be more practical and prepared to compromise. During his first weeks in office. he attended properly events, gave speeches, and met with the industry’s lOp representatives. Murray also stated that Khan’s promise 10 ensure a 50% affordable housing level is a long term objective and will not be enforced in the immediate future (except for developments on public land). Much of Khan’s and Murray’s official housing policy is still to be drafted and details of the policy will be made public in the next few months. Savills Research 210 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 4) Oversupply of Prime London Property There is a large pipeline coming through and new build pricing premiums are high. There are large concentrated clusters where the level of future supply raises concern, and schemes may struggle to become differentiated from the competition. This is particularly the case for many riverside towers and large regeneration schemes pushing the GBP1 ,aOOpsf boundary. As schemes approach practical completion, investors may find that they are not meeting their yield expectations due to oversupply in the rental market. There is a risk of oversupply if the prime supply pipeline increases further or if current levels of demand fall away. However, Brexit may act as a mitigating factor on the delivery of prime supply Some developers who have not yet started on site may be able to delay construction until the market outlook is more certain 5) Inflation As outlined in section 1.6, rising inflation could have a significant impact on consumer confidence and sentiment, particularly when increasing prices of imported goods are passed on to the consumers. According to the Institute of Fiscal Studies, more than 11 million households will, on average, be GBP360 a year worse off if inflation rises to 2.8% in the next few years. Households with savings will also come under pressure, as they could lose money in real terms. Nonetheless, housings have been viewed as a natural hedge against inflation and demand will continue to persist 4.8.2. London in Comparison Like many world cities, the economic influence of London extends well beyond its administrative boundaries. London’s metro area (the area within which most of its workforce lives), is the 5th biggest of the top 20 world cities, at nearly 15 million people. London’s population has been growing over the past 10 years at the 8th fastest rate of the 20 world cities, faster than Tokyo and New York but slower than the recently emerged cities of DUbai, Beijing, Shanghai and Singapore. It is forecast to continue growing at the 7th fastest rate in the next ten years, although possible immigration restrictions post Brexit might curb this growth. London stands out among European cities in terms of both size and rate of population growth. Only the Paris metro area has a similar size population (12.5m) while the average size of other European city metro areas is just 3.3 million people. Meanwhile, the number of people in the Paris metro area has been, and is forecast to continue, growing at just 5% in the next 10 years. Other European metro growth rates are slowing and populations are forecast to increase by just 4% on average in the next 10 years. London is even more dominant on the world stage when it comes to the size of its economy. The London metro has an economy which ranks 3rd in the world against other city metros. Only New York and Tokyo have bigger economies. London’s economy is forecast to grow faster than either of these cities in the next 10 years and will only be outstripped by the fast growing Asian cities and tech giant San Francisco over this time, according to Oxford Economics. London’s projected 10-year economic growth rate, at 34%, exceeds the other European city average of 24%. London is set to have the 7th fastest growing economy of the 20 world city metros measured here. The size and wealth of London matters greatly to its real estate markets as both factors create demand for buildings. The prospects for London in a global context also attract overseas investment for development and housebuilding. 4.8.3. World City Status and Savills World City Index The Savills score, published in March 2016 before the EU Referendum, combines measures of global connectedness, performance & potential, power and competitiveness by a range of respected institutions to obtain an overall ranking of global city strength. Although Iiveabllity and quality of life are included in some of the measures, this is by no means the detelmining factor in the demand for global real estate. The economic, cultural, educational and myriad other attractions of global cities appear to trump some of the inconveniences, such as congestion and pollution, of living in a large city metropolis. There is a noticeable difference between cities that do well in these respects versus those that score high for environment, lifestyle and living costs. Fundamental global attractions of a city will always have a major impact on its real estate markets. In this regard, London scores very high on the world stage, just beating New York in Savills composite world city scoring system. Both these cities score significantly above the next rivals by this measure, Paris and Tokyo. The unique combination of London’s social and environmental quality, as well as its size and economic prowess, means that the demand fundamentals for its real estate should remain strong through economic cycles and post-Brexit wobbles. Nonetheless, the decision to leave the EU has caused uncertainties to whether London can retain its pre-eminence as the top world city in Savills World City Score, and the clarity to this risk is expected to be seen along with the outcomes of the negotiation process. What remains clear is that no other European city has the infrastructure to match London as a financial centre, and the cost for relocation and labor law within other countries In the EU can be prohibitive. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report …….••…•………………………..•..••••.•
Figure 4-9 -Savills World City Score “‘ Savills World City Score • Western European Cities 100%

Source: Savills Research using GaWe, Kearney, Mori, EIU 4.8.4. Private Wealth The high values found in pel reflect the desirability of private sector housing stock to high net worth individuals from a range of nationalities, set against the context of a restricted supply of property in these areas. Private wealth investment has focused on the top World Cities and inflating markets in particular, such as London. This has been increased as quantitative easing has increased asset prices, particularly in the World City markets in which investment has concentrated. As the tapering and eventual demise of quantitative easing takes effect, the global growth in asset prices will inevitably slow. In particular, less money will flow into Prime markets. However, the number of global Ultra High Net Worth Individuals (UHNW1’s) -those with assets of at least USD30m -reached an all~time high in 2014, exceeding 218,000 individuals, with a combined wealth of USD29.71riliion. Their numbers are forecast to pass 250,000 by 2019, with a combined wealth of over USD40 trillion, according to New World Wealth. Russia, Africa and Asia are set to see the fastest growth in their wealthy populations over the next 10 years. Table below shows the major locations around the world favoured by UHNW buyers of residential property. London stands out as a common denominator when it comes to overseas investment; It is a preferred location for UHNWI’s from almost all regions of the globe. By contrast, North American UHNWI’s tend to stay close to home when buying property, and are the only region where domestic cities account for all of the top ten. Asia  London, Hong Kong, Singapore, Mumbai  Europe  London, New York, Moscow, Monaco  Latin America  Miami, New York, Los Angeles  Middle East  London, Dubai, Abu Dhabi.  North America  New York, Los Angeles, Miami, San Francisco  Oceania  London, Sydney

Source: Savills Research, Wealth X In the next five years, as global private wealth increases we predict that it will progressively assume greater importance than the exchange rate advantage that has acted as a catalyst for Prime London market price growth. Savills Research 212 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills 4.8.5. International Demand As demonstrated using Savilis dealbook, international buyers make up a significant proportion of the market in Prime London. We expect the proportion of international buyers in the Prime London markets to continue fluctuating between 25% and 40% accordi ng to market, currency and global conditions, although not necessarily always constituting the same international groups. 4.8.6. New Supply Following the downturn, supply levels in the new build Prime markets have been increasing since 2010. The vast majority of schemes within new build Prime markets (circa GBP1,000 psf) are on the edge of established prime locations. These are the schemes most likely to be left exposed to the risks of oversupply as occupier demand has not been tested at these price points, and may impact upon priclng and rental yields in this market. Figure 4-11 -Concentrations of New Build Supply o Total number of private units on sites expected to malket units baiwsan 2016-2020 • More lhan 1,000 \11500 to 1,000 ® 250 to 500 @ 100 to 250 $ Less\han100 For large-scale regeneration areas, it is crucial for the new developments to change the nature of its location so that it behaves more like higher value areas nearby. Where a scheme is large enough, economies of scale allow the volume of amenities and services provided as part of the scheme to transcend the individual development and feed into placemaking and regeneration of the wider area, for example, the provision of high quality public realm and connections with the wider neighbourhood. The added value of placemaking is only often fUlly realised at the end of the development process. 4.8.7 Infrastructure Improvements As outlJned earlier, improving London’s ageing infrastructure and increasing capaclty is one of the key challenges if London is to maintain its World City status long term, In particular transport infrastructure improvements are distinctly tied to housing and hence the benefits of Investment in large projects such as Crossraill and II. Ultimately, these two projects aim to increase the capacity of the system, which in some central areas is significantly stretched, as well as providing additional connectivity benefits. However, the time that it will take to introduce these changes is a risk to how effectively they can ease capacity, given that the population of London is increasing at a significant rate. The largest risk to transport infrastructure is the level of funding that needs to be generated for all necessary projects to go ahead. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 5. London Submarket Analysis 5.1. Embassy Gardens Phase 2 5.1.1. Overview Embassy Gardens Phase 2 is situated in the Nine Elms regeneration area that is currently undergoing a 15-year regeneration project to transform an industrial district of Central London. The Mayor published the planning framework for the Vauxhall Nine Elms Battersea Opportunity Area in March 2012 \0 see the redevelopment of 195 hectares of space that will provide 18,000 new homes, support 25,000 new jobs and deliver extensive transport jmprovements including a Norlhern line extension from Kensington \0 Ballersea via Nine Elms. The US Embassy and the Embassy of the Netherlands are due to relocate from Central London to the Embassy Gardens development site on Nine Elms Lane by late 2016, The area falls under the jurisdiction of the London Borough of Wandsworth. 5.1.2. Travel Links The travel links to and from the subject site are as below: a) Roads. Embassy Gardens Phase 2 is located alongside the A3205, an arterial road which provides access by road to the rest of London. b) Rails. The site is served by the London Railway Network with the Vauxhall stations being located approximately 0.4 miles to the north-east. Nine Elms’ railway connections will be improved with the introduclion of the Northern Line, whIch connects to the London West End (Oxford Circus) in 7 minutes and Canary Wharf in 25 minutes. c) Airports. The property is located 9.4 miles \0 the west of London City Airport and approximately 15 miles to the east of London Heathrow Airport. 5.1.3. Local Supply Pipeline Below is a list of all schemes that are currently marketing or in the planning pipeline within the Nine Elms area. Of the schemes shown, there are approximately 13,200 private units in the marketing pipeline with circa 2,900 unsold units expected to be marketed by 2020. Site name Postcode Developerstatus Planning status units units GBP psf Figure 5-1 -Embassy Gardens Phase 2 Local Residential Supply (Ranking By Total Units) Construction Total Private Approximate

The Garden (New Covent Garden Market) ‘Nine’ E’Jms’p’a:rI{‘s’icfe'{Soiiih London Mail Centre) Battersea Power Station -3 p””p.,c’Placel  SW8sBB SW8sBP SW85NX  Active existing use Existing”u’se inactive Cleared  Permission -Full Permission -Full Permission -Full  3019 1870 1310  2573 1590 1207  GBP1000-1s00 GBP1000-1s00 GBP1000-1s00  VSM EsLates Limited  (Battersea Gas Holders) Nine Elms Point fSainsbury’s SW8) Vauxhall Square The Residence (Christie’s W<!r~~,o,u~~) One Nine Elms (Market T9_~e_r.~), Vista (Marco Polo House) Aykon’ Nine’Eims (Vau’xhaIJ 1?9,1″!~~~Y) Keybridge House Vauxhall Cross Island Site Battersea Power Station -2 -Power Station Building Grand South Embassy’Gardens’ Fi’f-Jase3 St Agnes Place (Parkland Adj. Aspen House School)  SW82LF SW81SF SW8sBA SW8sNQ SW84NQ SW81SQ SW81RG SW82LL SW8sBP SW82TG SINS ‘sAT SE11 4AN  Under construction ACti’ve’exisiing u” Under construction Under construction Under construction E’j(riii(n’g’use” inactive Under construc!,i?n Cleared Existing use inactive Existing use inactive Cleared Under consLrucLion  Permission -Full Permission -Full Permission -Full Permission -Full Permission -Full Permission -Full Permission -Full PermiSSion ~ Full PermiSSion -Full PermiSSion -Full Permiss’ion -Full Permission -Full  737 520 510 487 487 450 415 291 254 219 207 58  593 410 434 436 406 360 396 225 254 203 207 35  GBP1000-1s00 GBP1000-1s00 GBP1 000-1 500 GBP1000-1s00 GBP1 000-1 500 GBP1s00-2000 GBP1000-1s00 GBP1000-1s00 GBP1000-1s00 GBP1000-1s00 GPB1000-1s00 GBP7s0-1000  BDWZest Developments L,LF’ CLS Holdings Pic Bellway Homes ThalTles ,G,ateway Dalian Wanda Group Berkeley Homes Urban Renaissance DAMAC Group A2Dominionf Mount AnVil Wendover’ Investments Ltd Ballei’sea Power Station Development Company LandsLarlf Vlncenl Goldstein B.allymclrli C;’roup London & Quadrant Housing Trust  -~,~,~~-,~,~.,,~,~~~,.~  _.~~~–,,~.,~.­-_.~,-_._~—-_.~–_.  –~,~~.  Savills Research  33
8, INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report
Construction Total Private ApproximateSite name Postcode Planning status Developerstatus units units GBP pSf Embassy Works (Park Under
SW81UO PermiSSion -Full 39 39 GBP1000-1500 Bmor ltdPlace) construction Under FiinistoneWest Elms Studios SW84UG Permission -Full 20 20 GBP450-750construction Developments Source: Savills Research, Molior 5.2, Wardian 5.2.1. Overview Wardian falls under the jurisdiction of the London Borough of Tower Hamlets. The site is situated apprOXimately 3.8 miles to the east of1he City (Bank Underground Station) and 5.5 miles \0 the east of the West End (Covent Garden). A pedestrian swing bridge provides access from South Quay to the main Canary Whart estate. 5.2.2. Travel LInks The travel links to and from the subject site are as below: a) Roads. The property is located 1 mile south of the A 13 (East India Dock Road) that provides one of the principal routes into Central London, as well as 0.7 miles north of the A12 that provides access to the M11 and the M25 motorway. b) Rails. South Quay Docklands Ught Rallway (DLR) stallon is s’ituated 0.3 miles to the east of the property. This station provides immediate access to the Canary Whart Estate and the City (Bank) which can be reached In 17 minutes. Canary Whart Underground Station is 0.4 miles north of the site. The station is situated on the Jubilee Line which provides direct and frequent services to London Bridge (7 minutes), Waterloo (10 minutes). Stratford (11 minutes) and Bond Street (15 minutes). c) Airports. The site is located 4 miles to the west of London City Airport and approximately 18 miles to the east of London Heathrow Airport. 5.2.3. Local Supply Pipeline Sa vilis Research is aware of 52 developments currently marketing and in the planning system that are likely to deliver units in the surrounding area (E14) over the next 5 years. In total these developments amounllo 18,510 private units. Based on Savills Research, we expect circa 9,500 currently unsold private units to market in the 5 years to 2020. The table below details these developments.
Figure 5~2 -Wardian Local Residential Supply (Ranking By Total Units) Total Private Approximate
Site name Postcode Construction status Planning status Developerunits units GBP pst MillharbourVilIage (Great PermiSSion $ 106
E149XP Cleared 1500 1175 GBP1,150 Galliard Homes Eastern Enterprise Centre) !1gtft:’t. si.~!1ed. ‘Con’d(ln”cjtY-rslan’d’P.ha-s’e~.r:’ “‘_”‘ “O __._”._’M_””._,_ E”co’i.;Vo’rld:’ .. Pemlisslon -Full 1145 1130 GBP800(Leamouth Peninsula North) E140JU Under construction Ballymore Group *···~”~’Wooii~~as~·~~M·aste·t”-“-‘·~~~~’~’~·;;~~ ‘CanaryWharf’
Cleared Pemlisslon -Full 3107 1073 GBP1,350 … .”………_…,’_._……_.. . -_…._-,,-_ …….. ” .. “”_.” ……Qr!:l.up……. -~ ~ Ballimore Wharf (The Galliard {E149TH Under construction PermisSion Full 1111 816 GBP1,050London Aren~) Ballymore WoocfW’hiir:: RM03 ­-·’c’a.·na-rY Whart E149$F Under construction Application 797 797 GBP1,000E1fE2/E3/E4 Group ,,~ ..,.~_~ ….•• ·.,,~””.”_”_.N __”_” … C’halegroveLandmark North (City Pride) E148JH Cieared PermiSSion -Full 822 752 GBP1,200 £’..~2£~.~.1,~.~._~~9″ .. <~·Le·amout·h·~penT;;·slila·S-o·Uih·:-·-” Hercules/Castle/Union E14 oJW Cleared Application 834 727 GBP950 Ballymore Group Wharf . Hertsmere’Ho’lI’se .. E144AB EXisting use inactive Applicationn•.·•••••••.·.•••••••••8816;,9l~ ••••.••••· ••·7′(O)(gl ••.•••••••·.•• ~GlEB,;P”I,4410)(O) ••..••• ·:~~i~~~~~:~r::.· ..•• South Quay Plaza 1-3+ E149SH Active existing use Permission -Full 888 700 GBP1.250 .”B’iac’k’wa((Reach’~M’a’ster’ E140EW Active existing use Permission -Full 1575 677 GBP750Consent London & Westferry Printworks E148NX Existing use inactive Application 737 667 GBP1,050 Regional ..~ …….,..~,,~~ ~.~~~ni~~.~!~_ …~
“A’sCla: Cros·stiari:)clur·[jj·st;:fct’· E143BT Active existing use PermiSSion -Full 850 626 GBP950 RERCentre .. ‘Wa’rdTan’ion,(ion ..
Eco World­(Arrowhead Quay I E149NN Cleared Permission -Full 764 626 GBP1,200 Ballymore Group Waterside House) ·-·Ha;:botj’r~C·e’n..tra..i(Ente·rprjse ..~ .~~.~. ~~~~. Under construction PermiSSion -Full 901 624 GBP1,000 Galliard Homes
~~.~.~.i.~,~.~.~-,~ ~.r.kJ .. ….._…….. _,,~ ..
GBP1 JilD….· . ·..·’-ZOg..Gro·up.,”~~yJin.esy’illa.9.e E149T8 Active existing lJse ~§!!.~~~~.:_~_rn 766 536 ..·~” ..·..·–CXea;:ed-“””.. Permission -FullSiackwal(Yard f “Reuters~s’ite'” E142BG 70S’ 531 ·….c·s”p·fos·o ::~:·~.:~~~~~~~~f.~~~~9~e~!?~~~.~’:·
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills Total Private ApproximateSite name Postcode Construction status Planning status Developerunits units GBP psf Wood Wharf· RM05 • A2/A3 Canary Wharf
E149SF Under construction Permission -Full 519 519 GBP1,300·10 Park Drive Group ~ ……..–.—-. —C’a’narY-WhaJf~–“~\”oo(fWharf:’-RM’O'{:-‘ Under construction Permission -Full 468 468A1/A4/B31D1 E149SF GBP1,350 ,”__ ,,,_,,,~_2roup _’.:::~~::~~~::~’=~9~.~y.~8?~~1!~=:~=,’:-‘””..,.. -E’1’~r9XG” . ,A.g.~i,~~~e~1 ~~I,~.9,~~~,. ,… ..I3~!.~-?~e.sL:::§m 498 414 ~,_ .._~:=.’~_~~,!f~.i:j§:9.:,~~~ … ~ .._.JDY~!,~~”._,_._~ Under construction ­Infinity Towers (Helix) E14 SSP Permission -Full 395 395 GBP1,OOO Essential Living Stalled Part BUilt Cl:tba”irireet Site f14’SGb” .””‘Cfeal:ecr–.”,.’·~’~=~p:ell~~tj_~n. 44,~.._,~_~,,·~~_~~,~;r-“·x-~.~~Q§.~IJ,~,§ ~:~~.~I.~Ei~?ii_’~!~.~,P~~~ Ne”.:a)rc;viden~ce-Wharf-‘t ­E149PJ Under construction Permission -Full 484 368 GBP1,050 Ballymore Group Providence Tower ~ _.,”_.,~~-~.~ ,-,~_.'”-”’~~~.'”-,~._~~~….Poplar Business Park ­E149RL Under construction Permission -Full 392 321 GBP850 Telford Homes Manhattan Plaza ~.~.~.~.~.,,~.•.~~-,_.,~–,_.,–~”’-~-South Quay Plaza 4 E149RU Cleared Application 396 320 ‘”·ThE;·Nia~diSo~n·i’MerTdian”Gate)’~~~~E1~4~gYf “”~~’-~Cleared Pernlisslon -FUli-~”-‘ 423’­319 ””’-‘”-~'””~’3(‘-Ni’a’rsh-Wa’if”~”~~”’-~” —‘E’14′”9TB .’-“~~’.~~li.~~.~~,;1~Ii~_~-~0~.’ii· “‘~”‘~”-‘Ap’pljcatlOn 410 310 Chrisp Street Market E146AH Active existing use Pre Planning 403 242 Blackwall Reach -1B E140EW Existing use inactive Permission -Full 242 200 160-166 Chrisp Street E146NL Existing use inactive Permission -Full 273 196 E140GP Under construction Permission -Full 219 194 Phoenix Works E146BX Existing use inactive Application 162 162 GBP850
New Union Wharf Estate E143Hl Private On Hold Permission -Full 399 ‘1’36:156 Chr’is’p’StreeT”~–“-E’14-6N-C~”-~”~Cleared”~”~’-“~”–Pe’rmls’s’lon’ ~,. Full
206 ‘~””~”-Balfr’on”Tower–“–”’-”–”’-~)l;Cfive~ex,s’fing~§ie’-·”~’~f~r~~jI~!!,~~~~.~_I~ 146
~-,~~=E~~~.g_~= -”’B-;:omiey–MWis-Wha~r:n’B’a’;:ratt E146RH Active existing use Application 204 143 GBP750 PeabodyIndustrial Estate) –~”~-HoriZ’on-s~(G’a’iTion-s Quay/Prestolls Road Car E149RJ Under construction Permission -Full 190 131 GBP950 Telford Homes

Permission -Full 121 111 GBP1,100 Mount Anvil Permission -Full 126 96 GBP700
Permission -Full 91 91 GBP800 Regal Homes Royal Charlie PH  E146Nl  Existing use inactive  Application  71  71  GBP750  E149RD  Under construction  Permission  FUll  89  63  GBP1,OOO  25-28 Dalgleish Street  E147PP  Cleared  Permission  Full  60  43  GBP750  Victory House  E149GL  Active eXisting use  Permission -Full  32  31 27 32  GBP950 Company Ltd -;;~;~~~ ..”‘.. ­~~-B~ejjway’Homes~'” T~ames Gatew§lY G’BP850 “” “‘ffi-ornsetr’ ‘” ….~~.~,.. <,—~<  Source: Savills Research, Molior  24 26  GBP850 GBP1,OOO  Telford Homes Tra’dexillsu’ran-ce-‘ Company Ltd

Savills Research 216 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 5.3. London City Island Phase 2 5,3,1 Overview London City Island Phase 2 is situated on Leamoulh Peninsula in the East London District of Canning Town, and falls under the jurisdiction of the London Borough of Tower Hamlets. 5.3,2 Travel Links The travel links to and from the subject site are as below: a) Roads. The site is directly south of the A13 (East India Dock Road), and 0.9 miles west of A12. b) Rails. Canning Town Underground and DLR Station is situated opposite the site, providing access to the Canary Wharf Estate in 4 minutes, London Bridge in 10 minutes and the City (Bank) in 15 minutes. The DLR line also provides access to Canary Wharf and the City in addition to Stratford, Woolwich and Lewisham. The area is also set to benefit from a new Crossraill link which is currently under construction. c) Airports. The site is located 2.4 miles to the west of London City Airport and approximately 20 miles to the east of London Heathrow Airport. 5.3.3. Local Supply Pipeline Owing to its position at the north eastern most tip of the Isle of Dogs, London City Island Phase 2 competes with a number of schemes both on the Isle of Dogs and the Royal Docks. Below is a list of schemes currently marketing or in planning in the local area. Of the approximate total of circa 14,042 private units across the sites listed below, SaviIts Research expects circa 4,000 currently unsold private units to be marketing by 2020. Figure 5·3 -London City Island Local Residential Supply Construction Total Private Approximate
Site Name Postcode Planning Status DeveloperStatus units Units GBP psf London Cily Island Phase 2 Under GBP750-Eco World­E140JU Permission -Full 1145 1130 (Le(lmgLJ~h Peninsula North) construction 1000 Bally.n~oEIS Grqup Wardian London GBP1000-Eco World­(Arrowhead Quay I E149NN Cleared Permission -Full 764 626 1300 Ballymore Group Waterside House) Silvertown PermiSSion -S106 Partnership -Silvertown Quays E161UR Cleared 3033 2426 GBP450-750not yet signed Chelsfield f First Base f Macquarie Under OxleY H’cildings IRoyal Wharf (Minoeo Wharf) E162BG Permission -Full 3385 2809 GBP450-750construction ~aIIYf!l(?r€!: East City (Kier Hardie f Under GBP750­E161PZ Permission -Full 649 422 CountrysideCanning Town Area 3) construction 1000 Greater London Canning Town· Area B E161EY Cleared Seoplng oPinion 620 430 GBP450-750 Authority Limmo Site & Thames Transport for E1610Q Cleared Pre Planning 1688 1182 GBP450-750Wharf London Royal Albert Dock f Asian Strawberry Star E162QU Cleared Permission -Full 845 845 GBP450-750Business Port DISYISJClPtTl et”1.l.s Royal Albert Wharf (Great UnderE162QJ Permission -Full 819 561 GBP450-750 Notting Hill Housing Eastern Quays IlvaxSite) construction Waterside Park -S/A -Under Taylor Wlmpey IE162BG Permission -Full 193 179 GBP450-750Kingfisher Heights construction Barrall Royal Gateway (Caxton UnderE1G 1JN Permission -Full 336 336 GBP450-750 Gaillard Homes 1JI.I0.~~sJ. Goswell Bakeries) construction Active Greater London Floating Village E161AF Pre Planning 500 350 GBP450-7S0eXisting use Authority Gallions Quarter -Gallions Permission -S106 E162QJ Cleared 748 483 GBP450-750 Telford Homes 1A/2A12B + Armada South rl.()t. Y.ElI.. ~.ig .nEl.d Rathbone Market -Phase 3 -Under
E161EH Permission -Full 216 162 GBP450-7S0 Muse Developments Lumire construction St Luke’s Square -Ground EXlstmg use Mizen Homes E161HU PermiSSion -Fuil 22 22 GBP450-750Floor Conversion mactive Properties Ltd Hallsville Quarter -Master BouyguesE161EN Cleared Permission -Full 1130 295 GBP4SD-750Consent ~evelopment Existing use Timesco House E162AT Application 76 60 GBP450-750 Hollybrook Homes inactive Royal Mail Site, Cody Road, Existing use
E164SA PI·e Planning 3500 1724 GBP450-7S0 BerkeleyManor Road Ina cLive Source: Savilis Research
Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 6. Australia Macroeconomic Overview 6.1. Australia Overview GDP. Australia’s real GOP per capita has grown by an average 1.8% per annum since 1981 to 2016. Since 2007, GDP per capita growth has averaged 0.9% which is impacted by lower commodity prices, the aftermath of the Global Financial Crisis (GFC) and impacts on export demand, and fluctuations in currency markets. According to the consensus forecasts of Focus Economics, growth in Australian real GOP is expected to remain in a range of 2.8% to 3.0% by 2020. Figure 6w1 ~ Australia Real GDP Growth (%) Sepw 96 to Sepw 20 7.00 -_-_-_–_-…_-_-__-=-=__-__=—..—————–..——-~==~::~] [Forecast _ 6.00
0.00 1————-··,————,—–.,——–·,-··-·—··–T-·..-· ,–.—–.———-. Sep-96 Sep-9B Sep-OO Sep-02 Sep-04 Sep-OB Sep-OB Sep-10 Sep-12 Sep-14 Sep-16 Sep-1B Sep-20 Source: Australia Bureau Df Statistics (ABS), FDCus ECDnomics, Savills Research Inflation. Inflation outcomes are broadly as expected and inflationary pressures remain contained. Inflation remains contained at 1.0% as at September 2016 primarily due to lower food and fuel prices. The lower Australian Dollar (AUD) is expected to result in higher prices of imported goods through 2017 keeping inflation buoyant but within the Reserve Bank of Australia (RBA) target range of 2% to 3%.
SDurce: ABS, RBA, Savifls Research Interest Rate. The RBA reduced the official interest rate to a record low of 1.5% in August 2016. Interest rates of lending institutions generally followed suit. However, lending to residential investors is being curbed by higher interest rates for that category of lending. The rate of increase varies amongst lenders but are between 0.27% and 0.47% higher in November 2016. Consensus forecasts compiled by Focus Economics expect official interest rates to fall further in 2017 before increasing from 2018 and rising by 125 basis points by mid-2020. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savHls
Source: RBA, Focus Economics, Savilis Research Currency Exchange. Over the past two years the AUD has depreciated substantially against the USD as a decrease in investment for mining expansion and lower commodity prices have translated into a lower AUD. The prospect of higher interest rales in [he US as well as a general economic recovery have added strength to the USD. Over the past year the AUD has depreciated by approximately 15% on a trade-weighted basis against the USD. Whilst it is notoriously difficult to forecast currency movements, it is generally expected amongst economists that the AUD will trade slightly lower against the USD and over the next two years before rising towards 0.78 cents by mid-2019. As for the RM it has shown weakness against the AUD as have many currencies in South East Asia. Reasons for this are largely attributed to the substantial fall in the oil price over 2015, lower GDP gro\N1:h in the region and currency depreciation by China. The RM reached a peak of RM2.80 to the AUD in early 2015 and by October 2015 the rate had surpassed RM3.1 0, before consolidating to RM3.00 in early 2016. Recent weakness has seen the rate move to RM3.30 at the end of 2016. Figure 64 -AUD-USD-RM Exchange Rate Jan-14 to Dec-16 –US Dollar (LHS) ….” ..”., Malaysian Ringgit (RHS) ~.~~~~====-~~~~~~=~~=~-~~~~~ ‘·’~~;~r ;~~~~ o 0.90 ~~–li:..~l.’ti’~~~t~~-~~.J;-“L~~J ;~~~~ g Oil 0.85 ·~~~~t,JL’.:f~–~—*i/’·”I”.i”’i4f~~—-I 30000 ~ B 0.80 ~.~!a~..~_~~.~~~~_~ __ ~ ~——..—–~–~-r 2.9000 cr o “,f I 28000 ~ :g 0.75 ——~~-~~ ~_ 2.7000 ~::~ L~~-~r-T~’~”-~———–~–~——:~~:~:~’:=’-~—.–=:-“,—~~:==~~} ~:~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~<:,?,~~,§f~\-,:J{:;’lJ~~O~’lJC\~~~~<:,?,~1X~vc:t~\-v\’lJ~~O~’lJcJ~~~~~<:,?,~~~v<:t~\-v\’lJ~Cf~o~’lJcJ
Source: RBA, Savilis Research Population. The Australian population is one of the most urbanised in the world with close to 90% of the populaUon living in urban environments. The three largest cities, which are Sydney, Melbourne and Brisbane contain approximately half the entire population of Australia. Australia’s current population is forecasted by the Government to grow to over 35 million people by 2050. A combination of natural increase and acceleration in immigration is expected to lead to this increase. Melbourne and Sydney are forecasted to absorb a large part of the increase in population. Figure 6-5 -Major City Populations and Growth Forecasts 2015 to 2025
City  2015  2020  2025  Brisbane, Queensland  2,345.000  2,607,000  2,872,000  Sydney, New South Wales (NSW)  4,904,000  5,317,000  5,725,000  Canberra, Australia Capital Territory  398,000  437,000  475,000  Melbourne, Victoria  4,514,000  4,978,000  5,439,000  Adelaide, South Australia  1,324.000  1,404,000  1,480,000  Perth, Western Australia  2,112,000  2,461,000  2,817,000  Source: ABS, Savills Research
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills The current phase of population growth is being generated by a natural increase of some 150,000 per annum and supplemented by approximately 200,000 immigrants a year through a targeted skilled migration program. In 2016, Australia’s working age population (15 to 64 years old) is approximately 15.9 million people or 65% of the population. This is expected to reach 17.5 million people, or 64% of the popu1ation in 2025. Australia, like many countries in the world (China, US, Japan and Euro Area) has an ageing population. In 2016, the population over the age of 65 years old accounts for approximately 3.67million people or 15% of the population, This is expected to grow to 4,8 million people or to 17.6% of the population by 2025. Unemployment. The balance of economic growth in the Australian economy has shifted dramatically from mining to non-mining based growth since the beginning of 2014. Official interest rates have also fallen dramatically to assist the transition of growth in the Australian economy from mining to non-mining industries. This transition continues with strong population growth into the non­mining states, with economic growth improving slowly in NSW and Victoria, but severely constrained in Western Australia, South Australia and Queensland. Nevertheless, unemployment remains at a cyclical high of around 6%. Consensus forecasts prepared by Focus Economics predict the unemployment rate to remain steady for the next three years. Figure 6-6 -Australian Unemployment Rate (%) Nov-80 to Nov-20 12.00 11.00 2 10.00 f2 9.00 ~ ~ 8.00 w E >-Ci°6.00 E 5.00 w ~ 4.00 .——.-­:::> 3.00 -·——,..~–….._–,–~-·~-·1—··-..___-·-_._·___,__ .~. -,~–._________,.-···-r—·’-“-“””-,’ …”-“1 Y7Y~?ftPy~ftftPyftft~P~PPft “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 “,0 Source: ABS, Focus Economics, Savilfs Research Household Income and Debt. Real household disposable income growth averaged 3.0% per annum over the 35 years from 1982 to 2016. The GFC had a SUbstantial negative impact post 2007 when growth fell from 7.4% in 2007 to 1.2% in 2015. Recent growth has averaged 1.6% over the 5 years from 2012 to 2016. Indebtedness has increased substantially in Australia from September 1992 when lending to housing and credit cards totalled AUD92 billion to stand at AUD1,493 billion as at September 2016. Total lending to housing)s estimated to be AUD1,494 billion as at September 2016 whilst lending on credit cards is estimated to be AUD51 billion as at September 2016. Domestic and Private Consumption Expenditure. Growth of household consumption is expected to be supported by very low interest rates, however, changes to lending practices in Australia in 2015 (explained in section 7) suggest that the amount of purchasing activity of housing for investment is likely to fall, Rising household expenditure and the response of net exports to the exchange rate depreciation are expected, in time, to support a rise in non-mining business investment. Real consumption growth has been of the order of 3.2% per annum over the 35 years from 1982 to 2016. The GFC had a substantial negative impact in 2009. Consumption expenditure growth has averaged 2.4% over the 5 years from 2011 to 2016 with the 2016 figure showing an improvement to 2.6%. Savills Research 220
8, INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report savills Foreign Investments. Based on the latest data released annually in May 2016, shows the stock of foreign investments in Australia stood at AUD3,024 billion in 2015, representing 8% growth over the preceding year. The main sources of foreign investment as at 2015 is led by US (AUD860.3 billion), United Kingdom (AUD499.9 billion), Belgium (AUD238.5 billion), Japan (AUD199.6 billion), Singapore (AUD98.6 billion) and Hong Kong (AUD854 billion). 3,500,000 25% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: ASS, Savffls Research 6.2. NSW Overview NSW Economy. NSW is the largest state economy in Australia accounting for almost one third of Australia’s GDP at almost AUD500 billion per annum. Average growth from 1994 to 2016 was in the order of 2.7% annually and the forecast by most economists shows that the growth rate is likely to improve beyond that leve1. Services account for 86% of the value of NSW’s industry output, highlighting the strength of the state’s knowledge-based business services and creative industries. Government policy settings such as interest rates, population growth and infrastructure investment as well as a lower exchange rate add significantly to a positive outlook for NSW where economists forecast an increasing economy growth of closer to 3.0% over the years 2017 and 2018. NSW Population. With a population close to one third of the entire Australian population, NSW has a large and growing domestic market size. NSW welcomes approximately 60,000 immigrants to Sydney every year which is adding to demand for housing, food and infrastructure. Sydney’s Population. Sydney, the capital of NSW, is Australia’s most densely populated dtywith an estimated resident population of 4.9 million in 2015, generating a density of 390 persons per square kilometre. The density is not equal across the entire city. Areas of lower density on the outskirts of the city are countered with much higher density in the inner city areas. Densities of 10,000 persons per square kilometre up to and exceeding 20,000 persons per square kilometre are prevalent in the inner city suburbs. Unemployment. NSW’s unemployment rate of 5.0% as at 2016 has moved from above the national average between 2005 and 2010, to now be below the national average of 5.6%. Jobs are being created in most of the service industries such as financial services, property and business services as well as housing construction. Strong population growth in NSW is being driven in part by strong jobs growth which is also forecast to lead to lower unemployment and lower numbers of unfilled job vacancies over 2017 and 2018. Investment. A combination of low interest rates, large amounts of investment capital and lower AUD are contributing to strong investment deal flow in Sydney. As Sydney is one of the region’s financial capitals, this has a positive effect on employment numbers. The weaker AUD against major currencies such as the USD is also assisting areas such as increased tourist numbers, stronger international student numbers and the export of manufactured goods and agricultural products from Sydney and NSW. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 7. Australia Regulatory Environment Overview 7.1. Types of Property Ownership Most Auslralian land is held under the Torrens title system, through land registries established in each state and territory. Under the Torrens title system, the relevant state or territory (subject to fraud) guarantees title to the person who is recorded in the register as the owner of the land. The most commonly recognised interests in Australian land are i) freehold estate in fee simple, Ii) leasehold interest, iii) other interests (mortgage interests, options to acquire land, easements, restrictive), Iv) non-Torrens title land, and v) native titles. 7.2. Overseas Ownership Restrictions 7.2.1. Overview Investment proposals by overseas interests are regulated by the Foreign Acquisitions and Takeovers Act 1975 (FATA), which is administered by the Treasurer, who is assisted by the Foreign Investment Review Board (FIRB), a division of the Commonwealth Government Treasury. The Commonwealth government publishes policy gUidelines for the administration of FATA. Under the Australian rules and restrictions on the acquisition and ownership of property by foreign interests, foreign persons are normally given approval to: • Buy vacant land for development, including house and land packages where construction has not commenced; and
• Buy new dwellings such as house and land packages, home units and townhouses purchased ‘off-the-plan’ that is under construction or newly constructed but never occupied or previously sold.

Certain categories of foreign nationals, who hold a visa that permits Ihem to reside in Australia continuously for at least the next 12 months (such as students), may be given approval to purchase established residential real estate (that is, second hand dwellings) for use as their principal place of residence (that is, not for rental purposes) while in Australia. From 1 December 2015, applicants will pay a fee before their foreign investment purchase application is processed. For a residential property valued under AUD1 million, a fee of AUD5,000 is payable. For residential properties valued over AUD1 million, a fee of AUD10,000 is payable then AUD1 0,000 incremental fee increase per additional AUD1 million in property value. Advanced off-the-plan cert”tficates require a fee of AUD25,000 upfront. Property developers can apply for an advanced off-the-plan certificate to sell new dwellings in a development of 100 or more residences to foreign investors. The Government will tighten the rules around the use of advanced off-the-plan certificates by limiting the value of all apartments that can be bought by a single foreign investor to AUD3 million in the one development. Ifforeign investors want to purchase apartments above this value, they will have to seek individual approval from FATA. Property developers can apply for an advanced off-the¥plan certificate to sell new dwellings in a development of 100 or more residences to foreign investors. 7.2.2. Meaning of Foreign Interests The expression ‘foreign interest’ has a very technical meaning under FATA. There are complex tracing provisions, which have a broad reach. However, in general terms, a foreign interest is: • a natural person who is not ordinarily resident in Australia;
• an overseas government or its agencies;
• any corporation, business or trust in which there is a ‘substantial interest’ held by an overseas person or corporation.

7.2.3. Proposals Relating to Urban Land Overseas entities wanting to acquire urban land (inclUding interests that arise via leases, financing and profit-sharing arrangements) must make a proposal to FATA. Proposals must be made in regard to developed non-residential commercial real estate valued at AUD5 million ormore, developed non-residential commercial real estate valued atAUD55 million or more, accommodation facilities valued atAUD55 million or more, vacant real estate, and residential real estate shares or units in Australian urban land corporations or trust estates. 7.3. Tax Legislation In Australia, power to levy tax exists at both commonwealth (ie, federal) and state levels. The federal government levies taxes such as income tax, and goods and services tax (GST). Taxes levied by state governments include stamp duty, land tax and payroll tax as well as transaction duty, fees and charges on certain kinds of business transactions. At the federal level, taxation is administered by the Australian Taxation Office (ATO). At the state and territory level, the relevant taxation authority is the State Revenue Office of the applicable state or territory. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 7.3.1. Stamp Duty Stamp duty is a tax imposed at the state/ territory level, and is generally charged at an incremental rate, based on the higher of the market value of the property transferred and the GST-inclusive consideration. Certain exemptions and concessions may be available. Stamp duty on land acquisitions in NSW is currently charged at a rate of between 1.25% and 7.0%. The transfer of title to land cannot be registered until stamp duty has been paid. The State of South Australia is progressively abolishing stamp duty on commercial property transfers. The rate will reduce from 1 July 2016, half that rate again from 1 July 2017 and be zero from July 1 2018, As at November 2016, foreign buyers of residential property shall be liable for additional duty at the rate of 4.00% in New South Wales, 7.00% in Victoria and 3.00% in Queensland. 7.3.2. Land Tax Land tax is also imposed at the state/territory level. As a result, the rate of land tax, the threshold at which it becomes payable and the date on which it is assessed and paid will depend on where the land is situated. The current maximum marginal rates of land tax in NSW are shown below. Figure 7-1-Marginal Rates of Land Tax in NSW” Type Threshold (AUD) Rate Department Commercial 2,641,000 AUD35,444 + 2% of land value above AUD2,641 ,000 Office of State Revenue AUD1()()·pIL.ls 1.6% up to’AUo”2″,64\CiOO’ihen A’UD35,444 +
Residential 432,000 Office of State Revenue 2% of land value above AUD2,641 ,000 *fnformation as of 31 December 2016. Note that different marginal rates apply, depending on property value. Please refer to the applicable State or Territory revenue office website for up-to-date information Source: State Revenue Offices, Savills Research 7.3,3, Corporation Tax The tax rate for public and private companies, resident and non-resident, is currently 30%. However, from 1 July 2015 companies with a turnover of less than AUD2,000,000 will be eligible for a company tax rate of 28,5%. 7.3.4. Income Tax
Individuals, trustees, superannuation funds and companies deriving income from an Australian source must apply to the Australian Taxation Office (ATO) for an Australian tax file number and must lodge an annual tax return with the ATO. Entities which carry on an enterprise in Australia also require an Australian business number. Income tax is payable by individuals, trustees (in certain circumstances), superannuation funds and companies. Australian income tax is imposed on a single measurement of taxable income, which is calculated as the sum of assessable income derived by the taxpayer during the relevant year of income less ‘allowable deductions’, ie: Taxable Income = Assessable Income -Allowable Deductions, Australian tax residents are generally liable to pay income tax in respect of their worldwide assessable income, whereas non­Australian tax residents only pay tax on that part of their income which is derived from sources in Australia. However, this principle may be subject to the application of double taxation agreements (DTAs) which Australia has entered into with a number of other countries. Taxation rates for individuals differ, depending on whether the individual is an Australian tax resident or not. The marginal rates of taxation applicable for Australian tax residents for the financial year from 1 July 2016 to 30 June 2017 are shown below, Figure 7-2 -Income Tax Rates for Australian Residents Taxation income (AUD) Marginal tax rate (%) Tax on this income
0-18,200 0 Nil 18,201-37,000 19 19¢ for each AUD1 over AUD18,200 37,001-87,000 32.5 AUD3,572 + 32.5¢ for each AUD1 over AUD37,000 87,001-180,000 37 AUD19,822 + 37¢ for each AUD1 over AUD80,000 180,001 + 45 AUD54,232 + 45¢ for each AUD1 over AUD180,OOO Source: ATO, Savilis Research In addition, individual Australian tax residents must pay a Medicare Levy of 1.2% of taxable income, subject to low-income thresholds, phase-in limits and surcharges for individuals without private health insurance. This levy is 2% for taxpayers on AUD180,000+ to fund the Temporary Budget Repair Levy from 1 July 2014. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills The marginal rates of taxation applicable for non-Australian tax residents for the financial year from 1 July 2016 to 30 June 2017 are shown below. Figure 7-3 -Income Tax Rates for Non~AustralianResidents Taxation income (AUD) Marginal tax rate (%) Tax on this income 0-87,000 32.5 32.5¢ for each AUD1 87,001-180,000 37 AUD28,275 + 37¢ for each AUD1 over AUD87,000 180,001 + 45 AUD62,685 + 45¢ lor each AUD1 over AUD180,000 Source: A TO, Savilis Research
Non-Australian tax residents are not required to pay a Medicare Levy of 2% of taxable income. However, a levy of 2% for non­Australian taxpayers on AUD180,OOO+ to fund the Temporary Budget Repair Levy is payable from 1 July 2014.
7.3.5. GST The transfer of real estate located in Australia is generally subject to GST, which is calculated as 10% of the GST-exclusive selling price of the real estate and is payable by the seller. However, in the purchase of non-residential property, the GST liability is generally passed to the buyer as they can claim the GST as an input tax credit, sUbject to satisfying certain requirements. The sale of farm land, commercial real estate sUbject to lease and grants of vacant land by the federal government may all be GST-free supplies, sUbject to satisfying a number of requirements. 7.3.6. CGT CGT applies if the gain occurs within 12 months of purchase. If the event occurs after more than 12 months, a discount applies according to the tax rate of the entity holding and disposing of the asset. 7.4. Relevant Laws and Regulations Governing the Industry There are a number of critical legal issues associated with Australian property development which developers must be aware of. The legislative regimes differ depending on the particular jurisdiction, however, each legislative regime has wide reaching effects on development projects which should be taken into account before proceeding. 7.4.1. Security of Payment Legislation Security of payment legislation will generally apply to contracts for the performance of construction work or related goods and services -concepts which are likely to capture a broad range of activities associated with a development project. The relevant piece of legislation in NSW is the Building and Construction Industry Security of Payment Act 1999 (NSW). 7.4.2. Residential Building Legislations In NSW, key provisions of the Home Building Act 1989 (NSW) could impose significant and ongoing liabilities of a developer to subsequent purchasers of residential dwellings. Other Acts and regulations pertaining to property and property development in NSW include: Environmental Planning and Assessment Act 1979 Landlord and Tenant (Amendment) Act 1948 Environmental Planning and Assessment Regulation 2000 Native Title (NSW) Act 1994 Work Health and Safety Act 2011 Native Vegetation Act 2003 Building Professionals Act 2005 Parking Space Levy Act 2009 Building Professionals Amendment Act 2008 Property, Stock and Business Agents Act 2002 Crown Lands Act 1989 Real Property Act 1900 Dividing Fences Act 1991 Residential Tenancies Act 2010 Historic Houses Act 1980 Retail Leases Act 1994 Housing Act 2001 Retail Trading Act 2008 Industrial Relations Act 1996 Strata Schemes Management Act 1996 Land Acquisition (Just Terms Compensation) Act 1991 Strata Schemes (Freehold Development) Act 1973 Land Development Contribution Act 1970 Strata Schemes (Leasehold Development) Act 1986 Land Sales Act 1964 Swimming Pools Act 1992 Land Tax Management Act 1956 Valuation of Land Act 1916 Landlord and Tenant Act 1899 Valuers Act 2003 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 8. Sydney Property Market Overview 8.1. Residential Property Market Overview 8.1.1. Residential Property For the purposes of this executive summary, “houses” refer to attached and semi-detached housing on land generally found in suburban settings. “Units” refer to strata-titled, multiple dwelling units and apartments. Sydney has a resident population of some 4.9 million people housed in approximately 2.2 million dwellings in 2015. Approximately 44% of all dwellings in Sydney are units/ apartments. Sydney is recognised as a global city, and the largest capital city in Australia. Sydney is projected to grow to a population of 5.86 million people by 2031, while NSW is projecled to grow to a population of 9.23 million according to State Government forecasts. Housing affordability and housing supply remain issues for Sydney which has the highest median house price for any capital city in Australia. Sydney has four of the five wealthiest regions in Australia, and has an internationally recognised ‘luxury residential market’. Forthe purposes of this executive summary, Savills Research utilises data provided by the Real Estate Institute of NSW (REINSW). REINSW uses the Local Government Areas included in Inner, Middle and Outer Sydney as per the Sydney Statistical Division according to Australian Standard Geographic Classification of the ABS. These areas are broadly broken down as: Inner -0-1Okm from the Central Business District (CBD); Middle -10-25km from the CBD; Outer ->25km from the CBD.
8.1.2. Sydney House and Unit Transaction Volumes
–Units —Houses Source: APM, REINSW, Savills Research According to the ASS, the number of houses and units traded every three months in Sydney ranges around 8,000 to 17,000 of each type since 2006. The transfer of houses has recently peaked at levels of between 12,000 and 17,000 a quarter in the period December 2013 to December 2015. In 2016 approximately 10,000 per quarter have traded. Units have been selling in the band of 9,000 to 13,000 a quarter consistently from 2010 to 2015. In 2016 approximately 11,000 per quarter have traded. Australia primarily conducts residential property sales by either of two methods. Private treaty, off-the-plan and negotiation are standard procedures for purchasing residential property and are the most common methods of sale for newly built residential property. Second hand residential property can also be sold by private treaty however some vendors choose to sell their residential property by way of public auction. A public auction sales campaign will typically be held over a four to six weeks period and culminate in an auction where interested parties compete with each other at the same time to successfully purchase. The highest successful bidder will generally unconditionally purchase the residential property at the close of bidding. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report According to the latest auction clearance rates released by Australian Property Monitors (APM), the Sydney clearance rate has risen 10 81% in November 2016 due in part to low interest rales, low unemployment and ongoing price growth and the amount of property for sale. The clearance rate is approximately 14% higher than the three year average of 73%. Many dwellings in Sydney are sold using the auction method however this is not a universally accepted method of sale. The clearance rate is only one indicator of the health of the transaction market. Figure 8~2 ~ Sydney Residential Auction Clearance Rates Nov-11 to Nov-16 100%
–Linear Auction Clearance 10% 0%
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~o~ )’b-<::f~’b-t.:~~ ).s:C:J’Q’f~o~ )’b-<::f~’b-<:~~ ).s:C:J’Q’f~o~’ )’b-<::f~’b-<:~~ ).s:C:J’Q’f~o~ )’b-<::f~~~~ ).s:C:Jrz,’f~o~’ )’l>-<::f~’b-<:~’b-” ).s:C:J’Q’f~o~’ Source: APM, REINSW, Sa vilis Research 8.1.3. Residential Supply Sydney is restricted by land availability through geographical limitations, zoning restrictions and limited land release. The cost to develop suitable and sustainable infrastructure to service developable land in the outer rim of Sydney is an invariable batue. Government wants and often demands more infrastructure be paid for by developers who are then forced to pass the charges through to buyers, thereby pushing house prices up. As Sydney leads the nation with the most expensive residential land, the overall cost and time to develop is a deterrent for unestablished developers. According to the latest ASS figures, the value of residential work completed in NSW is as follows: Figure 8-3 -Value of NSW Residential Construction Work Done (AUD ‘000) by Type Jun-06 to Jun16 $25,000,000 ~—,-~–“,-,—, -,—–,,-,–,–,-,-,-,——, “——~—,,—-,,,————-­c ‘” $20,000,0000 ” 0″ a-” 5 ? $15,000,000 ~ ~ ::> 0 :os $10,000,000 ~ ‘” ” I-I;??i’=10;-j?;–I>”–;,.,’.–;;,.;,—;,;,.;,1-/{;­ro > $5,000,000 ——————————­$0  ~  _i.-.-.-__  ~.—‘_  ——‘—~  ~~_~~  __~_’–___  .~_l.._  ~  r;,’jCQ  r;,’j~  ~~  ,,1’1;)  )v<::f  )v<::f  ..,”‘”  )v<::f  _New Houses  aNew Units  aAlterations and Other
Source: ASS, Savifls Research The value of conslruction work done has increased by over 4% for ‘New Houses’ in 2016 when compared to the previous year. The value of construction work done for ‘New Units’ has increased by 35% over the last 12 monlhs. According to the ABS, total dwelling units approved in NSW declined in September 2016 by 13% (seasonally adjusted) to 6,314 dwellings, from 7,285 dwellings in the prevJous month. In the last 12 months, total annual dwelling approvals for NSW have increased approximately 11 % (seasonally adjusted) from 68,194 dwellings to 75,484 dwellings.
Savills Research 226

8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills Figure 8-4· NSW Quarterly Dwelling Completions by Type (Number of Units) Jun-98 to Jun-16 12,000 ~ 10,000 c 2. .~ 8,000
a. ” 6,000E o o 4,000 ~ ~ 2,000 o .–_._-~’ .–~~~-_–‘.—.­~.~ .~ .~~~~~~~ ~ ~ ~ ~ ~~~~~~~ ~~~~~~ ~~~~ –Houses Source: ASS, Saviffs Research For 18 years the number of units and houses completed in NSW have been roughly equal in number with houses slightly more favoured. Since June 2014, approximately 11,000 dwellings are being completed a quarter, or almost 45,000 dwellings a year. The average dwellings since June 1998 is 36,600 dwellings per annum. The peak period from 1998 to 2006 saw an average of 43,000 dwellings per annum completed. The GFC period between 2006 and 2012 saw an average of 27,500 dwellings per annum compleled. More recently, with interest rates falling, complelions have averaged 45,000 dwellings per annum in the three years to June 2016. Given the outlook for interest rates to remain low and demand from owner occupiers to remain strong, Savills Research believes completions of between 35,000 and 45,000 dwellings per annum in 2017 and 2018 appear reasonable. The mix of complelions historically has been 55% houses and 45% units and Savills Research has no reason to believe th is mix of lypes will change in the next two years. if this proves to be correcl then approXimately 16,000 to 20,000 and 19,000 to 24,000 houses will be compleled in both 2017 and 2018 in NSW. Figure 8·5: NSW Dwellings Units Approved for Construction Sep·04 to Sep·16 9,000 0 0 5>~ ,,<‘ c:P c§,<:f Source: ASS, Savilfs Research The latest ABS release on building work done shows an increase in dwelling approvals. A recent record number of approvals were granted in 2016 following the recen! inlroduc!ion of macro-prudential controls to dampen growth in investor lending. The Australian Prudential Regularton Aulhorily (APRA) has a supervisory and regulatory role over the Australian banking system Working in consultation with the RBA, APRA has moved 10 put measures in place (macro-prudential controls) to ensure lending practices to the housing market are sound. These conlrols include increasing the amount of capital required to be retained by the banks (equity) against the loans they underwrite (debt). This control generally means banks must charge higher interest in order to maintain their relurn on equity. Other measures include changes to loan to valuation ralios, interest rate stress testing and changes to lending practices that distorted cash nows such as including the tax advantages in the loan repayment calculations. Savills Research 8. INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report savills There are currently a number of multi~tenantdwellings under construction in and around the Sydney CBD and a .large number of these developments are at Development Approval (DA) stage. Most unit developments target a mixture of overseas and domestic buyers and a mixture of owner occupiers and investors. Figure B~6 ~ Selected Current Sydney Inner City High Rise Residential Development Activity Project Address No. Units Completion Status Harold Park -Precinct 3 10 Maxwell Rd, Forest Lodge 345 2016 Construction York&George 383 George St, Sydney 199 2016 DAApproved Barangaroo South BUildings RB & R9 Lots 5 & 6 HiCpk~OtnS Rd, Millers 159 2016 DA Submitted oln Darling Square Darling Harbour 1,400 2017 Early Planning Sydney Greenland Centre 115 Bathurst St, Sydney 490 2017 DA Submitted Harold Park -Precinct 4 & 6 10 Maxwell Rd, Forest Lodge 242 2017 DA Submitted Sydney by Crown 161 Castlereagh St, Sydney 220 2017 DAApproved Harold Park -Precinct 5 10 Maxwell Rd, Forest Lodge 241 2018 Early Planning Source: COIdell Reed Construction Data, Savills Research 8.1.4. Residential Vacancy At the time of this executive summary, the latest available data from REINSW relates to September 2016. According to the latest figures released by REINSW, over the 12 months to September 2016, total vacancy is unchanged compared to the previous year. Figure 8-7 -Metropolitan Sydney Vacancy Rates -September 2016
Inner (%)  Middle (%)  Outer (%)  Total Vacancy (%)  Sep-15  2.0  1.9  1.7  1.9  Sep-16  1.8  2.1  1.8  1.9  Change (%)  -0.2  -0.2  0.1  0.0
Source: REINSW, SaviJIs Research It is expected these vacancy levels will remain relatively low due to the continued disparity between the supply and demand of residential accommodation. More recently rental growth has stalled, placing downward pressure on rental yields for investors as values increase. Figure 8~8 Sydney Vacancy Rates by Location (%) Sep-06 to Sep16w 3.5 —_._-­
0.5 —~-_._­0.0 U.J..l••U..)..u ..LJ..i.~.U.l ‘–J-.1.LJ..U.•U ..u ..U–l..w.~..J !!!”!’!’ ‘..L.t.LL.L.l.I_’-‘__U ..U.-..U.LWJ….-!.,LU.w.J..i-.J.hL!.J.X”.,.},,1 ‘J.’.1..:. 1 ‘—!_\..-‘-U.~_L.~.I.’.U.; ..L'”.’.;…u.J..l..l..t.L.U.J-‘..u.J ~~ ~~~~~~~~~~~~~~~~~~~~~~~ ~~~#~#~#~##~#~~~~~#~#~~#~~~ -Inner •••••• Middle “”‘, ”””,’ Outer Source. REINSW, Savifls Research Residential vacancy rates across the entire Metropolitan Sydneyo have been low for a considerable period of time. As more supply has been delivered to the market the vacancy rate has moved from a cyclical low of 1% in 2008 to be 1.9% in September 2016 and is stiJi widely regarded as low. A combination of population growth and immigration continues to put pressure on the supply of housing such that vacancy rates can generally be expected to remain low for some time. 6 Metropolitan Sydney is classified as Greater Sydney (Greater Capital City Statistical Area) by the ASS, which accounts for about 64% of NSW’s population and is home to over 4.9 million people Savills Research 8. INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report savills 8.1.5. Supply Outlook The supply of dwellings to the Sydney residential market is responding to two factors, which are demand and pricing. it is now (in certain circumstances) cheaper to build a dwelling for the end-users than it is to purchase an existing dwelling almost entirely due to stamp duly savings. Investors, population growth and immigration have been fuelling demand_ The supply side has responded to the demand side by increasing the number of dwellings approved for construction to now be at cyclical highs. It is importanllo note that an approval does not necessarily lead to construction and completion. An approval is an intention to construct. In a multi-unit development, a required number of presales is normally required before construction commences. If the project is not well received by the marketplace, construction will not commence because the requisite number of pre-sales has not been achieved. This market factor manages to keep supply generally in line with demand. This lack of speculative activity generally means the market is kept relatively balanced. Oversupply can occur when there are regulatory or economic “shocks”. When the economy enters recession and unemployment rises. supply of residential property increases as investment properties are sold and renters leave the market creatlng higher vacancy rates. Given Australian investors have tax incentives to purchase dwellings, any changes to those arrangements can positively or negatively affect the supply of dwellings to the market. Whilst the risk of policy changes are ever present and impossible to forecast, most economists are in agreement that a recession of the magnitude required to substantially increase the supply of second hand dwellings to the market is not on the forecast horizon. 8.1.6. Bank Lending In absence of official statistics on segmentation of the market by investors and owner-occupier, the banking lending data is used as a proxy to illustrate this segmentation. a) Variable Home Loan Interest Rate (HLlR) The variable HLiR is undoubtedly one of the biggest factors affecting residential property capital values. It is one of the major indicators of housing affordability along with average weekly earnings and median house prices. The variable HLiR fell from a cap of 17% in the 1990 to a cyclical low of 6.05% in 2005. HLIR then started to rise as house price momentum gathered, and speculation increased. The onset of the GFC, an economic slowdown and lower demand for credit has seen HLiR break their cyclical lows to be 525% in October 2016. As more competition entered the home lending market in the early 2000’s many lending institutions offered discounted loans. These discounted toans were generally offered at a discount of between 40 basis points to as much as 85 basis points to the standard variable rate. Reflecting the increase in housing investment, APRA has ordered an increase in the average risk weight on Australian residential mortgage exposures from 16% to 25% in internal risk modelling for big banks. The implication of this is that the major banks, who use their own risk modelling to determine the amount of capital they hold, must adopt this weighting and hold billions more in reserves to safeguard the financial system. This will be enforced from 1 July 2016. In October 2015, the major banks in Australia have raised the standard variable rate in response this, passing this financing cost onto the investors who take out loans The current discounted HLiR ranges from 4.20% to 4.85% SUbject to lending terms and conditions. 18 18 16 16 14 14 _12 12 ~10 10 0:: 8 :r: 6 ::J 8 6 4 4 22 o o 10′ 10’0 ~, ~’O 10’i:>’,’1> “Qi “OS “QI “QI “Qi –Home Loan Interest Rates
48 Source: RBA, Savills Research A large influence on the variable home loan rate is inflation. A low inflationary environment produces a correspondingly low home loan rate environment. Inflation is forecasted to remain subdued into the foreseeable future and can be expected to translate into commensurately low HLiR. Savills Research 8. INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report savills ……………………………………………..
.~ 4 …..-.-\”–.-…,A——–l~….–·–·–·—···-·,-·-··–··-..—.—-.. ro > .. , -….. _~”” ‘ ~-,-­2 r -._M_ ~~ –1—.——..—————………….
o 1—-, —,–“,.-.-T-~·….–r-~~-·r—-T..~-r~ ‘7 -,.-~~,…..-~-I.–..T.—-r…-.-..,m-.,_.,—r—r—T–,—-r-…-..,::: , ~$###$##################~~~~~~~ ~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~ –Home Loan Interest Rates –CPI Source: ABS, RBA, Savilfs Researcf7 Most economists forecast inflation to remain within the RBA’s target band of 2% to 3% in the forecast period 2015 to 2020 resulting in variable HLiR moving into a band of 5.5% to 6.0% in the same forecast period. b) Total Household Debt The total value of residential loan commitments in Australia has grown at an average of 10% per annum, from approximately AUD572 billion in September 2006 to AUD1,494 billion in September 2016. Loans to owner occupiers have grown from AUD381 billion to AUD963 billion whilst loans to investors have grown from AUD191 billion to AUD530 billion. Figure 8-11 -Australia National Residential Borrowing Commitments (AUD billion) by Type Sep-06 to Sep-16 $1,600 —..—–.-..——–……. . —-.—-­$1 ,400 —..–~-~.. ­$1 ,200 ~..-.-.-.-..~ $1 ,000
.—–~ ..-­$800·—-···–··
~!~II~–rl c::;0~ • Owner Occupier E1lnvestor Source: RBA, Savills Research Total household indebtedness as a percentage of household income has risen from around 60% in the late 1980’s to 100% in 1997 to a current peak of 186% in 2015. This measure takes into account all debt which a household may have including credit cards, investment gearing and personal loans. The level of indebtedness of owner occupiers is somewhat more modest. Rising from a low of 30% in 1990 to nearly 60% in 2002 to a peak of 90% in 2010 where it has climbed a little since to be 96% in 2016. This level of indebtedness leaves people feeling vulnerable in times of economic uncertainty and increasing unemployment. This is reflected in consumer sentiment surveys and also in savings rates and expenditure patterns.

8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report SBvills Figure 8·12 • Australian Residential -Total Household Debt and Owner Occupier Debt to Income (%) 1990 to 2016 200 180 160 ~140 Ql 120 E 8100 c :5 80 ~ 60 40 20 –
I—~~–‘~’-“-~-=~””‘-“‘–~-~~’~’~~–~~~~~-~—~~-~-~-­—,———-­…
~ –~—-~—-~~:::-:::;-._.~, …=——–~~~~——-~–­~bo  C?JIO  Q;I:O  s::>~  5:)’1.­ “IQ  S)Cb  ,,()  ,,’1.­ ~ ‘)v  ~ ‘)v  ~ ‘)v  ~ ‘)v  ~ ‘)V  ~ ‘)V  f:!’)V  f:!’)v  f:!’)v  –Total Household Debt (LHS)  -Owner Occupier Debt (RHS)  Source: RBA, Savilfs Research
c) Lending 10 Ovvner Occupiers and Investors Of course not aHlending is for owner occupied housing. Lending for investment in the property market also forms a substantial part of the lending market. In the early 1990’s some 80% of all lending was for owner occupiers. This fell substantially over the 1990’s to around 70% in 1999. Over the past 15 years this level fell again to sit at a ratio of 55/45. The RBA has expressed concerns about the amount of lending to investors and has worked with banking authorities to make changes to the capital requirement of banks that lend to property investors. Not all buyers of residential property use debt nor do all overseas buyers either use debt or source debt from Australian financial institutions. Lending to housing is one of the only indicators of demand strength available in the market but it is imperfect as it does not capture 100% of buying activity. Figure 8-13 shows the change in mix of total outstanding bank lending for housing by type of borrowing. Figure 8a 13: Australian Residential -Total Outstanding Bank Lending by Type (% of total) 1991 to 2016 r–~—~’~-~’—~—‘~’-~’—-~–‘~­100% , }~–~~90%~ Q) 80% D. r~-~’-“>-70% 1::–.­J­60%>­OJ 50% .-In n… n_. … __ -__ ._-._=~ _ ____.. ___ ._ ;;;; __-__””_’0 40%i” 30% 20%c ‘” U'” 10% ~:=:=:… =_:~–=?:-= .. ~-===-~==~:.~:.~-“”~=~=–===-=–~-~-=~~~~­OJ
–Owner Occupiers –Investors Source: RBA, Savifls Research There have been periods where new lending to property investors has exceeded new loans to owner occupiers. The period 1998 is of particular note. That period caused a great deal of consternation with policy makers and politicians and resulted in a tightening of credit and of interest rates. From 2012 to 2015, new lending to investors fluctuated at the extreme of 20% to 90% of all lending. There are a number of factors at work here including limits placed on superannuation contributions. Also of interest has been the introduction of macro-prudential lending controls introduced by the banks in concert wilh APRA and the RBA. This is expected to lead to a fall in lending to investors and thereby reducing demand for investment properties in the coming years. Savills Research B. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills
100% 90% 80% 70% 60% ~:2 50%
>-“I-15 40% >-~ co Ol 30% ‘6 20% i” 10%u -” 0%
c ~ n ~ _~ b ~~~~~ ~ n ~~ b ~~~~~ ~~~ ~~~ OJ'” ~ ~v~ ~-~ “OJ n.~ RI …..OJ “t::::i “t::) “C)v “t::) ,,~ “t::::i “CS “C) “c:i “CS ,,” ……”-“,”, “,”, “,”, ” ‘” ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~ -Owner Occupiers –Investors Source.’ RBA, Savif{s Research d) First Home Buyer (FHB) On 1st October 2012, the First Home Owner Grant Scheme was replaced by the First Home Owner Grant (New Home) Scheme. The previous scheme made the grant available to the purchase of new and existing dwellings whilst the new scheme applies only to new dwellings. The grant was established to assist eligible first home owners to purchase a new home or build their home by offering an AUD15,000 grant. The value of the property must not exceed the First Home Owner Grant Cap of AUD835,000 for contracts dated on or after 1st January 2016. The Scheme reduced the grant to AUD10,000 on 1st January 2016. Demand from FHB softened following changes to the First Home Owner Grant Scheme. In an attempt to assist in boosting consumer confidence, the RBA has been cutting the official cash rate, by 275 basis points from 4.75% in November 2010 to 1.50% in August 2016. At the latest meeting in November 2016, the RBA decided to once again maintain the official cash rale at 1.50%. In the latest figures released by the ABS, FHB activity in NSW has risen by 1.8% in the 12 months to August 2016. Figure 8-15: NSW Average Loan Size by Type (AUD’OOO) Aug-06 to Aug-16 $500 r .————————–~———————–.—–~—-­8″ $450 1—————————••.•; .”~~———~———;~1i::~~ -_—–=-:.::::-:-=-..'” ~~~:.~~=, ~..~. ;;;;.:::-;;;~-=-~.-:=:~::~:::7;~:; ..,—. . .
1_.._-._-_~ $300 ~-:.~.~-;;.;:.~-~.:.•.~ u~, .•.~_~~ -.’-‘~-.——-.~_—.–~~_—~—–­i:~~~ r–..—–~~,—–.–‘-‘-..-~’.~-~ ….._.~… -~=-===~-=–~=–~=~== ~ $150 I—————~-~-~–~——————————————-­~ $100 —..–.i————————————-~——-­~ $50 ! —””–,~—‘-.–‘–..’.. .—.’ -..–_ ,..-. . —–~.–.-.-.–.—–..——–.’.–‘—”’-‘—–‘”~'””-.­$0 l ._.._.__~ L. …J ._~……….l…..~ .’___.__,_._,_,.. “,, eL __” ..’__~___’__,~._. __.~ ..
….J._. • ~ ~~~ ~ ~~~~~~ ~ ~~ ~ ~ ~~~~~~ ~~~~~~~ ~~~~ –NSWFHB …… NSW Non-FHB Source: ASS, Savills Research The average loan size for NSW FHB increased by 2% to AUD365,900, whilst the average loan for non-FHB decreased by 1″I” to AUD434,100 over the 12 months to August 2016. Savills Research 232 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills FHB activity, indexed to August 2006, indicates two distinct trends over the last 10 years. The number of loalls spiked in 2009 driven in part by federal government fiscal stimulus. In response to the GFC, the Australian Federal Government delivered an AUD42 billion stimulus package including one-off paymenls of AUD950 10 an estimated 8.7 million Australian workers. However, demand fell as some development schemes were wound back until the announcement of changes to the current scheme caused another spike in late 2011. Since then, FHB loan volumes have fallen and are currently 23% lower the average over the last decade. Over this same period, the average loan value for FHB has increased by 44% since August 2006, indicating strong growth in the price of ‘off the plan’ and newly built dwellings. Figure 8-16 -NSW FHB Activity (Indexed) Aug-06 to Aug-16 300 “­0 ~<:> ~~ ,,’l,.. ,,'”‘::I ~<:>” <:>~ <:>'” <:>”A; A;A;A;A; A; v«v« v«”,oS “,oS “,oS “,oS “,oS “,oS ~~~ –No. of Loans •••••• Avg. Loan Value ($) Source: ABS, Savills Research
8.1.7. Sydney Residential Median Price The pricing of residential property is not just dictated to by an imbalance between demand and supply but other factors such as employment, interest rates, wages growth, debt, equity, taxation, incentives, bank lending practices, construction costs and fUlure expectations of earnings. According 10 the latest data from Domain House Price Report of September 2015, median house prices in the Metropolitan Sydney increased in the 12 months leading up to September 2016. Growth of 2.1 % was recorded across Sydney, with the median price now AUD1 ,068,303 up from AUD1 ,046,300 12 months earlier. The ASS provides dwelling price indices fOI houses and semi-detached dweJlings (units). The numbers, produced since 2003 using 2010 as a base year, show the growth in prices of both types of dwellings. There is little difference in the price performance of both types of property. Most recently, the price index for houses has increased sharply beyond that for units. A large part of the price growth has occurred in the last 4 years leading market commentators to suggest markel pricing cannot continue to grow at these rates. Prudential controls have been introduced to the banking system to influence the amount and lerms of lending for the purpose of residential investment. This is tipped to lead to a slowing in demand for inveslmenl property and a consolidation of dwelling prices with the likelihood of a retracement of some recent price growth. Figure 8.17 -NSW Dwelling Price Indices by Type (Number of Units) Jun-04 to Jun-16
180 —Houses —Units160 “• 140’0 ‘6 E 120•u & 100 80

~ ~<., ~q;:, ‘l’ ‘)v« ‘)v« Source: ABS, Savills Research Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills 8.1.8. Sydney Luxury Market In Australia the word “luxury”, in reference to housing, normally refers to superior internal finishes. Finishes to kitchen, bathroom, carpet, walkways and all internal finishes are generally regarded to be of the highest quality and craftsmanship. ‘Off the plan’ (sell-then-build) luxury apartment transactions have significantly increased over the last 12 to 18 months. Transaction activity has mostly occurred in the one and two bedroom market, with three bedroom apartments taking longer to transact. Asking rents for one and two bedroom luxury apartments have increased indicating that demand is strengthening. Even though the financial services and insurance sector has rebounded somewhat, demand for luxury rental property hasn’t translated into solid growth. An increase in household saving is a result of post-GFC caution and continued global economic uncertainty. As such. attitudes towards debt and financial vulnerabIlity are weighing on the market. Average resale prices of luxury two and three bedroom apartments have remained stable in the last 12 months. Whllst the Australian economy has performed relatively well since the economic downturn, the demand for lUxury accommodation still remains relatively subdued. 8.1.9. Residential Rentals
1,000 900 BOO 700 600 500 400 300 200 100 a

“,’lo ~” ‘” Source: Housing NSW, Savills Research Rents for units in the Metropolitan Sydney have been rising for 25 years since 1990. A significant period of low rental growth occurred in the period 2001 to 2007. In the period since 2007, gross rents have almost doubled in every part of the market. This is reflective of demand exceeding supply over this period, a general economic recovery post GFC in Sydney and the desire for an Increased return from residential property from investors as capital values increased. Gross weekly rents as at June 20’16 for units on average in Sydney are estimated to be AUD660 ln the inner ring suburbs, AUD500 in the middle ring suburbs and AUD410 in the outer ring suburbs. Tenants in Auslralia generally pay outgoings such as gas, electricity and water in addition to their weekly rent.

—-T—· ‘-“‘-“-r” ~—-.—_.__.,—~”’-‘-””-‘ ..·T..·~–,~-~~~,…….–·~ ..~~T~..~~—-,
“,'” “,’0 ,,’l-,,~ ,,’0 ,,’l-,,~”‘~ ,,” ,,'” ,,'””” ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ~.;;; ” “””””””””” ”
Source: Housing NSW, Savilfs Research Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills Average annual gross rental growth in the inner ring suburbs has been 5.53% since 1992, compared to 4.74% in the middle ring suburbs and 4.44% in the outer ring suburbs. Over the last decade, the inner ring suburbs have delivered average annual gross rental growth of 6.63%, the middle ring suburbs have delivered 6.04% whilst the outer ring suburbs have generated an average of 5.56%. Parramatta is also observed to record higher 1O-year rental growth of 6.2% to 6.3%, compared to 5.2% to 5.5% for Sydney. … … Figure 8-20: Sydney & Parramatta Rental Growth
Parramatta  $410  $445  SYdneY  $490  $520  1O-year Parramatta Averaqe Rental Growth  6.3%  6.2%  1O-vear Svdnev Averaae Rental Growth  5.2%  5.5%  Parramatta Yield  4.2% 3.8% SYdney Yield
Source. Housmg NSW, APM 8.1.10. Residential Demand Generators a) Population Growth Population growth has a large effect on both demand and pricing of residential property. As mentioned earlier, since 2002, Australia has been enjoying above average levels of population growth. Resulting from Federal Government policy to deal with the ageing of the population, Australia is undergoing the largest population growth of any country in the world and the largest in the history of the country. This trend has been underway since 2002 and continues today. On top of the additional 150,000 (net) natural increase in population, Australia has embarked on a strong drive to encourage skilled migration. These numbers reached a peak of just over 300,000 in 2008 and slowed down substantially with the onset of the GFC. As economic conditions improved, overseas migration increased to reach a post-GFC peak of nearly 250,000 in 2012-2014. As the mining investment boom has ended, demand for labour in the mining states has softened substantially resulting in a fall in immigration numbers to those areas, The latest numbers (end of 2015) suggest net overseas migration in 2015 was 168,000 with Melbourne and Sydney receiving the majority of arrivals.
b) Immigrants Demand Whilst the natural increase in the population can generally be accommodated in the existing housing stock, overseas migrants generally require a new dwelling. If we divide the number of immigrants by 2.77 persons per household (generally considered as Australia’s household formation rate in 2016) then we can get an estimation of demand for housing. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report Figure 8·22 ~ NSW Net Overseas Population Growth (OOO’s) 1991 to 2015

Source: ABS, Savifls Research 40,000 -_.~—~~-…..—-~~”~-‘-~~–‘——“” –. :§’ 35,000 I——–.–.-.-..—-..—~~-_.~—~—… ‘c 2-30,000 ~ 25,000 s g 20,000 ‘” ~ 15.000 ~ 10,000! 5,000
o ~” ~’), P>~ ~ PJ” p>Q) ~ PJ’b p>0) R::,<::::’ !:::I” ~’l-‘i::J~ cl>’ s;)<-:l s;)1{) &-r;:;1tJ s;)q. ,,<:J …..” ,,’1-,,’=’ “b< ,,<-‘”os “os “os “os “os “os “os “os “q) ‘l,.(S ‘),<5 ‘l,.CS .”CS .,,<5 ‘),<5 ‘),<5 ‘),<5 ‘),<5 ‘),<5 ‘),<::::. .”C) ‘),<::::. ‘),<::::. ‘),<::::. “”<::::. “”Formation rate 2.77 Source: ABS, Savifls Research Over the last decade. immigrants to Australia have generated enough demand for a lotal of 750,000 new dwellings, of which about 230,000 dwellings are attributed to NSW. This is approximately 50% of all new housing stock built in that period. It is unsurprising that construction has struggled to keep up with demand and that a combinalion of property investor and owner occupied solutions to supply have been required. In Australia, it is extremely difficult to identify the source of change in the Sydney and Melbourne housing markets. Anecdotal reports exist of foreign investment driving up property values. These faclols mayor may not be the cause of 1he current boom. For example, the Australian government’s FIRS monitors foreign investment in housing, In November 2014, the government conducted an inquiry into the FIRS 10 see how foreign investment impacted property values. It is found 1ha1lhe FIRS had not kepi record of the citizenship status of property purchasers, or taken action against foreign inveslors since 2006. Without detail ed information on who is buying property, and how they are doing it, Savills Research cannot confidently or academically allribute foreign investment to increased property values. 8.1.11. Residential Market Outlook and Forecasts Low interest rates and ongoing population growth are expected to continue to support growth in demand for dvvellings, and this has had some positive effect on consumer confidence and led to an increase in buyer activity in the last 12 mon1hs. That said the relatively high unemployment rate in Australia weighs on the residential market in some cities. It remains to be seen which of these factors will have the greates1 inlluence over the next 12 months. According to the latest Sankwest First Time Buyer Deposit Report, first time buyers are being forced to save for a longer period as the median value of houses outpaces salary growth. On average, Australian first time buyers will now take 4.1 years to save a 20% deposit for a house, up from 3.9 years in 2013. In Australia, property investors are able to claIm Interest payments on loans to acquire assets against their income tax. Investors are also able to claim depreciation of buildings and fixtures and fittings as well as maintenance costs against the income from the 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savUls asset. The ability to claim interest payments against personal income is known as “negative gearing”. Investors are taking advantage of negative gearing which is helping drive property prices higher and is clearly contributing to the crowding out of FHB. However, negative gearing also creates demand for housing and helps to fuel construclion activity, as well as ease rental vacancy rates. There is much rhetoric in the media surrounding negative gearing, its effect on the housing market, and the banning or limiting of negative gearing. For the time being there will be no changes to the current tax system and negative gearing will remain available for property investors. Negative gearing is obviously not alone in creating housing market distortions but it is a key reason why investor activity continues to rise. Australia’s ageing population is set to reach unprecedented levels and many of them are thinking about downsizing. This cohort of occupiers are now seen as an inlluential part of the property market. Among their main motivations for seiling the family home for smaller dwellings are convenience, maintenance and amenity. If we extrapolate the recent trends in conslruction and the mix of buyer types we can arrive at the balance between demand and supply. To re-iterate the trends identified in the previous sections, construc1ion of approximately 16,000 to 20,000 units per annum and 19,000 to 25,000 houses in both 2017 and 2018 in NSW is possible. Given that supply is not speculative in nature but rather meets demand we can view this supply as sustainable. Demand is generated by domestic buyers from within the existing market and those arriving from intra and interstate for job opportunities. Demand is also driven by recently arrived migrants. Both these numbers are assumed to remain constant over the next five years, The other demand variable is investors. Investors have made up 50% of all lending for housing investment. This has caused an imbalance between supply and demand. New controls have been put in place to temper this source of demand. We have assumed that this demand reverts to historical levels of 30% of demand. Underlying demand for dwellings in Sydney at a household formation rate of 2.77 generates demand for approximately 47,000 dwellings per annum. This means demand and supply are expected to be finely balanced over the next five years.
8.2. Office Property Market Overview 8.2,1. Australia (National) -Office Market Overview Commonly, each capital city in Australia has a strong representation of government, which are federal, state and local. Also in common, law courts are located in the CBD’s leading to a high representation of legal and support services. Melbourne and Sydney both have high levels of company headquarters due to the larger size of their worker populations. However, there are corporate headquarters found in the other capital cities. Education is Australia’s fourth largest export earner and each capital city has education facilities in or near to its CBD. which occupy office space. The Australian office markets have not only grown in size since the onset of the GFC in 2007 but have seen a substantial increase in occupancy ofwell overone million square metres. This is quite an accomplishment given the severity ofthe GFC and is testament 10 the resilience of the Australian economy and the prudent financial regulations put in place in Australia following 1he recession of 1992. 8.2.2. Australia (National) -Supply With regards lo development activity in office markets, Australia’s CBD office markets have weathered the twin effecls of the GFC and the decline in mining investment boom over the nine years from 2007 to 2016 to register over a million square metres of net absorption. This has occurred in an environment where business confidence has been subdued and consumers have been reluctant to spend. The fact that Australian office markets (Perth, Brisbane and Canberra in particular) have added over two million square metres of space to Australian CBO office markets in the same nine-year period indicates a number of things: Rents have been at a level where construction can occur, they cannot, by definition, grow much beyond that. In other words, as supply is added 10 the market, rental levels are capped at the level it costs to build a new building; 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills • Businesses are in a position to commit to a new building, and are confident, fOlWard looking, and manage their business affairs well. This is an important point Both government and corporations have used the last eight years as an opportunity to upgrade, consolidate and reconfigure their office space, and more is expected over the next six years; Banks. developers and funds are ready and available to ensure buildings are constructed with prudent levels of pre-commitment and very little speculative development. Debt and equity markets and an appetite for risk are all working in harmony These are the signs of a very healthy office market as the office markets are behaving in an orderly manner. Also of note is the ongoing levels of withdrawals. Whilst construction is closely monitored for the effect on vacancy levels, attention should also be given to the withdrawal of redundant space. One of the most popular alternative uses of redundant office buildings is the conversion to residential use. Higher house prices in Australia’s capital cities means that in some instances it is cheaper to build than to buy existing property. Higher density living is also gaining traction and commercial property land sites are large enough to accommodate such developments. A total of 2,971,747 square metres has been monitored as being withdrawn from office markets in Australia over the last decade. This is 12% of the total size of the market and is greater than the total amount of existing vacancy This is an important dynamic to understanding the behaviour of office markets. 8.2.3. Australia (National) -Demand Tenant demand for office space is gathering momentum in both Melbourne and Sydney where substantial growth in net absorption is being delivered, whilst Brisbane and Canberra continue to soften. reporting lower occupancy levels. North Ryde (Sydney suburb) remains strong whilst activity in Adelaide and Parramatla is somewhat subdued due to the lack of available quality vacant office space. Both the Parramatta and Adelaide office markets are supply constrained. The lack of good quality offl’ce space either under construction or existing leaves tenants in secondary space with little alternative other than renewing their occupancy until a new project is commenced 8.2.4. Australia (National) -Office Vacancy The Property Council of Australia (PCA) Office Market Report, released in early August 2016, revealed national CBD office vacancy to be largely unchanged at 10.7% in August 2016. Demand for office space rose in Melbourne, Sydney, Perth and Brisbane.
Total  Premium  A Grade  Total  Net  Stock  Vacancy  Vacancy  Vacancy  Absorption  (sq m)  (%)  (%)  (%)  (sq m)
5,082,215 11.3% 4.0% 5.6% 147,245 4,437,824 8.4% 61% 7.0% 367,026 Brisbane 653 43% 375 6.00% 7 75% 2.261,878 22.1% 13.9% 169% 41,419 Perth 663 48% 348 675% 788% 1,768,137 16.7% 19.9% 21.8% 18,206 Source: peA, Savills Research 82.5. Australia (National) -Rents Net effective rents of A Grade offices are stable in Sydney. Rents grew quite strongly prior to the onset of the GFC in 2008 and have subsequently retreated and stabilised at current levels with a lower absorption post-GFC. Figure 6-26 -Australian Office -Average A Grade Net Effective Rent (AUD/sqm) by Capital City Sep-06 to Sep-16 $800 r~~·~·–~~~-~–~—~~~_·_-~-~-~~~-_·~-~_·_····_—~—-~-~–~­li~~ r~~~~~~~’;;=~~~ i~ :~~$~O ~-=~=~~~~~:::=-~-~—_._”._~_._—~–~–==–=-:::~-~~=-~ l—“-“,-,,,,-~~-~–~_·~~-~—-….,..—–,-·-~-·—-r··—·-_·—-·r­”,’\ ~~ ~’j, ~~ ~<>5:><> “,'” “,'” ~'” ~'” ~'” c:p'< c:p” CO0″ c:l c:p” c,p” c,p” c,p” c:p” c:p” c:p” -Sydney -Melbourne •••••• Brisbane Perth Source’ Savilfs Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savllls 8.2.6. Australia (National) -Transactions The commercial property markets in Australia continue to enjoy elevated levels of transaction volumes as both domestic and international capital compete for prime assets. Approximately AUD33 billion of commercial real estate has transacted from September 2015 to September 2016, official and market interest rates have firmed and the combination has served to see market yields firm on investment grade assets, particularly prime CBD office towers. Comments have persisted about the disconnect between a soft leasing market and a strong investment market but quality assets are regarded as unlikely to carry much vacancy for a long period and even with some vacancy, the returns have usually proven superior and more stable than other investment categories. A recent trend worth noting is the movement of investment capital from CBD to non~CBD office markets. Savi!ls Research notes sales turnover in non~CBD office markets has grown from AUD2.3 billion in 2010 to AUD5.8 billion in 2015 with institutional investors increasing their activity from AUD1 billion in 2010 to AUD2.5 billion in 2015. Investment capital appears to be attracted to the yield differential between CBD and non-CBD markets which Savills Research currently estimates to be in a range of 25 basis points to over 100 basis points. On average, non-CBO investment yields have averaged between 50 and 75 basis points higher than CSD office investment yields. Market yields in office markets globally typically range between 2% and 7%. Gateway cities such as New York, London and Hong Kong currently offer investment yields in the order of 3% to 4%. In this context, investment yields in Australian office markets look particularly attractive. 8.2.7. Australia (National) -Office Yield Investment yields continue to fall in Melbourne and Sydney. Yields in both cities firmed quite strongly prior to the onset of the GFC in 2008 and subsequently retreated before firming again as bond yields fell locally and around the world. Figure 8·27 -Australian Office -Average A Grade Market Yields (%) by Capital City Sep-06 to Sep-16 10% 9%C “‘ “0 8%W >= W -‘” iii :;;
Source: Savills Research 8.2.8 Sydney -Office Supply According to the latest PCA figures, a total of 126,474 square metres of new and refurbished stock was added to the Sydney CBD market in the year lo July 2016. However, during the same period, a total of 110,731 square metres of stock was withdrawn from the market, resulting in total net supply of 102,281 square metres. There is currently just over 240,000 square metres of new and refurbished slock in the supply pipeline under construction and due to complete by the end of 2016,53% of which is already committed. More than three quarters of this supply is new space, with construction underway at 333 George Street (12,500 square metres), and International TowersT3 (79,000 square metres) andT1 (102,000 square metres) as well as a number of smaller projects. Gross supply over the next five years is expecled to total approximately 657,000 square metres; however, during the same period almost 486,000 square metres of stock could be withdrawn from the market. This would result in 171,000 square metres of net additions in the Sydney CBD, and on a per annum basis this is significantly below the long-term average. 8.2.9. Sydney -Vacancy & Leasing Activity The latest PCA Office Market Report indicates that the overall vacancy rate in the Sydney CSO decreased to 5.6% in the 12 months to July 2016, having also fallen in the prior twelve months to 6.3% in July 2015. The A Grade vacancy rate in July 2016 has decreased by 6.2% since June 2013. This has mainly been driven by a fall in direct vacancy from 172,758 square metres two years ago to 72,647 square metres in July 2016, according to the Property Council. The reduction in vacancy IS also reflected in the Net Absorption figures which are reflective of tenants upgrading and consolidating into better quality office space. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills In the 12 months to December 2015. Savills identified 225,966 square metres of leasing activity in the Sydney CBD, This is down 38% on the 12 months prior, and down on the five year average (306,554 square metres), The majority of these leases (approximately 72% of space) occurred in the Core precinct. Of the 225,966 square metres leased in Sydney CBD in the last 12 months. the Government and Community sector was the dominant sector, leasing 27% of the space, or 71 ,987 square metres. Figure 8·28 ” Sydney Office -CBD Net Absorption (sqm) Sep-06 to Sep-16 150,000 E 100,000 0­””­50,000″0:e 0 .0 “‘ 0 « Q) z -50,000
-100,000 <><0 ~
~~ ~’). ~<o,,'” <>'” ~” f:( ~'” ~'” ~” q:FJ~ q:JZJ’f e,0~ q:Jl’~’ 0rz,(:[ c:pf:i eJ’ q:p<;;J,’ q:p<;;J,’ q:JZJ~ q:FJ~ Source: peA / Savilfs Research 8.210 Sydney ~ Rent Following aggressive growth in market incentives such as rent free periods and fit out contributions (more than doubling from 15% to 38%) over the eight years from 2008 to 2016, a period in which the average Premium Grade net incentives were as low as 14,5% in December 2007. there has been a stabilisation of incentives and minimal growth in gross effective rents recorded over the last two years. Given the curren! increasing level of tenant demand in the market, the recent drop in vacancy rates and the low level of net supply. it is expected the current level of Premium Grade net incentJves at 38% will come under downward pressure over the medium-term. Australian CBD office property is classified into quality grades, which are Premium, A, B. C and D Grade, based on a range of factors including age, size, technical specifications and quality of workmanship. $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 • Gross Effective Rent a Incentives Source: Savilis Research Savills Research 8. INDUSTRY OVERVIEW (Cont’d)
Independent Market Report: Executive Summary Savills Research Report saviIls 8.2.11. Sydney -Office Property Capital Transactions Savills Research has recorded approximately AUD3.1 billion of office transactions in the 12 months to September 2016 in the Sydney CBD. This is down 55% from AUD6.9 billion in the previous 12 months, and down on the five year average of AUD3.6 billion. During the same period, 24 properties were sold, down on the previous 12 months of 39 properties, and do’Nl1 on the five year average of 31 properties. Approximately AUD1A billion of investment has been made by foreign investors throughout the Sydney CBO in the last 12 months. This interest has also been repeated outside the Sydney CBO market as a result of the continued interest by foreign investors seeking higher yield along with their appetite for residential conversion opportunities. Market yields in the Sydney CBD as at September 2016 are estimated to range between 5.00% and 5.75% for A Grade buildings, and between 5.50% and 6.75% for secondary grade buildings. The average yield for A Grade office buildings in the quarter to September 2016 is 5.38%, a 113 basis point firming over the last 12 months. Figure 8-30· Sydney Office -CBD Office Sales (AUDm and Number) (>AUD5m) Sep-06 to Sep-16 AUD 8,000 T~-‘-‘—-….. _._.~–_._.-45 ; _ Sales> $5m (LHS)
Source: Savills Research 8.2.12. Australia (National) -Office Property Market Outlook Australia’s office markets, on the whole, are enjoying greater levels of demand. This is not equal across all office markets and some office markets are experiencing a decline in occupancy, particularly those with exposure to the mining sector. Those office markets most exposed to non-mining industries are experiencing a lower vacancy due to higher levels of demand. The office markets with higher levels of vacancy can expect to enter the next phase of the office cycle as older, obsolete or redundant office space is recycled -either refurbished, turned to an alternative use or demolished. In any case, the office vacancy rate is expected to decline. Metropolitan office markets are attractive to tenants for a range of reasons including proximity to home, lower commuting times, high level of suburban amenities as well as lower occupancy costs of rent. outgoings and car parking. The metropolitan office markets do not suffer the supply shocks of major CBD office markets with smaller buildings in disparate locations more the norm (as opposed to a 100,000 square metre tower). Redundant, vacant office space is less likely to remain idle in metropolitan markets as conversion to alternative use is readily achieved. Australia has recently enjoyed a decade of substantial investment to increase the output from mining. As this investment winds down, the RBA has progressively lowered the level of official interest rates to 50-year lows to stimulate demand in the non-mining seclors of the economy. Whilst this can be expected to bolster demand in all office markets, the non-mining office markets of Melbourne, Sydney, Canberra and Adelaide may be expected to see stronger levels of demand leading to stronger rental growth over the next five to seven years. Brisbane too can expect to benefit from growth in non-mining demand and a recovery in demand from government. White collar employment growth over the next decade, is finally forecast to be higher than the last decade and is expected to result in improving levels of demand to occupy office spaces. The next 12 months may see private investors and syndicales finding it difficult to compete with the larger local funds and foreign investors for well positioned assets as tightening yields may price many out of the market. Investment capital locally is being accumulated in superannuation and in private and institutional funds both listed and unlisted. Private syndicates, high net worth investors, owner occupiers and developers are actively seeking opportunities. The fall in the AUD against the USD from AUD1.1 0 to AUDO.76 has substantially enhanced the return profile of Australian commercial property in the eyes of foreign investors. Over AUD100 billion is currently available from offshore investors should suitable investment become available in Australian office markets. This weight of capital is attracted to the current yield spread between five year bonds (at approximately 2.3%) and commercial property (at between 250 and 500 basis points higher). Metropolitan office markets are popular with investment capital due to many factors that often mitigate risk in commercial property investment. The size of the investment (typically under AUD1 00 million) makes metropolitan office markets more liquid for investors, the higher yields and higher emphasis on income returns, the diversity of tenants, the size of tenants and the difficulty in supplying more space alters the risk profile. Also, worth noting is the ready acceptance of conversion of redundant space to alternative uses maintaining vacancy at lower levels. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 8.3. Retail Property Market Overview In times of economic uncertainly retail property is largely regarded as a defensive investment due to the large percentage of non­discretionary spending supporting income streams, such as food. Australia has one of the most sophisticated and highly developed retail sectors in the world. The food retailing sector is dominated by two national companies. which are Woolworths and Coles. Discretionary retail is provided by a range of national and international retailers. Some domestic retailers are listed on the stock exchange however many are private companies. The types of retail property range from street shops in neighbourhood and CBD locations, supermarkets, showrooms and shopping centres. Shopping centres are further divided into neighbourhood, sub*regional and regional shopping centres with industry definitions of these types of centre generally agreed, Beyond the shopping centres there are large format retail (bulky and household goods), oullet centres, markets and themed retail in tourist locations. The CBD provides for multi-level retailing. Over the 26 years from 1990, shopping centres have been increasingly acquired by institutional owners who could actively manage, develop and maintain these centres. The GFC severely curtailed the purchasing power of institutions and allowed other buyers to enter the market. Clearly, a number of important factors impact the performance of a shopping centre. The performance of the supermarket has a very strong bearing on the returns of the shopping centre. The supermarket can be impacted by the range on offer, the price point, the ratio of car parking and opening hours. This, in turn, can impact the performance of the adjoining specialty stores. The catchment area also impacts the performance of the shopping centre, The road system, the points of access and competition are important factors. Critically, the size and age of the population as well as capacity for grovvth in popUlation over the long term can have a material impact on centre performance. Increasingly, ethnic factors are playing a role as centres need to deal with strong levels of immigration. The planning regime differs from State to State and between local government areas and can have a profound impact on the performance of retail property. Changes in consumer spending patterns since 2007 appear to have had an adverse effect on department store, apparel and discretionary retailing turnover generally. This has impacted tenants in Regional and some Sub-Regional shopping centres. Neighbourhood shopping centres have been largely immune from this. Supermarkets have been enjoying strong turnover grovvth as have their associated liquor stores. Associated specialty stores such as a chemist, a take away food store, a bakery, a newsagent and other local service providers such as a dry cleaner may be found in the tenancy mix, The structural issues facing retail are more formidable but not insurmountable. SaviJis Research expects the retail sector to evolve to take advantage of the structural issues rather than be over-fun by them. The ageing of the population will continue to create challenges for retailers as they jockey for the dollars of retirees. Retirees can be expected to prefer services over goods and will not necessarily continue to dwell in their traditional catchment areas. Internet retailing has already changed the face of retailing for certain categories of goods and will no doubt continue to evolve and challenge more categories over time. New business models are establishing themselves. This can be seen in the turnover figures for newspapers and books which continue to face strong competition from the internet. 8,3.1. Australia (National) -Retail Property Capital Transactions Savills monitored AUD8.6 billion of retail property transactions nationally in the 12 months to September 2016, down from AUD9.3biliion in the previous year but up on the five-year average of AUD6.9 billion. In the year September 2016,247 properties were reported sold against 279 the previous year and is up on the five year average of 199 sales per annum.
Source: Savilfs Research Savills Research 242
8. INDUSTRY OVERVIEW (Collt’d) Independent Market Report: Executive Summary Savills Research Report savills Clearly, both buyers and sellers were unwilling to transact retail property in 2009. The uncertainty surrounding the GFC left buyers and sellers being inactive. In 2010, a thaw in conditions meant both buyers and sellers could transact with greater confidence. This is reflected in the ongoing increase of sales volumes of centres culminating in a record year of turnover. Institutions (Funds, Trusts and Syndicates) have been starved of investment product in regional and sub-regional categories continue to scour neighbourhood shopping centres with strong fundamentals to add to their portfolios. Institutional investors remained active in the investment market for the 12 months ended September 2016, purchasing 45% of all retail property sold. Private investors continue to pursue shopping centres but are now being outpriced by institutions. Also of particular note is the emergence of foreign investors purchasing 30% of retail property sold. Conditions for Australian institutions have continued to improve and so private and foreign investors are increasingly finding themselves unable to compete. 8.3.2. Australia (National) -Retail Property Yields Nationally, shopping centre investment yields have started to firm post-GFC, as highlighted in the chart below. Shopping centres continue to transact across a broad range of yields in line with the characteristics of the individual properties. Figure 8-32 -Australian Retail-Market Yields by Shopping Centre Type (%) Sep-06 to Sep-16 10% 9% “0 ‘” Qi 8% … _ , …. _-:.-r.-:. …… =-:…. …>­=-=-=c=, ._. .~ ~~ ~,-­Q) —-…. ‘ … ….,..–… …. -” 7% .. ….. ….ro ~ 6% ·….·······..~ ——~ l_n~._ ……………–~5% ~-~.-~—–~—–~-..,…………-­~ ~~~~~~~~~~ ~~~ ~ ~~~~~~~ –Regional …… Sub-Regional —Nei9hbourhood -Large Format Retail Source: Savills Research 8.3.3. Australia (National) -Retail Property Outlook Australia has been enjoying strong population growth for over a decade and this policy of immigration retains bi-partisan support at Federal Government level. In the recent budget, immigration of 250,000 a year for the next four years makes up part of the outlook. This is on top of the net natural population growth of 150,000 people a year. Australia is now enjoying the strongest population growth in its history and amongst the strongest in the world The history of wealth (and real estate wealth in particular) is the history of immigration. Australia and Australian cities in particular are forecast to enjoy the fruits of strong immigration. Retail property can be expected to be a beneficiary of strong popUlation growth. Clearly, some catchment areas wlll do better than others and this will continue to present the greatest challenge and greatest opportunity for investors. Catchment areas that can grow their populations through new land release or infill development or pro-active planning policies, should show dramatic increases in turnover especially if the ability to increase retail floor space is limited. Conversely, the catchment areas that cannot grow their popUlations due to limited available new land supply, draconian or archaic residential planning systems and the capacity for expanded retail competition, should deliver below average increases in turnover. Savills Research is of the view that interest rates will be lower for longer and, combined with a weight of investment capital, should continue to see assets keenly sought after and strong yields achieved given prevailing catchment area fundamentals. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savUls 9. Sydney Property Development Sector Overview 9.1. Activities and Segmentation of the Industry 9,1.1. Activities of the Industry The property industry is generally classified into property development and property investment. EWI’s core business in Australia is in property development. The property development process in Australia is highly regulated and is governed by local, state and federal government regulations. The general processes are: 1. Identification of site
2. Due diligence in issues such as zoning, planning and environmental matters.
3. Application for approval of the development scheme, and appointment of a builder and a quantity surveyor to conduct and price the works as the approval is granted.
4. Commencement of project marketing to reach a threshold number (usually 70%) of contracted pre-sales before applications to banks for construction finance (if required) can be submitted.
5. Building would commence subject to agreed costs, finishes and completion timeframe
6. Completion would occur within agreed costs and timeframes delivering agreed finishes.
7. Sales of all dwellings would conclude and the development handed over to new owners with full settlement taking place.

a) Envlronmenlallssues The contamination of land from previous uses such as industrial or petrol station is an important consideration. Developers should make themselves completely aware of the suitability of land for any intended purpose. State Government approval authorities require the property to be decontaminated to an approved standard. Where the intended use is residential, authorities may require a Certificate of Environmenta! Audit to be issued by the Environment Protection Authority. The costs of clean up or decontamination can be considerable and must be properly factored into the project feasibility. b) Planning Issues Proposed acquisition sites are generally limited to two types: the site already has an issued planning pennit • the site has no issued planning permit The planning and design process in the Australian development market is heavily regulated and can be the sUbject of time delays in proving up a design and a feasibility so as to comply with all regulatory requirements. This can often be as long as two years. The relevant planning authorities, which include State Government and local councils, have very restrictive guidelines on height, density, setback, overshadowing and communal design, so as to limit the impact of the design of the proposed development on the community. There are however certain designated areas, such as activity centres, under which the design guidelines have been less stringent to promote higher denSity including greater height of projects, as distinct from medium to low rise inflll developments. The Government encourages higher density projects in these nominated activity centres, whereas there are very strict prohibitions against excessive height or excessively bulky developments in non-activity centres. Intending developers must bear the zoning aspects in mind as there will be substantial delays incurred in obtaining development approval. 9.1.2. Segmentation of the Industry The property development industry is generally segmented into five categories, i.e. residential, retail, office, industrial, and hospitality. EWI is primarily involved in the development of residential properties. 9.2. Market Size -Sydney and Australia The size of the Australian property market is estimated at approximately AUD6.1 trillion by CoreLogic RP Data, comprising AUD5.6 trillion of residential properties and AUD500 billion of commercial (office, retail, industrial and leisure) properties. In addition to residential and commerclal properties, Australia has vast tracts of agricultural and mining land. The size of the Sydney property market is estimated at apprOXimately AUD2 trillion by CoreLogic RP Data, comprising AUD1.85 trillion of residential properties and AUD150 billion of commercial (office, retail, industrial and leisure) properties. In addition to residential and commercial properties, NSW has vast tracts of agricultural and mining land as well as rural residential and commercial properties. Savills Research 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 9.3. Industry Players and Competition The Australian residential development landscape comprises large national developers with substantial land holdings at various stages of production. These developers generally specialise in house and land packages on master-planned estates. Some developers specialise in medium density housing in suburban in-fill? or brownfield8 development sites. These sites may have had a former use such as light industrial. Some developers specialise in high rise and medium density apartment development. These developments, due to their height, are usually confined to existing commercial business areas such as the CBD and surrounds. These style of developments can also be found in popular holiday destinations such as the Gold Coast in Queensland Some of these developers are listed on the Australian Stock Exchange, while some others are private companies. Recently, there have been increasing numbers of overseas developers in this market segment. Figure 9-1 -Major Residential Developers in NSW
Developer  Type  Master planned  Infill  High Rise  Australian Developers  Mirvac  Australian listed  Yes  Yes  Yes  Lend Lease  Australian listed  Yes  Yes  Yes  Cedar Woods  Australian listed  Yes  Yes  No  Finbar Group  Australian listed  No  Yes  Yes  Peet and Co  Auslraiian Jisted  Yes  Yes  No  Central Equity  Australian listed  No  Yes  Yes  Folkestone Ltd  Australian listed  Yes  Yes  Yes  Metroland Australia  Australian listed  No  Yes  Yes  Payce Consolidated  Australian listed  No  Yes  Yes  Sunland Group  Australian listed  No  Yes  Yes  Aspen Living  Australian listed  No  Yes  No  Stockland  Australian listed  Yes  Yes  Yes  Austcorp  Australian listed  Yes  Yes  Yes  AV Jennings  Australian listed  Yes  Yes  No  lnvesta Property Group  Private company  Yes  Yes  No  Walker Corporation  Private company  Yes  Yes  Yes  Meriton  Private company  No  Yes  Yes  Billbergia  Private company  No  Yes  Yes  Groean  Private company  No  Yes  Yes  Toplace Group  Private company  No  Yes  Yes  Cbus  Private company  No  No  Yes  ISPT  Private company  Yes  Yes  Yes  Oakstand  Private company  No  Yes  Yes  Toga Group  Private company  No  No  Yes  St Hilliers  Private company  No  Yes  Yes  Ceerose  Private company  No  Yes  Yes  EOG Capital  Private company  No  Yes  Yes  Lmdsay Bennelong  Private company  No  Yes  Yes  Rose Corp  Private company  Yes  Yes  Yes  Crown Group  Private company  No  Yes  Yes  Overseas Developers  Aqualand  Overseas  No  Yes  Yes  Bright Ruby  Overseas  No  No  Yes  Oalian Wanda  Overseas  No  No  Yes  Vision Investment Group  Overseas  No  No  Yes  Country Garden  Overseas listed  No  Yes  Yes  Frasers Property Group  Overseas listed  Yes  Yes  Yes  Greenland  Overseas listed  No  No  Yes  SP Selia Berhad  Overseas listed  No  No  Yes  Fosun  Overseas listed  No  No  Yes  StarrylandlOW),  No  No  Yes Yes  Roxy PacifiC  Yes  Stamford Land Corp  Overseas listed  No  No  Yes  Source: Savills Research
) Vacant or under-used parcels within eXisting urban areas that are already largely developed. 8 Land previously used for industrial or commercial purposes. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 9.4. Substitute Products There are no practical substitutes for residential or commercial properties. Residential: Although there are no practical substitutes for residential properties, there is a choice of different types of properties such as low-cost housing, flats, apartments, bungalows, town houses, semi-detached houses and stand-alone houses. In certain locations, commercial premises can be converted to residential use. Commercial: Although there are no practical subslitutes for commercial properties. there is a choice of different types of properties such as purpose built offices. shops, showrooms, factories, warehouses and shopping centres. In certain locations, residential properties can be converted to commercial use.
9.5. Vulnerability to Imports As building materials are the main inputs for the construction of buildings, structures and infrastructure, the supply of these materials will affect property developers. Generally, major building materials used in property development such as concrete and steel are widely available locally and overseas. Most of the bulky and basic building materials such as steel and concrete, sand. earth, bricks, tiles, timber and cement are available locally. As such, developers are normally not vulnerable to imports as most common materials are available locally, and if not, there are many alternative sources of supply overseas. 9.6. Barriers to Entry The more prominent barriers related 10 property development industry in Australia are: Cost of capital where access to debt and equity vary dramatically between listed, unlisted companies, private development companies and smaller developers. Scale, track record and risk are all factors contributing to different costs of capital. Economies of scale have a bearing as larger developers are able to deploy capital and resources across a range of locations, projects and sectors as required. Absolute cost advantages where smaller developers have lower corporate overheads and lower profit requirements. Ownership of prime and favourable land.
Diversification by incumbents creates the ability of many participants to switch costs and profits to and from different diVisions. Many property development companies in Australia develop commercial and residential property, operate a civic works division and operate a large funds management division. Government regulation can impose different requirements from developers depending on their size, and their domicile (overseas or domestic). Government regulation can change without notice. Governments can conlrolthe supply of land through the zoning process. Pre-emptive and retaliatory pricing could possibly occur but has not been seen to date. Exclusive controls over other strategic resources where developers control materials such as concrete, steel, cabling, machinery is possible but appears highly unlikely as there are multiple suppliers of materials in Australia. 9.7. Industry Outlook and Prospects 9.7.1. Capital and Rental Growth In Sydney price appreciation is at record levels both in percentage and dollar terms and is a function of several factors: • A long period of static price movement where prices remained at AUD800,000 for three years belween June 2010 and June 2013; • Historically low interest rates with official rates aI1.5% and HLiR below 4%;
• A pick-up in employment growth enticing more confidence from buyers;
• An increase in migration with approximately 60,000 new arrivals into the Metropolitan Sydney in the last twelve months; and
• A lack of supply.

The rale of growth is generally regarded as unsustainable and mosl market participants are looking fo r the market to cool and consolidate for some time. New government regulations essentially increase the cost of borrowing for investment and this may make it less attractive thereby tempering demand from investors. In response to the recent price increases the market has responded by increasing the levels of supply, increasing choice, competition and stifling future price appreciation. This has been acceleraled by the fact that in certain locations, it is cheaper 10 buy new property than existing property due 10 the cost of stamp duty on existing properties. Savills Research 246
8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills 9.7.2. Future Supply and Absorption NSW dwelling approvals are currently printing at an annualised rale of 75,000 units. This is above the long term average but will go some way to satisfying future demand and existing pent up demand. The lack of supply in particular price points and locations has contributed significanLly 10 the pent up demand. Specifically, population growth of 2.7°/0 per annum in the City of Parramatta from 2006 10 2016 was higher than Sydney’s average of 1.8%. The population is expected to grow further by 2.6% annually from 2017 to 2036, higher [han the forecasted growth of 1.6% for Australia. This population growth will be supported by employment growth forecast of 1.8% per annum until 2036 (76,384 jobs) in Parramatta CBD, which is also home to government agencies such as NSW Police, Sydney Water Corporation and multinational companies such as KPMG and Deloitte. Whilst future supply is above average, Savi!ls Research believes the amount of pent up demand is significant such that excess supply can be absorbed comfortably for a number of years sUbject to pricing and locational considerations_ 9.7.3. Infrastructure Development In recent years significant ongoing improvements have been made to Sydney’s metropolitan transport infrastructure, including the M2 Hills Motorway and M5 South Western Motorway motorways which are currently being widened to accommodate increasing traffic volumes during peak periods. Sydney’s next key infrastructure project announced by the NSW Government will be Australia’s largest integrated transport and urban development known as WestConnex. The 33 kilometre project will bring together a number of Sydney’s freeways which together will form a vital link to the Orbital Nelwork. In Parramatta, Parramatta Light Rail track is currently under planning and will connect Greater Parramatta to areas across the region via a 20-kilometre corridor. The AUD1 billion project is expected to complete by 2023.
Source: Transport for NSW, Savifls Research Infrastructure NSW has made 30 investmenl recommendations to Government on the next round of critical Infrastructure for NSW, set out in the ‘State Infrastructure Strategy Update 2014′. The recommendations set out in the strategy are for infrastructure projects and programs valued atAUD1 8.9 billion-priorities that will reduce congestion, support population growth and stimulate productivity across Sydney and regional NSW. This is to be funded by the privatisation of electricity assets, which has passed Parliament in the middle of 2015. The privatisation of electricity assets in NSW are expected to generate AUD20 billion. According to the Infrastructure NSW: “Independent modelling by Deloitte Access Economics has found that if implemented effectively the recommendations would increase the Gross State Product by around AUD30.9 billion and add 122,000 more jobs. Infrastructure NSW’s report targets three areas: Global Sydney’s competitiveness; supponing population and economic growth in Greater SYdney9, including Parramatta and Western Sydney; and ensuring produclive regional industries and connected regional communilies:­The focus for infrastructure is expected to be urban public transport, urban roads, international gateways (ports and airports), regional transpon, water, education, health, culture and energy. For instance, Ihe new Parramatta City Campus for Western Sydney Universily has capacity for 10,000 students, and this will add into the infrastructure requirement of the city. Western Sydney University is one of the fastest growing universities in Australia with 45,383 students as at December 2014. 9 Greater Sydney is all of the Metropolitan Sydney, which accounts for some 64% of NSW’s population and is home to over 4.9 million people. 8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report s8vills_………… .
10. Sydney Submarket Analysis 10.1. Overview -West Village, Parramatta Parramatta is a considerable commercial centre containing 690,000 square metres of office space and has substantial retail amenity with the nearbyWeslfield Parramatta Regional Shopping Mall. Parramatta is a major transport interchange with substantial road, rail and bus infrastructure in place. Parramatta’s West Village was launched in June 2015. Designed by Woods Bagol, West Village comprises one bedroom apartments (some featuring a study), two bedroom apartments and three bedroom apartments, sub-penthouses and penthouses. The project was approved VoJith 398 apartment units across 39-storey tower. The project is expected to include a residents’ sky terrace at the highest floor with views of Sydney’s CBD and the Blue Mountains. Additionally, it is expected to have rooftop charcoal grille dining areas, a city view lounge deck area and an open lawn for residents. An additional podium roof garden on the sixth storey with private enclaves and barbecue facilities is also expected to be made available for the exclusive use of the residents. Other common spaces are expected to include a central ground floor courtyard, a lobby, a ground floor retail precinct with cafes and international cuisine options. West Village, Parramatta is also expected to feature an indoor nine to 18-hole virtual golf driving range and a fully sound-proofed private music room with a baby grand piano for private performances. 10.2. Competitive Positioning and Target Market The West Village project was launched in an overseas marketing campaign and domestic marketing campaign in mid-2015. The project is anticipated to commence construction in 2017 with completion scheduled in 2020, Figure 10-1 . Targeted Sales Prices of Residential Units Development Low High Average Rate Per Square Metre West Village AUD530,000 AUD1,350,000 AUD11.500 Source: Saviffs Research The increased residential supply in Parramatta combined with substantial local and state government investment in inrrastruc1ure have increased awareness of Parramatta as an emerging second CBD within the Metropolitan Sydney. Significant transportation linkages (WestConnex) and ongoing commercial development (both retail and office) results in more jobs created in the area and a resultant increase in demand for residential property. Whilst many buyers may be expected to be local to the Western suburbs of Sydney, the increasing awareness of Parramatta as a significant and emerging CBD is expected to broaden the range of interest and appeal to a larger catchment area to other parts of NSW, Apartment projects in Australia have proven very popular with investors over the past 20 years. Predominantly, investors purchase approximately 70% of developments with the other 30% purchased by owner occupiers. The buyer mix of West Village is of 55% investor and 45% owner occupiers, which the latter includes 13% of FHB. Over recent years, Australia has become a popular residential property investment destination for overseas buyers. The West Village initial sales campaign was launched in Malaysia, Singapore, Hong Kong, Indonesia, China and Australia and has resulted in a buyer mix of 51% overseas and 49% local buyer. 10.3. Competition and Market Share The Parramatta Local Government Area has an estimated value in proposed residenlial developments of over AUD2.0 billion in construction and approximately AUD7 billion in gross realisation value across 25 developments (including West Village) comprising 8,299 units. A list of developments in Parramatta is tabled below: Figure 10-2: Proposed and Actual Hioh Rise Residential Developments in Parramatta
Development  Address  Devetoper  Number of units  Completion  Status  Sold/Active  V by Crown  134 140 Marsden St  Crown  367  2016  uc  Active  Rise  29 Hunter SI  . TCl.plac~C;roup  133  2016  uc  Active  Altitude Promenade Stage 1  330 Church St ;2 Morton’St  Meriton … Stanyland  378 277  2016 2016  uc . Lic– Aclive Sold  Mode  6 Sorrell St  B_e.lter’BLJij~i0gs  26  2016  uc  Aclive  Amos  2-4 Amos St  Universal Property Group  56  2016  uc  Sold  uc  Sold  uc  -­Aci”ive  uc  Active  DA  Active  uc  Sold  uc  Sold  DA  Active  DA  Acti~~-tY1-:S:  uc’  Active

8. INDUSTRY OVERVIEW (Cont’d) Independent Market Report: Executive Summary Savills Research Report savills Development  Address  Developer  Number of units  Completion  Status  Sold/Active  Veron Garden .F>r~nl_e:f)~_d_e_$tag~e-~-~_-­_,=,r()mer’la~e Stage 3 The Galleria –Merryiiinds  G3-67 Veron SI -­’iMorton’Sf­i’Morton SI 23-29 Hassall St .. 464 Church St  Romanous §I~r:’Yla_~_(L Starryland -Nll-Corp –Oyldanl  52 198 307 140 106  2016 2018 2020 2019 2017  uc UC’ DA UC UC  Active Active ActiveACtive–­Active  “Horizons  9 Hassall St  Macland  184  2018  DA  Active  SkYrise f3_ai~_~ay, s-~ll-ih —­ 1’1′ Hassall 51 SiS3’Church 51  Sonenco QY!~_?~  216 779  2020 2020  DA-‘DA  Active . Active  -“Lone Star” -. G’reenwa~/­—-‘RTverban’i( -s-tages ‘1″& 2  Phillip St 7 Parkes SI 230 Church 51  Dyld?r:nLeighion Prop;;lrtiesCitY of-Fi;:lrra-matta-Council  174 416 1,361  2019 2020 2021  EP EP EP  Active -­-ACiive —Active  The’ PE!ak—2Cj”Parkes$l  Chiway!and  366  2021  ·Active  Source: Cordelfs, Savills Research
UC = Under Construction, DA = Development Approval, EP = Early Planning West Village’s development size is at 398 units under the approved plan, and is estimated to account for 4.8% market share in the Parramal\a residential developments market based on the 8,333 proposed units. Figure 10-3: EWI’s Market Share (By Units) in Parramatta Residential Developments Market EWI’s Development . Development Size Market SIze Market Share West Village 398 units 8,333 units 4.8% Source: Cordefls, Savil/s Research 10.4. Pricing Analysis Adopted pricing for West Village of between AUD530,000 and AUD1 ,350,000 is in keeping with recent prjce achievement in the Parramatta new apartment market. Savills Research has had referenced to currently active developments and to recently sold developments that are similar in location and quality with West Village project. Proposed rates per sq uare metre translate from AUD11 ,000 to AUD14,000 which are higher than the rates per square metre parameters achieved in the 2012 to 2014 period. High rise developments are consistently commanding higher price per square metre rates than low rise with price differentials consistently in the range of a premium of 23 to 26%. This is often attributed to a number of factors including extended views, especially in Parramatta where views of the Sydney CBO are possible. 10.5. Outlook The Parra malta CBD has seen a surge of residential and commercial development in recent years. This should contribute to strong population growth for the region and an increase of much needed supply of both commercial and residential properties. If the potential development pipeline is realised, the Parramatta landscape (s expected to go through a significant transformation over the next decade. Savllls Research expects the broader property market in Parramatta to continue to generate strong investment returns.

 

 

 

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