1. China opportunity and strategyDr Richard Barkham MRICS Grosvenor Group Research Director March 2013

2. Why China? 3. Asia / China much less impacted by the crisis 20Real GDP, quarterly percent change, year-on-year151050Asia-5OECD ChinaSource: Global Insight, Grosvenor Research 20122013Q12012Q12011Q12010Q12009Q12008Q12007Q12006Q12005Q12004Q12003Q12002Q12001Q12000Q11999Q11998Q11997Q11996Q11995Q1-10 4. China is becoming the dominant country in global trade 30Country share of world exports (%) 20102520302015105Source: Global Insight, Grosvenor Research, 2012ChinaIndiaSouth KoreaSingaporeHong KongJapanTaiwanThailandMalaysiaIndonesiaVietnamPhilippinesEurozoneUS0 5. In 20 years China will equal the US as the worlds leading consumer nation 30,000Nominal Private Consumption billions US$ 201025,000203020,00015,00010,0005,000Source: Global Insight, Grosvenor Research, 2012ChinaIndiaJapanIndonesiaSouth KoreaTaiwanThailandPhilippinesMalaysiaVietnamSingaporeHong KongUSUKGermanyFranceItalyCanadaSpainAustralia0 6. Chinas forecast GDP growth is high, by any standard 9GDP growth 2012-2020 p.a.8 7 6 5 4 3 2 1Source: Global Insight, Grosvenor Research, 2012IndiaChinaVietnamIndonesiaPhilippinesMalaysiaThailandSingaporeHong KongSouth KoreaTaiwanJapanUKFranceGermanySpainItalyUS0 7. A new and huge middle class is emerging Global middle class MillionsHousehold income of $10 to $100 dollars a day in PPP3,500 3,000 2,500Middle East & North Africa Sub-Saharan Africa2,000Asia Pacific Central and South America Europe1,500North America1,000 500 0 2009 Source: Oxford Economics2020 8. Urban growth creates many real estate opportunities Urban population (as a % of total) 100% 90%201080%203070% 60% 50% 40% 30% 20% 10%Source: UN, Grosvenor Research, 2012USWestern EuropeSouth KoreaMalaysiaPhilippinesJapanIndonesiaChinaThailandIndia0% 9. Source: UN, Grosvenor Research, 2012TokyoDelhiMumbaiKolkataShanghaiManilaBeijingShenzhenGuangzhou, GuangdongChongqingNew YorkLos AngelesParisChicagoLondonMiami201030,000Philadelphia35,000Madrid40,000TorontoDallas-Fort WorthA large number of sizeable markets Total population 000s people203025,00020,00015,00010,0005,0000 10. Property owner-occupation ratio in Asia / China is high 100% of owner-occupied stock90 80 70 60 50 40 30 2010Source: DTZ, Grosvenor Research, 2012IndiaThailandTaiwanChinaMalaysiaSouth KoreaSingaporeJapanHong KongUSAustraliaUKSwitzerland0 11. Source: IHS Global Insight2013Q12012Q12011Q12010Q12009Q12008Q12007Q12006Q12005Q12004Q12003Q12002Q12001Q12000Q11999Q11998Q11997Q11996Q11995Q11994Q11993Q11992Q11991Q11990Q11989Q11988Q11987Q11986Q11985Q11984Q11983Q1161982Q11981Q11980Q1Currency appreciation as well? 18RMB/GBP14121086420 12. Grosvenors strategy 13. www.grosvenor.comAN INTRODUCTION TO GROSVENOROctober 2012 14. ABOUT GROSVENOR Grosvenor is a privately owned property group active in some of the worlds most dynamic cities. 300 acres covering Mayfair and Belgravia. Creating exceptional places for people to live, work and relax.Map to left: Grosvenor's Mayfair and Belgravia estate in Central London 15. ABOUT GROSVENOR One of the largest private real estate companies in the worldWorld-wide staff of over 560 professionals with interests in 12 countries operating from 18 local officesWe manage properties with a total value of 12.5bn (US$20bn)Figures as at 17 April 2012 16. A DIVERSIFIED PORTFOLIO 560 staff worldwideinterests in 12 countriesoperating from 18 local officesWe manage properties with a total value of 12.5bn (US$20bn) of which retail represents 43%ABOUT GROSVENOR 17. OUR HERITAGE The origins of Grosvenor are in the development and management of Londons largest private estate dating back over 300 years TIMELINE 1677: Mayfair and Belgravia came in to the Grosvenor Family 1720: Development began in Central London 1953: Started Americas business. First international acquisition 1956: First Joint Venture 1967: Started Australia business 1976: Launched our first Fund 1994: Started Asia business 1998: Started Continental Europe business 2005: Formally established Grosvenor Fund Management 18. Local presence and local partners key to success Hong Kong, 25 September 2012 - Harvest Fund Management (HFM) and Grosvenor Fund Management (GFM) have joined forces to launch a dedicated real estate fund management business investing in Greater China to be led by Mr Rong Ren.The business, named Harvest Real Estate Investments (HREI), will manage Greater China real estate strategies for investors globally, through the creation of both U.S. dollar denominated and Renminbi denominated funds. The business seeks to identify attractive real estate opportunities across multiple sectors within Greater Chinas emerging real estate industry for both international investors and domestic investors in China. The business also plans to bring global real estate opportunities to domestic investors in China. 19. China risks 20. Source: brokers, Grosvenor Research, 2012Shanghai OfficeShanghai RetailTokyo OfficeHong Kong OfficeCalgary OfficeSydney OfficeWashington DC RetailCity - London OfficeSan Francisco Office7.0Paris Office8.0Madrid Office9.0Munich OfficeLA OfficeFuture supply Completions as % of stock10.0HistoricNext five years6.05.04.03.02.01.00.0 21. Source: JLL, Grosvenor Research, 2012VietnamChina Tier 3 CitiesIndia Tier 3 CitiesIndia Tier 2 CitiesIndia Tier 1 CitiesChina Tier 2 CitiesSouth KoreaThailandIndonesiaPhilippinesChina Tier 1 CitiesTaiwanJapanMalaysiaSingaporeHong KongSpainGermanySwedenFranceAustraliaUKUSLack of transparency 4.0 JLL Transparency index (the lowest the number, the more transparent the market)3.53.02.52.01.51.00.50.0 22. The competition is very tough Local players; Generally well capitalised, good local knowledge, poor asset management skills Foreign players Direct investors Well capitalised, partner with the best local players (ADIA, GIC, CPP) HK / Singaporean listed developers Sophisticated, long term presence in China, big teams on the ground, can source land and build good product (Sung Hung Kai, Cheung Kong, New World Developers, Henderson Land, Capital Land, Swire) 23. The competition is very tough Foreign players (Cont.) US / Australian developers Late comers, some difficulties in buying land (Tishman Speyer, Lend Lease), bring retail and asset management expertise Japanese developers Bring retail expertise, partner with Chinese developers, bring retail expertise, well capitalised Investment bank backed funds Some OK others came in at the wrong time, big and well capitalised, not always well run (MSREF, Whitehall, JP Morgan, Merrill Lynch) 24. The competition is very tough US and European Fund managers LIM, CBRE, Pramerica, Invesco, Grosvenor etc. Regional fund mangers MGPA, ARA (dragon Fund) Some debt players 25. Taxation and profit repatriation can be difficult Check out China real estate investment handbook by Deloitte, 2012 Situation is complex and ever changing Presently it is difficult to dispose of an asset by any route and repatriate Repatriation of income / dividend is easier 26. Three ways to repatriate all are difficult Option A Disposition of the asset.It will trigger one of the key taxes in China which is the land appreciation tax, which can range from 30-60% of the appreciation gain depending on the range of the gain.Option B Disposition of the shares in the onshore company This is the worst option in terms of tax efficiency.Reasonable in terms of tax efficiency A withholding tax on the gains need to paid when the money is repatriated offshore, typically 5-10% on the gain depending on the jurisdiction of the offshore companyOption C Disposition of the shares in the offshore companyThis is the most ideal in terms of tax efficiency.Since the transaction occurs offshore, taxes are very minimalHowever, the Chinese government announced Circular 698, which basically says for all offshore indirect transfers, the Chinese tax authorities will still treat it as a transfer onshore hence the deal can be subject taxes like a onshore Chinese company. Nowadays, many investors tries to use different ways to mitigate the risk of circular 698 which include structuring multi-layer Cayman holding companies 27. Why China? 28. Conclusions Growth and diversification are compelling arguments; Trend nominal GDP growth of 7.5% + 4% = 11.5% Currency appreciation Versus perpetual recession in Europe, tax and dollar weakness in the US A global real estate portfolio is overweight China Pension savings need a home China has huge capacity to absorb investment Taking Chinese capital out, is also a motivation for fund managers