Asia Pacific International Real Estate WELCOME Learning

Asia/Pacific & International Real Estate WELCOME

Learning Objectives n Identify the social, political, and geographical characteristics of Asia/Pacific countries. n Develop market intelligence by researching factors that shape Asia/Pacific real estate markets and assessing business opportunities. n Adapt business and social behavior to conform to customs and cultural norms. n Develop strategies for making productive network contacts and marketing your real estate services to clients and customers from Asia/Pacific countries. Page 2

Course Structure Introduction Market Trends Cultural Influences Building Your Asia/Pacific Network A Look at the People’s Republic of China A Look at Japan A Look at India A Look at Philippines 8 Country Profiles Page 2

Countries Included Australia Japan Singapore China South Korea Taiwan Hong Kong Malaysia Thailand India New Zealand Vietnam Indonesia Philippines Page 3

1. Market Trends

Vast Distances, Diverse Cultures n. Vast distances separate countries n. Diverse ethnicities and cultures n. Large areas unexplored, uninhabited, or unreachable n. Must become student of diverse cultures, traditions, and ways of doing business Pages 9 -10

The Ring of Fire n. Geological and weather events n. Cost thousands of lives n. Disrupt economies n. Huge recovery and reconstruction efforts Page 11

1. Middle Class Expansion n 5 billion within the next two decades n. Growth coming from Asia/Pacific n. By 2030: § China: Over 70% middle class § India: 1 billion added to middle class n. New consumers will share same tastes and aspirations Pages 12 -13

2. Emerging Economies n. Some real estate markets in development n. Regulatory and market mechanisms in development and experimental stage n. Central government intervention to control supply, demand, prices n. Regulations can change quickly n. Potential for high return, but high risk Page 13

3. Mega Cities, Small Living Spaces n. Urban migration and population growth pack more people into cities n. Populations of some cities exceed entire countries, e. g. , Shanghai n. Better delivery of social safety net services, but widens affluence gap n. More demand for housing at all socioeconomic levels Pages 13 -15

4. Very Wealthy Individuals n. Asia/Pacific leads global high net worth individuals (HNWIs) n. Wealthy investment immigrants looking to increase their net worth and secure a better future n. Residential real estate represents largest share of real estate holdings Pages 15 -16

5. Children Abroad for Education n Major life goal for Asia/Pacific parents n 64% of 886, 052 international students from Asia/Pacific n Top 5: China, India, South Korea, Taiwan, Japan n Potential for productive referral base Pages 16 -17

6. Trade Agreements n. Regional economic alliances cross borders and unite neighbors on the basis of trade n. Growth triangles uniquely Asian concept n. Stability and shared interest encourages: § Economic growth § Real estate professionalism § Orderly markets Pages 18 -20

APEC Asia/Pacific Economic Cooperation “Building a dynamic and harmonious Asia-Pacific community” Page 19

ASEAN Association of Southeast Asian Nations The ASEAN Economic Community (AEC) has a plan for regional economic integration by 2015 Page 20

7. World’s Workshop and Back Office n Exports to the West have fueled Asia/Pacific growth n Destination for outsourcing of IT and business processes n Philippines overtaking India n Increased demand for real estate transactions and referrals Pages 21 -22

8. Subsiding Inflation n Inflation is subsiding throughout Asia/ Pacific due to falling commodity prices n High inflation accompanies fast economic growth and drives investment to inflationproof assets like real estate n China, India, and Australia have cut interest rates to promote growth Pages 22 -23

9. Demand for Office/Retail Space n Supply lags demand, but shifting with new stock coming on the market n Existing stock lacks essential elements n Lack of retail space hampers efforts to meet consumer demand; stymies growth Pages 23 -24

10. Non Reserve Currencies n Asia/Pacific currencies do not function as reserve currencies (except Japanese Yen) n Stable, fully convertible currency attracts foreign investors and benefits citizens n Chinese Renminbi expected to be fully convertible and freely tradeable in near future n Exchange rate fluctuation and non convertible currencies add increased transaction risks Pages 24 -25

11. Very Young to Very Old n Oldest: Japan, Hong Kong, Korea n Youngest: Philippines, India, Malaysia n Young population spurs economic activity and demand for housing n Economy must continually produce jobs and housing supply Page 26

12. Social Safety Net Development n Asia/Pacific’s high household savings rates compensate for lack of social safety net n When traditional family structures break down, safety net must fill the gap n Reliable social safety net contributes to consumer confidence and frees up capital for other purposes Page 27

13. Environmental Awareness n Economic growth threatens environment and contributes to atmospheric warming n Growing awareness of consequences of environment degradation n Asia/Pacific countries must address the challenges to maintain economic vitality Pages 27 -28

14. Internet and Mobile Connected n Over 1 billion Internet users n Over half in China n Facebook #1 (except China) n Mobile penetration around 65% n Publicize listing and services n Reach clients, customers, real estate professionals Pages 28 -30

Realtor. com® International: Top U. S. Market Searches n Australia: New York, Los Angeles, Detroit, Las Vegas, Beverly Hills n India: New York, Los Angeles, San Jose, Las Vegas, Chicago n Japan: San Diego, Honolulu, Los Angeles, San Antonio, Jacksonville n Philippines: Los Angeles, Las Vegas, New York, Warren (RI), Houston n South Korea: New York, Los Angeles, Irvine, Sedalia (MO), San Antonio Pages 30

15. Civil Unrest and Terrorism n Asia/Pacific region marked by episodes of civil unrest that leads to: § Safety and security concerns § Business disruption § Worldwide upheaval n Awareness of the region’s geopolitical climate and potential impacts is key Page 31

16. Competitive Destination n Asia/Pacific is a competitive destination for vacation travelers and business opportunities n Multi-national companies and their expat executives are moving into the region and establishing manufacturing centers Page 32

17. Increased Air Travel n Asia/Pacific carriers account for nearly one-third of worldwide passenger traffic and close to 40 percent of global cargo traffic n Reduced barriers to air travel facilitates corporate growth, tourism, and business n Aviation incidents mark region; infrastructure concerns Page 33

2. Cultural Influences

High and Low Context n High Context n Low Context Values formality, face-saving communication, relationships and the slower pace needed to develop them Values informality, results, fast pace, punctuality, and direct communication Pages 36 -37

Social Values n. Personal savings rate n. Individual versus the group n. Relationships n. Family loyalty n. Saving face Pages 37 -40

Religions and Beliefs n Religious and ethical beliefs influence personal and family life, business conduct n Major religions § § § Buddhism Confucianism Taoism Hinduism Islam Christianity Page 42

Numerology n Forecasting the future by numbers n Lucky/Auspicious § 2, 5, 3, 6, 7, 8 § Double-digits n Unlucky/Inauspicious § 4, 13 § Single-digits Page 43

Feng Shui n Observing geography and topography to predict the future n Achieving balance between the opposing yin and yang § Good—south facing windows, undulating terrain, uncluttered spaces § Bad—sharp corners, glass doors, front and back door aligned Page 44

Confucianism n 5 basic virtues: seriousness, generosity, sincerity, diligence and kindness n 5 principle relationships n Strive for harmony and order, morality, correctness of social relationships, justice, sincerity Page 45

Taoism n “The Way” n Harmony with nature n Behave naturally and spontaneously n Followers should be: § § Plain Non-aggressive Accepting of change Content with what one has Page 46

Islam n 5 pillars of Islam: Faith, Prayer, Fasting, Charity, Pilgrimage n Legitimate profit = fair return for risks n Illegitimate profit = usury, speculation n Obligations must be met n Islamic financing Page 47

Shinto n Four Principles § § Family including ancestors Respect for nature Cleanliness Honor for the spirits n Living in harmony with nature and other people n Kami (spirits) can inhabit a place or natural feature Page 48

Buddhism n The 8 -fold path n 4 Noble Truths n Religious experience through meditation and withdrawal n Optimism, respect for life, moderation, love of all mankind n Every person has the potential to attain Nirvana Page 49

Hinduism n Reincarnation continues until spiritual perfection achieved n Accumulated good and bad deeds creates karma n Duty, acceptance, patience, respect for all living things, and personal responsibility Page 50

Sikhism n Balance work, worship, charity, and defense of the rights of all humans and creatures n Optimism, temperance, tolerance, justice, prudence, and dutifulness n Set a good example in business n All share the name Singh Page 51

3. Building Your Asia/Pacific Network

International Business Network n Systematic approach to: § § Making contacts Nurturing relationships Researching markets Prospecting for clients/customers n Combination of: § People contacts § Information resources § Communication channels Page 54

Your Local Market n Foreign buyers and investors moving into or investing? n Local buyers and investors interested in an another country? n EB-5 visa investment projects? n Foreign businesses relocating? n Local businesses expanding abroad or outsourcing? Page 54

Personal Interests n Special interest or affinity? n Personal travels? n Family connections? n Languages? Pages 54 -55

3 Rules for Networking n Give before you get n Authenticity n Become part of someone else’s network Page 55

22 Networking Ideas 1. 2. 3. 4. 5. 6. 7. World Trade Center membership Use the Country Assessment Model Travel to the country, meet contacts Research international student enrollment Attend trade fairs, expos, conventions Contact foreign chambers of commerce Talk to foreign bankers who do business with your firm Pages 56 -57

22 Networking Ideas 8. Ask for contacts 9. Ask clients for references and referrals 10. Meet public officials 11. Visit, join industrial, trade, and employers' associations 12. Attend lectures and seminars 13. Local business and real estate organizations 14. Seminars for international clients/customers Pages 56 -57

22 Networking Ideas 15. Attend and sponsor cultural and social events 16. Participate in trade missions 17. Participate in social media networks 18. Blog about real estate business 19. Download NAR’s International Business Report for your state 20. Confer with NAR President’s Liaisons 21. Read online newspapers, magazines, research reports 22. Meet with local real estate agencies with international clientele Pages 56 -57

Expos and Events n Before: Prepare a brief (one-minute) speech n During: watch your demeanor, attire, and manner of exchanging business cards n After: thank you notes or e-mails n www. realtor. org/global-meetings-andevents Pages 58 -59

Keeping Up-To-Date n. Market information n. Prospects and clients n. Reminders n. Maps n. Spheres of influence n. News and trends n. Magazines, journals, books, and newspapers Pages 60

4. A Look at The People’s Republic of China

Geography Pages 64 -65

12 th Five Year Plan n. Inclusive growth n. Restructure the economy n. Reduce social inequality n. Protect the environment n. Strategic Emerging Industries (SEIs) Early predictions for the 13 th Five Year Plan suggest a more sustainable pace of growth. Pages 66 -67

Greening of China n. Holding local governments accountable for meeting green development targets n. Tracking energy consumption per unit of GDP n. Reducing emissions with “blue sky day” targets Page 67

Strategic Emerging Industries n. Biotechnology n. New energy n. High-end equipment manufacturing n. Energy conservation and environment protection n. Clean-energy vehicles n. New materials n. Next generation IT Page 68

FDI n$1. 3 trillion FDI in China n$541 billion Chinese FDI Abroad n. China Investment Corporation— $3. 8 trillion n. Guanxi Page 70

Rising Renminbi n When will the renminbi achieve hard-currency status? § § Renminbi-denominated international deals Capital flows freely in and out Foreign banks hold reserves Free-floating, fully convertible n Could reshape the world’s financial markets n Unleash individual and sovereign wealth Pages 71 -72

Dim Sum Bonds n Renminbi-denominated bonds n Avoids government restrictions on foreign debt, but government controls n Invest in China and Hong Kong -based companies n Fixed-asset investments only Page 72

Real Estate in China n. Government owns all land, grants leases n. Regulations emanate from national level n. Provincial and local implementation can vary considerably Page 73

A Cooling Market n. Market swings n. Fear of real estate bubble led to government action to cool market n. Efforts may have been too successful n. Restrictions on home purchases and mortgage lending rates have eased in the hopes of rallying the market Page 73

Financing n Many cash deals n Age limit on mortgage borrower— 65 years n Minimum interest rate— 1. 1 times People’s Bank of China benchmark rate n Seller must pay off mortgage before the property can be sold n Foreign Investment Law proposed that will reduce barriers to foreign investment if passed Page 74

Land Rights n Allocated for a specific purpose n Renewable leases (70 years residential, 50 years industrial, 40 years § Cannot be sold, transferred, pledged, or commercial) mortgaged n Renewal regulations TBD n Granted for residential n Major source of revenue or commercial purposes for local government § May be pledged, n Women’s land rights laws mortgaged, leased, expected to change inherited, and transferred Page 74

Rental Property n. Pro-landlord n. Regulated by local governments, no national laws n 2– 3 months rent security deposit n. No automatic renewal n. Landlord can terminate at any time n. No subleasing Pages 74 -75

Can Foreigners Own Real Estate? n New Foreign Investment Laws proposed that would grant foreigners more access n Work or study in China for more than a year n Personal residence, cannot be rented out n One house only; one non-residential property for business n Property held less than 5 years subject to 5. 5% tax on entire transaction Pages 75 -76

Real Estate Professionals n Sales agents must be licensed n National Ministry of Housing and Urban-Rural Development oversees n Open listing real estate market n Negotiable commissions paid by the seller n Agents do not share property information n Agencies post listing on own web sites n Storefront real estate firms Pages 76 -77

Chinese Buyers Abroad n Inflation hedge n Income from rentals n Safe haven investments n Diversification n Avoid ownership restrictions n Build a family legacy n Education for children n Future emigration, career development Page 78

Investment Visa Programs n Popular with wealthy Chinese buyers n U. S. EB-5 Program (used up 2014 allotment) n Australia’s Significant Investor Visa Program n Portugal’s Golden Visa Program n Great Britain’s UK Tier 1 Investor Program Page 78

Reciprocal China-U. S. Visa Policy n. In 2014 both countries agreed to increase the validity of short-term business and tourist visas to 10 years, and student and exchange visas to 5 years, instead of 1 year n. Increases ease of trade, investment, and real estate transactions Pages 78 -79

Investment Restrictions and Workarounds n. Citizens can only convert up to $50, 000 person per year n. Impacts ability to gather money for home purchase in timely fashion n. Workarounds are common Page 79

China’s Millionaires n 1 million+ millionaires n Sources of wealth n Prefer real estate investment n 80% of wealthy parents want to send § 55% private-business owners children abroad for studies to English§ 15% real estate investors speaking countries— § 10% stock market USA, UK, Canada investors § 20% high-salaried executives Pages 79 -80

What Does This Mean for You? n New and growing stream of business n Establish and maintain a robust referral network n Professionalism, reliability, trustworthiness earns repeat and referral business n Graduates may stay on to establish careers and build businesses Page 80

Top Trends n. Real estate accounts for 15 -20% GDP and is a major player in overall health of country n. Growth slowed, but outlook stable n. Ghost Cities n. Consumption Pages 80 -81

Beyond the Basics n. Names n. Connections— Guanxi n. Women in business n. Business cards n. Meetings n. Negotiations and contracts n. Interpreters n. Demeanor n. Business dining n. A few taboos Pages 86 -92