Existing Stock			Rents
	'000 sf	QQQ chg		'000 sf	QQQ chg
Golden Triangle	24,295	0.0%	Prime city centre	5.14	0.0%
Central Commercial Area	14,708	0.0%	Secondary city centre	3.50	0.0%
Decentralised Areas	14,006	5.4%
Other Areas in Klang Valley	11,441	-0.5%

Improving outlook for the office market

The outlook of the Kuala Lumpur office market continues to improve with demand strengthening resulting from corporate expansions.

As at end 2Q 2006, the cumulative office supply in the Klang Valley was at 64.4 mil sf. The additional supply was due to the completion of Plaza Sentral Phase II. It comprises four blocks of office towers offering a combined nett lettable area of almost 650,000 sf. The reduction in the total supply in other areas in the Klang Valley by 0.5% was due to the reclassification of Menara Palas to the Decentralised Area.

Limited office supply in the year bodes well for the rental market to remain firm, which has remained at an average of RM5.14 psf per month for prime buildings and RM3.50 psf per month for secondary buildings. In the Golden Triangle business district, demand is seen as outpacing supply due to scarcity of land, and could push prime rentals further up.

However the same cannot be said of buildings in the central commercial and decentralised areas. In the next 12 months, the availability of substantial new stock could lead to competition for more competitive rentals. In 2007, new supply will add 1.5 mil sf to the current stock with completions expected of several key projects namely Centrepoint in Midvalley and Capital Square along Jln Munshi Abdullah within the Central Commercial Area.

Currently, overall average vacancy of office space in the Klang Valley is 14%. In KLC, average vacancy remained stable at about 12%.

During the quarter, leasing activities came mainly from the business and services sector and dominated by several notable big transactions such Singapore Airlines' relocation to Multi Purpose Building (11,890 sf), AEON Malaysia at Menara Olympia (60,000 sf) and The University of Nottingham Malaysia Campus at the newly-opened Chulan Tower (12,000 sf).

In summary, the local office market has benefited from more business activities resulting from the gradual liberalisation in the capital market and the business environment in general. Starting with allowing foreign fund managers and brokerage to open up offices here, followed by the de-pegging of the Ringgit and on-going incentives for operational headquarters and representative offices, the government has played an active role in promoting Kuala Lumpur as a regional hub and attracting quality investors.

Barring any unforeseen events on the external front, the feelgood scenario in the office market is expected to prevail in the short to medium term.

Key Leasing Transactions 2Q2006

Company	Buildings	NLA Leased
Singapore Airlines	Menara Multi Purpose (CCA)	11,890 sf
AEON Malaysia	Menara Olympia (CCA)	60,000 sf
University of Nottingham Malaysia Campus	Chulan Tower (GT)	12,000 sf
Petra Equities Management Sdn Bhd	Wisma UOA Bangsar (DC)	NA

Source: DTZ Research Sept 2006

	Existing Stock			Rents
	'000 sf	QQQ chg		'000 sf
Overall Klang Valley	32,324	4.4%	KLC (city centre)	RM18-40
KLC	17,276	2.0%	Suburban(PJ)	RM10-28
Suburban Area	15,048	7.2%

Consumers cautious of inflation

Consumer sentiment had been spiked by inflationary worries since late last year with a series of events, namely price hikes in fuel and more recently electricity tariff (12% increase) and interest rates, which had increased by 75 basis points since the beginning of the year. This is reflected in the CSI, the primary barometer for projecting future retail sales, which has fallen to 90.1 point, down 26 points.

Despite uncertainties, the Bank Negara maintained the economy will grow at about 5.5% in 2006 on the back of the various projects announced to be implemented under the 9th Malaysia Plan. The country is also banking on the projected increase in tourist arrivals targeted at 17.5 millions this year (up from 16.4 mil. in 2005), as a built up to Visit Malaysia Year 2007, to mitigate any domestic slowdown in spending.

Over the review period, several new projects were completed, namely Aeon Taman Equine Shopping Centre and the physical completion of Cineleisure at Mutiara Damansara. In total, some 1.32 mil sf was added to total stock. Over the last few years, Jusco, a retailer and the developer of Aeon Taman Equine, has quietly emerged as one of the most active developer of shopping centres in the country with 6 completed projects across the country and a few being planned.

Space demand continued to be relatively strong and a few major leases were noted including MJ store by Metrojaya (60,000 sf) at The Curve, and Robinson Department Store of Singapore (80,000 sf) that is signing into The Garden at Mid- Valley. New American fashion brands are also coming into the market, such as forever 21, which has a new store in One Utama, whilst Banana Republic and The Gap will be coming to The Pavilion.

On the rental front, there was no discernable movement as business sentiment remained cautious.

In their latest announcement, Suria KLCC reported improved rental revenue for their 1st Quarter performance ending 30th June 2006 although no specific increase was disclosed.

In terms of capital value, Plaza Ampang, a 248,000 sf secondary property was reported to be sold to AP Land for a sum of RM70 mil, and analysed at RM281 psf. It is believed that the project will be upgraded and repositioned together with Capital Square, Empire Tower and Crown Princess as part of a comprehensive plan.

Major Residentail Launches in 2Q06

Development	No. Units	Type of Property	Pricing(Range/Average)
Mont Kiara Meridin	228	Condominium	RM360 - 450 psf
Hampshire Residences	388	Condominium	RM620 psf
Boulvard Tower	408	Service Apartment	RM420 psf

Source: DTZ Research Sept 2006

Positive Outlook Under 9th Malaysia Plan

The 2Q saw the release of the 9th Malaysia Plan which announced that the new housing requirement for the country will be some 709,400 units over the duration of the 2006- 2010 period (compared to 844,000 units completed in 2001- 2005). Of this, some 19% or 136,000 units will be concentrated in Selangor, with Kuala Lumpur accounting for another 32,800 units. Of these, it is estimated that some 32% of these will be high cost units, with 41.8% in the low medium and medium cost category. As per past plans, the strategic thrust driving this will be the private sector, with the government emphasizing on the provision of efficient and adequate urban services toward creating a conducive environment.

Concerns on rising inflation in the Quarter resulting from the price increases of key consumer goods and services have contributed to caution in the residential sub-sector in the first half of the year. House buyers are wary about trends in interest rates and wait for uncertainty in the economic environment to settle before making firm commitment on major capital expenditure. As a result, developers have become more cautious, delaying projects or launching fewer numbers of units to reduce development risks.

On the upside, the strengthening of the Ringgit and the RM200 billion development funds allocated under the 9th Malaysia Plan should provide a kick start to the economy that have being trying to find some direction amidst the absence of major fiscal initiative from the Government since the cancellation of a few major infrastructure projects over the last 2 years.

During the review period, new launches were confined to mid range and luxury condominiums and apartments in established locations. Most of these were already in the market after a pre-launch but were only officially launched in 2Q 2006. Sunrise Bhd launched the low density 31-storey Mont Kiara Meridin comprising 216 apartment units priced between RM650,000 and RM1.75 mil per unit.

Another high-end project launched in the same period was Hampshire Residences within the KLCC vicinity, and are priced between RM500,000 and RM1.65 mil per unit. Meanwhile, the Ireka Group witnessed the soft launch of its luxury project in Mont Kiara called Tiffani by I-ZEN. These units are priced from RM230,000 up to RM4.6 mil per unit. The launch of The Pavilion Residence priced at an average of RM1,000 psf at Jalan Bukit Bintang also received reasonable reception from buyers, setting a benchmark price for the location and the concept of a super luxurious residential project within a mixed development.

Rental trend remain stable with average rate for furnished high end apartment commanding RM3-4.50 psf psf/m whilst capital value trend is RM485 psf.

In the same period, the Malaysia My Second Home (MM2H) program was given a facelift. Property developers have been among the main supporters of the MM2H since it was introduced as the Silver Hair Program in 1996. Under this program, foreign citizens along with their spouses and children are allowed to reside and retire in the country provided they fulfill a list of criteria. Each participant is allowed to purchase up to two units of residential houses at a minimum price of RM150,000 to RM350,000 and above each, depending on the location of the property.

Although buying a home is not a requirement, developers are always hopeful that those coming in under the program would consider property a worthwhile investment due to the lower property prices here than in the developed countries. Property consultants, or more bluntly, real estate agents also stand to gain when MM2H participants choose to buy or rent a secondary unit. The contributions of MM2H participants towards the retail, tourism and service sectors are seen as important by both the government and the private sector.. Besides the name change, the program has been moved from the Home Affairs Ministry to the Tourism Ministry.

The second half will see a return of interest in the residential market as the economic trend become more settled and the implementation of development projects kick in and flow through to the rest of the economy.

Major Investment Sales in 2Q06

Property, Location	Type	En-block Price (RM mil)	Price psf (RM)
MAS , KL	Office	130	481
Hotel Grand Centrepoint, KL	Hotel	12.5	125,000/room
Ferringhi Beach Hotel, Penang Hotel	Hotel	43	124,600/room
Crown Jewel Hotel, Penang Hotel	Hotel	40	142,857/room

Source: DTZ Research Sept 2006

Investment market remains active

During the first quarter, the investment market continued to be extremely active with some 22 properties being transacted across the country with an aggregated value of RM2.08 billion. Featured prominently during this period is Amanah Raya which purchased 9 of these assets for their proposed REIT and is setting the benchmark for such structured sale and lease back deals. These assets ranged from a retail mall, industrial assets, to 3 hotels.

The REITs were also active with AmFirst Property Trust purchasing Wisma Merais whilst Mapletree Logistic Trust Management Ltd of Singapore secured 3 logistic properties in Subang/Shah Alam. The quarter also saw the listing of Tower REIT by Guocoland (M) Bhd which is part of the Hong Leong Group which comprises 2 prime office buildings located in Jalan Kia Peng and Jalan Semantan in Damansara Heights.

Interestingly the range of assets transacted involved not just the traditional office and retail sectors but are seeing more industrial and even hospitality sectors. The latter being the sale and lease back of 3 hotels, one each in Langkawi Island, Alor Setar and Cherating, by the Holiday Villa chain to Amanah Raya Bhd at graduating yields, from 6.7% for the first year to 7.3% by the 10th year.

Axis REIT continued it aggressive growth in its portfolio with another strategic acquisition involving a warehouse belonging to MISC Logistic in Klang at a yield of 12.8%. Since it listing, this fund has added 3 new assets to its initial portfolio.

Going forward, we do see a convergence of yield rates across the various sectors and continuing interests by investors although this will be somewhat affected by the hikes in interest rate which is undergoing an upward cycle.

AREA TAXANOMY

STOCK

NEW SUPPLY
Refers to the supply of new properties confirmed i.e. projects with planning approval and there are definite plans to proceed with the development or under construction at the time of reporting. The year for new supply refers to the year in which the projects/units are expected to receive Certificate of Fitness for occupation.

ABSORPTION
Refers to the total number of net take up of accommodation or units in new projects being leased or sold. Resale of units is excluded.

RENTS
Average gross rents are computed based on a basket of properties, inclusive of service charges. Office - typical net floor size adopted are between 2,000 sq ft and 5,000 sq ft.

MARKET PRICES
Market prices are reported on per sq ft (psf) basis on net floor areas. The office and retail market are reflective of en bloc sales evidence (referring to the sale of entire land and building).