• Potential short-term upside leads into 2009 budget: As investors close or reduce their significant underweight positions on the Singapore property sector, we see potential upside for quality developers and the larger S-REITs such as CapitaLand, City Developments, A-REIT and CMT. If it occurs, this positive momentum could continue towards the 2009 budget in anticipation of potential incentives for the sector. We think a waiver or reduction of property stamp duties and/or property tax could be possibly introduced in the coming budget announcement on January 22, 2009.

• Kitchen-sinking in 4Q08 and through 2009: The results season for S-REITs and Singapore developers will kick off in mid-January until mid-February 2009. We expect a round of kitchen-sinking provisions and asset writedowns in the 4Q08 earnings to clear the decks. Valuation writedowns from the S-REITs may, however, be paced through the course of the year as independent appraisals are adjusted lower.

• Price rediscovery continues in physical markets: We believe that bid- ask spreads are likely to converge in 2009, with transactions coming in lower than current valuations, especially for high-end residential and CBD office properties. Implied cap rates already reflect substantial diminution in underlying property valuations, and stocks are likely undervalued (Singapore property stocks are trading at a collective 53% discount to already reduced RNAVs).

• Recapitalization and de-leveraging to be the dominant themes in 1H09E: We expect regulatory changes facilitating secondary fund-raising by the Singapore Exchange and the MAS to encourage the S-REIT sector to recapitalize. This equity recapitalization process is, we believe, a significant milestone the whole sector needs to pass for markets to obtain a proper fix on the new cost of real estate capital here.