RESEARCH PAPER: DUTCH RESIDENTIAL INVESTMENTS IN EUROPEAN PERSPECTIVE

1. RESEARCH PAPER:DUTCH RESIDENTIAL INVESTMENTS IN EUROPEAN PERSPECTIVE

2. OUTLINE • Residential real estate in the investor portfolio • Steady income return • Moderate inflation hedge • Low correlation with other asset classes • High portfolio diversification potential across Europe • The conditions on the Dutch housing market • Regulation is consistent • Economic situation shows positive signs • Indicators for investing in Dutch residential markets are positive • Pricing has improved • Housing shortage is increasing • Non-regulated rental market will be bigger

3. GOOD RISK-ADJUSTED RETURN AND MODERATE INFLATION HEDGE ANNUAL TOTAL RETURNS • Residential investments have a good long-term risk-adjusted return. • Volatility of capital growth has been relatively high, and income volatility very low. • Over the past ten years the total return in Sweden, the UK and the Netherlands has only been negative once. For France, Germany and Switzerland this has not occurred even once. • Residential investments give more protection against inflation risk than other Dutch asset classes. Source: IPD (2003 - 2012) * Significant at a 90% level ** Significant at a 95% level 1 BIS (1971 - 2012) 2 MSCI Netherlands (1971 - 2012)3JP Morgan GBI Netherlands 7-10 years (1975 - 2011); 43-month Euro deposito(1971 - 2012); 5 FTSE EPRA/NAREIT EU (1990 - 2012)

4. DOUBLE DIVERSIFICATION: IN OVERALL PORTFOLIO AND IN HOUSING PORTFOLIO • Correlations between housing investments and other Dutch asset classes are very low. • So housing offers excellent diversification potential. • Cross-country correlations among European residential markets are low. • So international investment in housing provides good diversification advantages. • The low correlations between the Dutch housing market and other European markets stand out. * Significant at a 90% level ** Significant at a 95% level 11977 – 2012; 21990 – 2012; 31977 – 2011; 41990 - 2011 * Significant at a 90% level ** Significant at a 95% level Source: BIS (1971 – 2012)

5. OUTLINE • Residential real estate in the investor portfolio • Steady income return • Moderate inflation hedge • Low correlation with other asset classes • High portfolio diversification potential across Europe • The conditions on the Dutch housing market • Regulation is consistent • Economic situation shows positive signs • Indicators for investing in Dutch residential markets are positive • Pricing has improved • Housing shortage is increasing • Non-regulated rental market will be bigger

6. RENT REGULATION CREATES INFLATION HEDGE AND REGULATED SECTOR WILL GET SMALLER • Rents, regulation and inflation • Regulated rental dwellings (88% of the market) have a rent increase based on inflation. • This is a reason why housing returns are correlated with inflation. • Regulated sector gets smaller • Up to one million regulated houses could get non-regulated, based on current WWS points. • Due to income-based rent increases regulated dwellings will likely get non-regulated. • Social housing providers have to go back to core business. • So non-regulated rental dwellings could shift towards other landlords. Source: CBS(2013)

7. RESIDENTIAL MORTGAGE DEBT HIGH, BUT HOUSEHOLD BALANCE SHEET LOOKS HEALTHY • The mortgage-debt-to-GDP ratio has increased rapidly. • The Dutch ratio seems very high, which is caused by • increasing home-ownership • increasing house prices • willingness of home buyers to take out mortgage with high LTV • growing popularity of mortgages that do not (directly) amortize • Many mortgages have savings account attached, which is currently not in the statistics. • The large mortgage debt is put in perspective by the underlying house values, other assets and the extensive pension scheme in the Netherlands. Source: Hypostat (2011) Source: CBS (2012, 2013)

8. THE ECONOMIC OUTLOOK IS IMPROVING FAST CONSUMER CONFIDENCE • The economic outlook has recently started to brighten up. • Consumer confidence is going up, after years of pessimism. • In 2012 and 2013 the Netherlands had negative GDP growth rate of 1,2% and 0.4%, respectively. • Real GDP is expected to increase by 1.0% in 2014, and 1.5% in 2015. Sources: European Commission (2014), Swiss National Bank (2014)

9. OUTLINE • Residential real estate in the investor portfolio • Steady income return • Moderate inflation hedge • Low correlation with other asset classes • High portfolio diversification potential across Europe • The conditions on the Dutch housing market • Regulation is consistent • Economic situation shows positive signs • Indicators for investing in Dutch residential markets are positive • Pricing has improved • Housing shortage is increasing • Non-regulated rental market will be bigger

10. DECLINING HOUSE PRICES RESTORE EQUILIBRIUM BETWEEN HOUSE PRICES AND RENT LEVELS HOUSE PRICE / RENT RATIO (1975-2013) • Since the start of the financial crisis Dutch house prices have decreased more than those in comparable countries. • Dutch nominal house prices have fallen 18% and are now back at the year 2000 level. • The house price/rent ratio is an indicator for the attractiveness of rental houses for investors. • Since 2008 the ratio is declining, caused by declining house prices and increasing rent levels. • The Dutch ratio is currently very close to its long-term equilibrium. Germany Sweden France 175 150 125 100 75 50 175 150 125 100 75 50 175 150 125 100 75 50 1975 1985 1995 2005 2013 1975 1985 1995 2005 2013 1975 1985 1995 2005 2013 The Netherlands Switzerland United Kingdom 175 150 125 100 75 50 175 150 125 100 75 50 175 150 125 100 75 50 1975 1985 1995 2005 2013 1975 1985 1995 2005 2013 1975 1985 1995 2005 2013 Source: The Economist (2013)

11. INCREASING NUMBER OF HOUSEHOLDS, DECLINING NUMBER OF BUILDING PERMITS • In 2012 there was a shortage on the housing market of about 3.4%. • The number of Dutch households is expected to increase by around 60,000 per year. • Based on the most recent forecasts, Dutch population will grow until 2040. • During the financial crisis there has been a decline in the amount of newly built dwellings. • With a sharp decline in permits granted, the construction of new homes will likely continue to be low in the next two years, resulting in housing shortages. Source: CBS (2013) Source: CBS (2013)

12. HOUSING DEMAND STRONG IN URBAN AREAS AND DEMAND WILL SHIFT TO UNREGULATED SECTOR EXPECTED REGIONAL HOUSEHOLD DEVELOPMENT (2012 – 2030) • Household development • Strongest in urban areas, larger cities in ‘Randstad’: Amsterdam, Utrecht, The Hague. • Smaller cities in Brabant: Breda, Den Bosch, Eindhoven. • Many rural areas in northern and southern parts of the country will face decline in housing demand. • Demand for unregulated housing • A growing part of this demand will go to unregulated sector in the next twenty years. • This is due to changing social housing policy and less favorable tax treatment for mortgages. • Households that plan to move are relatively more willing to rent. Expected household development per municipality (2012 - 2030) Lessthan - 500 - 500 to 0 0 to 200 200 to 500 More than 500 Source: ABF Research (2014)

13. LESSONS FOR DUTCH INSTITUTIONAL HOUSING INVESTORS • This seems to be a good moment to get in. • The market is priced attractively • Long-term reforms are implemented • Scarcity of supply is likely to increase • But the rest of the world does not know it. • Interviews with international experts and foreign institutional investors show lack of knowledge • But there would be interest if the right opportunities were presented • Co-investing with respected Dutch institutional investors is attractive • So fly to the money!