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Tokyo Star Bank, acquired in 2014 by CTBC Bank—one of Taiwan’s largest financial institutions—frequently receives inquiries from individual Taiwanese investors wishing to invest in Japanese real estate. In fact, the Tokyo bank, which was bought for ¥53 billion in June last year, has become a gateway to Japan for Asian investors.

Tokyo Star Bank last December began offering loans to Taiwanese clients to purchase real estate in Japan. Under the new program, borrowers living in Taiwan are able to receive up to ¥500 million from the bank at low interest rates of around 2 percent, thanks to the Bank of Japan’s bold credit easing.

A government survey found that commercial land prices in Japan stopped falling year-on-year for the first time in seven years in the 12 months to January 1. Recovering land prices are partially attributable to an inflow of funds from overseas investors, as the cost of Japanese real estate falls on a weaker yen.

Overseas interest
Real estate deals in Japan totaled ¥5.06 trillion in 2014, up 16 percent from the previous year, according to the Urban Research Institute. In particular, transactions involving foreign companies, such as investment funds, soared 2.7 times to almost ¥1 trillion.

With the yen’s value against the dollar plunging 14 percent last year, Japanese real estate is attracting more investors from overseas.

Property purchases by international investors are growing in scale as well. In October last year, Singaporean sovereign wealth fund GIC acquired the office component of the Pacific Century Place Marunouchi building in Tokyo’s central business district for ¥170 billion.

French insurer Axa Group purchased Nakano Central Park East, a large office building in the capital’s Nakano Ward, for ¥37 billion.

The Bank of Japan’s extensive easing of credit has made domestic funds available for real estate investment, too. Unlisted private real estate investment trusts (REITs) are rising rapidly among the REITs purchasing properties with investor capital, to earn profits from rental fees and other revenue.

The value of assets held by private REITs, which pay relatively high yields averaging around 4 percent, topped ¥1 trillion in February, according to Sumitomo Mitsui Trust Research Institute.

Unlike listed REITs, private REITs solicit capital from financial institutions and other professional investors. In particular, they collect large funds from regional banks struggling to use their capital more efficiently due to a shortage of borrowers.

Of the ¥1 trillion in assets held by private REITs, regional financial institutions accounted for nearly 20 percent, or ¥180 billion, up ¥70 billion from April last year.

Private REITs provide “one of the few ways for banks to earn returns in the scarcity of viable investment options,” says Daiwa Securities analyst Maoki Matsuno.

Nikkei1


Source: Urban Research Institute

Tokyo on the rise
But real estate investments also have risks. Nippon Building Fund, Japan’s largest REIT, purchased no real estate in the year ended in December because “analysis of a significant number of properties showed that prices in Tokyo were rising considerably,” said Kenichi Tanaka, president of Nippon Building Fund Management.

Singapore’s GIC wealth fund purchased sought-after property in front of Tokyo Station, but an executive at a major Japanese real estate company said the deal “presupposes considerable rises in rents.”

Another risk is that speculators may withdraw their funds from Japan if the depreciation of the yen comes to a halt. Japan was said to be in a “minibubble” in 2007 when the value of real estate deals topped ¥5 trillion. The property market then took a bad turn because of the global economic downturn the following year.

If recent real estate investments are speculative, they will not lead to a stable recovery in land prices.

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