Japan’s real estate lures HK, Singapore buyers with weak yen
Tokyo’s projected yields and long-term interest rates are more consistent than in New York or London. (Wiki pic/Morio)
TOKYO: A weak yen has brought out the bargain hunters in Japan’s real estate market, with foreign institutional investors mobilising billions of dollars for property deals.
Hong Kong’s Gaw Capital Partners in May announced the acquisition of 32 rental apartment properties in Tokyo, Osaka and elsewhere.
The investment firm, which has also taken an interest in offices and data centres, plans to invest ¥470 billion to ¥540 billion (US$3.6 billion to US$4.1 billion) in Japan over the next two years – more than six times what it spent over the preceding two years.
Isabella Lo, managing director and head of Gaw’s Japan operations, called Japan an attractive market that can provide steady profits, noting the tailwind provided by a weak yen.
A Morgan Stanley MUFG Securities index tracking Japanese commercial real estate prices in dollars, based on the land ministry’s price index, has fallen near a record low set in 2014, estimates for the end of June show.
Gaw is not alone. Singapore state investor GIC has reached a ¥147.1 billion deal with Japan’s Seibu Holdings to buy 31 properties, including the Prince Park Tower Tokyo and the Naeba Prince Hotel. Bidding for the portfolio was dominated by foreign players from the start.
Housing for older adults has drawn interest as well. Nuveen, a unit of the Teachers Insurance and Annuity Association of America, plans to invest nearly ¥14 billion in senior housing and other residential assets, noting a shortage of new supply to meet rising demand among an ageing population.
Real estate investment is showing signs of cooling elsewhere in the world as the US Federal Reserve and other central banks raise interest rates. The total market capitalisation of real estate investment trusts worldwide fell 19% in the first six months of this year to US$2.1 trillion at the end of June.
But recent investors in Japanese real estate appear to be placing bets on long-term capital gains, emboldened by a weak yen.
High-profile deals are an uncommon sight at the moment, but foreign investors’ appetite looks unlikely to wane anytime soon, according to market watchers. “Interest rates are staying low, so borrowing costs at purchase time are low,” said Katsumi Nakamoto, president of the Japanese arm of European investment firm Patrizia. “You can expect relatively high returns.”
The spread between expected yields on office buildings in Tokyo’s five central wards and long-term interest rates has hovered at the 2% and 3% levels since 2010, according to CBRE – more consistent than in Manhattan or London.
Around “90% of bids in recent auctions have been from foreign investors”, said Saburo Nishiura, chairman of Japanese developer Hulic.
The influx of money from abroad has brought more liquidity into the market, but not all of the effects are positive.
Hulic’s Nishiura warned that prices are out of step with real demand. “Rents at central Tokyo office buildings are in a downtrend, but with foreign investors making aggressive bids, prices aren’t going down,” he said, adding that while the market “is supported by the weak yen, it still looks somewhat like a bubble”.
