Foreign Investors Snap Up Japanese Real Estate Stocks in Anticipation of Property Price Surge

Japan Real Estate

Japan Investment Property

27 May, 2015 –

While many foreign investors are buying up Japanese real estate stocks  in hopes of a surge in property prices, it is still an open question whether the shares will see a real recovery from an unexpectedly lackluster 2014.

Mitsui Fudosan and Mitsubishi Estate both advanced for a third straight day Friday. Mitsui Fudosan in particular illustrated the strength of investor sentiment, since analysts had expected profit-taking on this stock after it reached a year-to-date high Thursday.      The real estate business environment has steadily improved of late. The Bank of Japan’s policy board slightly upgraded its overall view, stating that, “Japan’s economy has continued to recover moderately,” after its meeting Friday while revising up assessments of private consumption and housing investment.

A Mizuho Securities survey of domestic and foreign institutional investors around mid-May highlighted investor hopes for real estate stocks. Real estate ranked second on the list of sectors that respondents were most bullish on — behind only banks and ahead of the auto sector and electronics, which have enjoyed a striking earnings recovery fueled by the soft yen. Much of this optimism stems from lagging stock prices. Although real estate shares led the Abenomics rally in 2013, they were weak in 2014 because monetary easing did not bring as much money to the property market as anticipated. The Nikkei Stock Average’s real estate subindex dropped 17% that year — the poorest performance of the 36 subindexes. It has outperformed the Nikkei average since April but still looks undervalued.

The BOJ’s release this week of data on lending to developers by banks has sparked hopes of a rally that goes beyond just playing catch-up. The January-March total of roughly 3.2 trillion yen ($26.2 billion) was the largest on a quarterly basis since the first three months of 2005. “The benefits of monetary easing have been within expectations so far, but they could really push up property prices going forward,” said Deutsche Securities’ Yoji Otani, who reported a rush of inquiries from foreign investors after the announcement.

Real estate prices have been lifted by demand related to foreign visitors. Downtown Tokyo has seen an influx of money from overseas buyers snapping up properties for investment, such as condominiums. Developers are also increasingly building or expanding hotels in the Tokyo suburbs to accommodate foreign tourists. The corporate tax cut could encourage companies to move or expand their offices as well.

If these factors, combined with the effects of easing, give the real estate market momentum, Japan’s economy could benefit. Higher prices could help amplify the wealth effect — in which paper gains on property and higher stock prices lift the value of assets held by individuals — and shore up consumer spending and employment.

Although “vacancy rates at major real estate companies’ rental properties have fallen considerably,” as Daisuke Fukushima of Nomura Securities pointed out, many argue that a rise in rents is still some way off. And, looking at real estate investment trusts, which pay out rental income to investors, the Tokyo Stock Exchange REIT Index has plateaued. An uptick in rent is essential for healthy growth in real estate prices. A bubble could begin to form should the influx of money outpace real demand.

(Source – “Nikkei Asian Review“, Pic – Tokyo Office Buildings / “The Economist“)

This entry was posted in Japan Real Estate and tagged , , , , , , , . Bookmark the permalink.