Japan’s Transparent Property Market Attracts Institutional Investors

Japan Real Estate

Japan Prefectures

11 Jun, 2015 –

Research conducted by ANREV (the Asian association for investors in non-listed real estate vehicles) to discover institutional investor intentions in Asia Pacific real estate markets reveals that Japan, Australia and China are attracting the most interest from them. “Japan and Australia in particular are large, liquid and transparent markets which provide a range of market opportunities for the deployment of capital.

China offers, of course, a well-known economic growth story supported by demographic and urbanisation trends,” says the association’s chief executive, Alan Dalgleish. Luke Sullivan, SVP, portfolio manager, Cohen & Steers Asia Limited, also believes some of the best real estate opportunities can currently be found in China. “Opportunities will continue to emerge on a select basis in a country with strong pockets of growth and evolving investment platforms catering to institutional investors. For example, high-quality China logistics properties have only recently arrived, but they now represent an asset class that is becoming more institutional and offers compelling investment scenarios,” he explains.

China has witnessed a movement away from state-owned enterprises into private markets with proper corporate governance and legitimate operations, and private equity companies have been setting up platforms aggressively, according to Mr. Sullivan. In the listed market, he says fresh capital is seeding new IPOs, resulting in more-transparent data at the property level, which has increased real estate’s appeal to institutional investors. “We are positive on certain leading residential developers in China, which we believe offer undemanding valuations and the potential to benefit from improving housing sales and market share, supported by favourable government policies,” says Mr. Sullivan.

Typical ANREV members generally don’t have the risk appetite for the true frontier markets in the region but Mr. Dalgleish says he has noticed rising interest in India, where a number of major foreign institutions have made recent real estate investments. “Groups such as APG, CPPIB, GIC and ADIA are establishing partnerships that will bear fruit as India develops in the long-term. Whether looking at gateway cities in the region or frontier markets, the weight of capital bearing down on the region is such that investors will have to consider new geographies and be flexible in terms of deal structure or property sector in order to find good investment grade properties,” he observes. Elsewhere, Mr. Sullivan believes the new policies establishing mutual stock market access between Hong Kong and the Mainland could bring a surge of capital into Hong Kong. According to him, the impact on real estate could be favourable, especially for office landlords as financial companies expand their presence.

Going back to Japan, one of the three markets attracting the most interest from institutional investors, Mr. Sullivan says the most compelling investment cases include major developers, as these companies have large land banks – land available for new construction – that have potential for value creation as fundamentals improve over time. “And fundamentals have been improving,” he says, pointing out that Tokyo’s office market has seen some of the best conditions in Asia over the past two years, characterised by double-digit rent growth and rising capital values.

“We believe the market should continue experiencing strong growth in occupancy rates and a continued recovery in rent growth. Japan developers that are well positioned to take advantage of this recovery and currently trade at discounts to their underlying assets, although recent strong performance has led to more moderate relative values. Among J-REITs, we see attractive total-return opportunities in companies positioned to grow dividends and make value-added acquisitions,” Mr. Sullivan adds.

(Source – “Asia Asset Management“, Pic – Tokyo Office Buildings /”SLD“)

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