News Archive : Japan Real Estate

Thursday, November 24, 2005

Foreign Investors Pouring Money Into Japan Property Market

November 22, 2005
Foreign Investors Pouring Money Into Japan Property Market

TOKYO (Nikkei)--Overseas investment continues to flow into the Japanese real estate market, bolstering land prices in the country.

Now, however, foreign investors are beginning to take an interest in suburban properties in addition to those in central Tokyo. Capital Land, a Singapore real estate investment firm, recently acquired the Vivit Square shopping mall in Funabashi, Chiba Prefecture, through an affiliated fund and intends to further increase investment in Japan.

The nationalities of overseas investors are also growing increasingly diverse. Asian real estate companies, U.S. hedge funds and Australian investors, among others, are rushing to join American real estate investment firms in purchasing land in Japan.

There are both positive and negative factors behind the influx of foreign capital. The positive factor is expectations of higher rents. Real estate research firm IDSS Co. expects office rents in Tokyo's 23 wards to rise in 2007 for the first time in 15 years. With the vacancy rate in the five central wards having declined to 4.6%, landlords are regaining the upper hand in lease negotiations, company officials said. Higher rents will raise the return on investment in property, fueling the boom.

The negative factor is the perceived undervalued state of Japanese real estate in relation to land in Europe and the U.S. Housing prices in America at the end of June stood 3.6 times the level in 1980 after a long sharp climb. In late September, however, prices of luxury residences in New York's main borough of Manhattan plunged nearly 7% from a year earlier.

In contrast, Japanese land prices in residential areas this year have fallen to 67% of their peak after dropping for 14 straight years, though prices in the capital's 23 wards have turned higher, rising 0.5% from the previous year.

"Overseas investors are lowering the weighting of U.S. and U.K. properties in their portfolios in expectation that their prices are heading south, and are instead increasing their investment in Japanese real estate," said Toshihiko Okino, an analyst for UBS Securities Japan Ltd.

The sustainability of overseas interest in Japanese real estate is uncertain, however. A rise in short- or long-term interest rates could trigger land sales by eroding the allure of property investment. And if investors find Chinese properties more profitable, they will quickly shift money to them by unloading their Japanese holdings.

-- Translated from an article written by Yasuo Ota, senior Nikkei staff writer

(The Nikkei Financial Daily Tuesday edition)