JAPAN has become the new darling of Asian property investors as prices in markets such as Singapore and Hong Kong hit historically high levels.

According to a report released last week by Credit Suisse, Japan’s residential property sector is expected to see ‘strong growth with accelerating momentum’.

Mr Masahiro Mochizuki, a real estate analyst with Credit Suisse in Tokyo, said developers have begun to buy land for new construction projects and that cash inflows into the condominium market are a positive factor for land prices.

‘Commercial real estate investors are beginning to earn capital gains from rising asset prices, and as office vacancy rates in Tokyo decline, cash flows from real estate will improve,’ he said.

This comes as the Japanese property sector sees increased interest from Asian investors. The Wall Street Journal Asia reported that, according to deal-tracking firm Dealogic, Asian investors have made 18 real estate deals worth US$372million (S$488million) in Japan this year. This is 10 more than last year.

Real estate investment trust Mapletree Logistics Trust bought three distribution centres for 13billion yen (S$203million) in July. In October, it signed a sale and leaseback agreement with leading Japanese logistics firm, Hamakyorex, to acquire a warehouse facility for 1.05billion yen.

The firm, which opened its Japan office in 2007, plans to expand its Japanese portfolio further. Chief executive Richard Lai said the logistics market in Japan remains attractive due to its ‘unmatched’ breadth and depth.

Malaysian industrial conglomerate YTL Corporation has also placed big bets on Japan. The company announced last week that it intends to develop the scenic Niseko Village in Hokkaido into a mountain resort with hotels, luxury homes, ski resorts and shopping and dining outlets.

The property was acquired for 6billion yen in April.

YTL’s first residential development in the 460ha village is Hinode Hill, a luxury project of 125 units with views of nearby Mount Yotei.

Mr Kemmy Tan, a director at YTL Singapore, said the firm has always had confidence in Japan, owning seven prime commercial properties in Tokyo through a subsidiary.

Regarding YTL’s latest venture, he said: ‘We have also noticed a growing trend among affluent Asian property investors to invest in holiday homes around the region.’

He notes that foreign home ownership in Niseko jumped 20fold between 2004 and 2006. ‘Skiing is a rising sport of the affluent, and as Asian wealth grows, we are seeing more interest in Asian ski regions, like Japan and South Korea,’ he added.

Another Singapore- based firm investing extensively in Japan is Saizen Reit. The firm concentrates on properties in 12 regional cities, excluding Tokyo and Osaka, and manages about 180 across Japan.

Mr Chang Sean Pey, chief executive of Japan Residential Assets Management, which manages Saizen, said Japan’s property sector offers good rental yields compared to other developed markets.

‘Centrally located properties in Tokyo provide net yields (net rental after property-related expenses) of 4.5 to 5.5per cent,’ he said.

Mr Chang added that the figure was less than 3per cent for similar properties in Hong Kong and Singapore.

Mr Nicholas Mak, head of research and consultancy at property consultancy SLPInternational, said Japan does have some good points.

‘They have very well-developed infrastructure and an easily convertible currency. Interest rates are also near zero, making borrowing costs very low,’ he said.

However, long-term investors should be careful where they park their money, Mr Mak cautioned.

‘There is still the risk of asset deflation with prices stagnant or even falling,’ he said. ‘Japan’s population is declining. Since real estate values depend on demand, can long-term demand be sustained?’

Still, for companies such as small and medium-sized enterprises (SMEs), Mr Mak advises that to minimise risks, they can invest in securities linked to Japanese properties. Since Japan is still a major tourism destination, he recommends that these SMEs invest in hotels and other related developments.

‘Logistics is also a sector with a positive future,’ Mr Mak said.

He also advises that investors should visit the location and speak to local real estate experts before making a decision.

‘Ultimately, whatever sector you invest in, you should never buy before seeing it for yourself,’ said Mr Mak.

Source: Straits Times, 20 Dec 2010

 (TOKYO) Japanese land-price declines slowed for the first time since 2007 as credit conditions eased and the nation emerged from its deepest post-war recession.

The nationwide average price dropped 3.7 per cent in the 12 months ended June, compared with a 4.4 per cent decline a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in a report released on Tuesday. Prices have fallen for 19 straight years.

The drop in land values, which are about half of what they were after the peak of Japan’s bubble economy in the 1980s, may continue to ease as homebuyers and developers return to the US$27 trillion market.

Tokyo condominium prices rose to a 20-month high in March, signalling a recovery in the sector, said Yoji Otani, a real estate analyst at Deutsche Bank AG here.

‘We’re starting to see a significant pick-up in land acquisitions, signalling that prices are bottoming out in Tokyo,’ said Keiji Kimura, chief executive officer at Mitsubishi Estate Co, Japan’s biggest developer.

The 44-member Topix Real Estate Index rose 1.4 per cent, making it the best performer among the 33 industry groups that make up the benchmark.

Mitsubishi Estate Co, Japan’s second-largest developer, gained 1.4 per cent to 1,339 yen at the 3pm close on the Tokyo Stock Exchange, while Mitsui Fudosan Co, the nation’s largest, added 1.7 per cent to 1,411 yen.

Direct commercial real estate investment in Japan rose 35 per cent to US$5.8 billion in the second quarter from the same period last year, according to Chicago-based Jones Lang LaSalle Inc.

Acquisitions by the country’s 37 publicly traded real estate investment trusts more than doubled in the six months ended June to 372 billion yen (S$5.79 billion) from a year earlier, according to IB Research and Consulting Inc, a Tokyo-based research firm.

‘We are already on a recovery trend although the pace is very slow,’ Deutsche’s Mr Otani said. ‘Japan’s market is big so we can’t expect a sudden turnaround.’

Declines in value in Tokyo, Osaka, and Nagoya, the three major metropolitan areas, slowed to 3.2 per cent, from a drop of 6.1 per cent a year earlier, the land ministry report said. Prices in rural districts fell 3.9 per cent from the 3.8 per cent decline a year earlier.

Tokyo’s Chiyoda ward, where the Imperial Palace is located, had the nation’s priciest residential land at 2.8 million yen per square metre, the data showed.

The most expensive piece of commercial property remained in Tokyo’s Ginza shopping district, where land can cost as much as 20.2 million yen per square metre, the report said.

Still, four out of the top 10 commercial sites in Japan with the steepest declines were located in Ginza, the report showed.

The drops reflected falling rents because of the closure of luxury-brand stores in the district, said Yutaka Iwaki, director of the land ministry’s price research division.

PPR SA’s Gucci outlet in Matsuzakaya department store in Ginza this year was replaced by Forever 21, a less expensive brand that targets younger consumers, J Front Retailing Co said in a release.

Nationwide commercial land prices fell 4.6 per cent last year and residential land values dropped 3.4 per cent, the report showed.

Commercial prices are 60 per cent of what they were in 1991 when they peaked, while residential values are at 35 per cent.

The average price of a Tokyo condominium rose 6.8 per cent to 50.7 million yen in March from a year earlier, the highest since July 2008, according to Real Estate Economic Research Institute Co. — Bloomberg

Source: Business Times, 23 Sep 2010

(TOKYO) Investors should buy shares in Japanese real estate companies because demand for offices and houses is likely to increase as the central bank keeps borrowing costs near zero, said Bank of America Corp’s Merrill Lynch & Co.

Tokyo’s office vacancy rate has fallen for the first time in 21/2 years, demand for housing is rising and a decline in land values has slowed, making real-estate more attractive, Merrill Lynch strategist Masatoshi Kikuchi said. The Bank of Japan, which kept borrowing costs unchanged on Tuesday, should also help to spur a recovery in real estate, he said.

‘We can see now that the decline in demand for real estate has pretty much bottomed out,’ Mr Kikuchi said. ‘Also, because Japan’s interest rates will remain low, we should see a recovery and investors should start buying these shares.’

The Bank of Japan kept the benchmark overnight rate at 0.1 per cent, where it has been since December 2008. The Topix Real Estate Index, measuring 44 property-related stocks, has risen 12 per cent from this year’s low on July 22, compared with the broader Topix’s 0.5 per cent decline during the same period.

Tokyo’s office vacancy rate fell in July for the first time since January 2008, according to an Aug 5 report by Miki Shoji, a privately held office broker. The number of condominiums offered for sale in Tokyo and surrounding areas rose 27.8 per cent in July from a year earlier, the Real Estate Economic Research Institute said on Aug 16.

Japan’s land values also declined at fewer sites for a third straight quarter as property companies started to purchase land amid a recovery in housing demand, the Ministry of Land, Infrastructure, Transport and Tourism reported Aug 24.

Mr Kikuchi said that Japan’s stock market should recover further next year, with the Topix index rising to between 9,000 and 12,000 from January to March as the global economy strengthens. The Topix closed at 820.99 yesterday.

While foreign investors now view Japan’s equities as a minor part of their global portfolios, Japan should be able to capitalise on Asia’s emerging growth and increase interest in Japanese companies, he said.

Mr Kikuchi spoke at an investment seminar attended by more than 1,700 people, including 300 foreign investors. The number of foreigners at the annual conference jumped from 279 last year, an increase that shows overseas interest in Japanese equities has risen, Mr Kikuchi said.

Mr Kikuchi was rated Japan’s top strategist in rankings by the Institutional Investor magazine’s 2010 survey and came second in the Nikkei Veritas newspaper’s Japanese strategist rankings this year, according to Merrill Lynch.

At a seminar on Jan 13, Mr Kikuchi said the Nikkei 225 Stock Average would rise to 13,000 from 10,735.03 by about May as a weaker yen bolstered company earnings. The gauge climbed 5.6 per cent to this year’s high of 11,339.3 on April 5, and then plunged 12 per cent in May.

Mr Kikuchi also said the Nikkei 225 may rise 12 per cent to 8,500 by the end of March 2009 in a note to clients on Feb 27 last year. The gauge closed at 8,636.33 on Mar 26, 2009, and rose 7.2 per cent that month. — Bloomberg

Source: Business Times, 9 Sep 2010

‘New bond sales are recovering to some extent,’ Toru Kobayashi, Tokyo- based director of structured finance at the risk assessor, said in an interview.

Some Reits still face risks, he said. These need to see ‘improvements in property performance’,

Sales of Reit bonds this year totalled 124.5 billion yen (S$1.96 billion), recovering from a single public sale of three billion yen in 2008 and none in 2009, according to data compiled by Bloomberg.

The Tokyo Stock Exchange Reit Index has gained 0.6 per cent this year, while the Topix index has dropped 9.1 per cent.

Land prices started falling in 2008 as the global crisis deepened with the collapse of Lehman Brothers Holdings Inc, previously a lender to property investors.

New lending for real estate by Japan’s banks fell to the lowest in a decade in 2009, according to the Bank of Japan.

‘Among some borrowers with a smaller size or inferior financial standings, we see extension of short loans or finance in the short term,’ Mr Kobayashi said. ‘Such Reits haven’t eased their finance risk.’

Japan’s Ministry of Land, Infrastructure, Transport and Tourism said in August 2009 that a 500-billion-yen fund would be formed to help Reits refinance their debt. – Bloomberg

Source: Business Times, 24 Aug 2010

The properties are the Iwatsuki Logistics Centre, a distribution centre and office in Iwatsuki, with a gross floor area (GFA) of 30,000 sq m; the Iruma Logistics Centre, a distribution centre and office in Iruma, with GFA of 26,000 sq m, and Noda Logistics Centre, a distribution centre and office in Noda, with GFA of 36,000 sq m. All the locations are in Saitama Prefecture, which is Toyko’s northern neighbour.

The properties will be acquired for a total of 13 billion yen, (about S$200 million). The vendor, A-Max, is a logistics facilities development and management company.

The acquisition is the sixth announced by Mapletree since December last year, totalling $430 million.

With the completion of all of these acquisitions, MapletreeLog will have a portfolio value of about $3.3 billion.

MLTM said the latest acquisition will have significant benefits arising from attractive net property income (NPI) yield and distribution per unit accretion. The properties are also 100 per cent leased for eight to 10 years, providing stable rental income, and are in good locations.

‘Given the low interest rates in Japan, it is likely that this acquisition will be funded predominantly by debt,’ said MLTM. ‘Any proceeds from equity issuance will likely be applied towards other acquisitions or refinancing of other more expensive debt in the portfolio to maintain a gearing below 45 per cent.’

MLTM chief executive Richard Lai said: ‘Japan’s logistics market remains attractive to us because it has breadth and depth that is currently unmatched elsewhere in Asia. We will continue to expand our portfolio in Japan by selectively acquiring yield-accretive logistics assets of good quality and location. We also seek to enhance the quality of our income stream through addition of good-quality customers to our diversified customer base. We will continue to focus on such accretive third-party acquisitions as a key strategy to grow our portfolio, and in turn, the returns to our unit-holders.’

Source: Business Times, 29 Jul 2010

The properties will be bought from Yugen Kaisha, which is a subsidiary of Kenedix, a real estate asset manager in Japan.

PLife REIT had previously acquired 15 nursing home properties from Kenedix.

It said it is buying the properties because they are well-equipped, in good physical condition and strategically situated in dense residential districts.

PLife REIT added that each of the properties has a long term lease agreement with the operators, with a weighted average lease term to expiry of 17.45 years

It also said the stability of the overall portfolio will be further enhanced with backup operator agreements to be secured for the properties.

Furthermore, PLife REIT said Yugen Kaisha will provide a rental income guarantee in respect of the properties for a period of seven years capped at 5 percent of the purchase price.

Such a move will offer protection to PLife REIT and provides certainty for PLife REIT’s future distributions to its unitholders.

The acquisition is expected to be fully funded via a five-year committed unsecured revolving credit facility of up to S$48.5 million.

PLife REIT is expected to enter into an interest rate swap to hedge the interest rate for five years.

Source: Channel News Asia, 13 Jul 2010

The 2008 financial crisis and the recession that followed in Japan have battered demand for housing, while tight credit has made it hard for developers to raise money and overseas investors have withdrawn their funds.

It was the second straight year of decline in nationwide land prices, which averaged 126,000 yen ($1,993) per square metre, after a 5.5 per cent drop the year before, according to the survey by the National Tax Agency, which covered about 380,000 building lots.

That marked the biggest decline since an 8.3 per cent fall in the year to Jan 1, 1997, with land prices down in all Japan’s 47 prefectures last year.

Tokyo suffered the biggest drop of 11.3 per cent, which was its fastest rate of decline in 14 years.

The cost of a land plot in Tokyo’s upscale Ginza shopping district plunged 25.6 per cent, its biggest slide in 16 years, though it is still the most expensive place in Japan at 23.2 million yen per square metre.

Japanese land prices had dropped for years following the collapse of the real estate bubble in the early 1990s, leaving huge piles of bad loans in the banking sector and crippling the economy for a decade.

They finally began picking up in the mid-2000s, helped in part as foreign investors poured money into urban developments.

But the upturn was short-lived as the global financial crisis shook the market in 2008.

Property prices in Tokyo and its neighbouring prefectures fell 9.7 per cent. In the vicinity of Osaka in western Japan, land prices dropped 8.3 per cent, while those in the central Japanese city of Nagoya and its neighbouring areas tumbled 7.6 per cent.

Average land prices in rural areas also fell 5.9 per cent.

The tax agency assesses land prices as of Jan 1 every year to calculate inheritance and gift taxes on properties that are acquired that year.

Land prices calculated by the tax agency are roughly at 80 per cent of those published by the land ministry in March.

Analysts say the prices tend to lag behind actual land price movements. — Reuters

Source: Business Times, 2 Jul 2010

PARKWAY Life Reit (PLife Reit) has strengthened its foothold in Japan.

The healthcare trust, whose $1.15 billion portfolio includes private hospitals in Singapore, announced yesterday the acquisition of six new nursing home and care facility properties in Japan for 3.9 billion yen (S$60.5 million).

The two companies that sold these properties are Kabushiki Kaisha Sawayaka Club and Kabushiki Kaisha Bonheure.

They are subsidiaries of Kabushiki Kaisha Uchiyama Holdings, a Japan-based company in the nursing homes, family karaoke and F&B businesses.

Black Hills Investment, a private real estate asset management firm, will be appointed as the asset manager of the properties.

‘With an 8.08 per cent net property yield, this acquisition is yield-accretive to our unitholders,’ said Yong Yean Chau, chief executive officer of the Reit’s manager Parkway Trust Management Ltd.

The expected net property yield from these properties compares favourably to the current property yield of 6.97 per cent for PLife Reit’s existing Japan portfolio.

The six new properties are valued at 4.04 billion yen, using the discounted cashflow method. The purchase price is 2.8 per cent below the valuation.

Each of these properties will have a fresh 20-year master lease/operating lease agreement with Sawayaka, currently the largest private nursing home operator in Kyushu Island.

PLife Reit said the long lease term will improve the total portfolio weighted average lease term to expiry (by gross revenue), which stands at 13.2 years as at March 31, thus boosting the resilience of its portfolio.

To mitigate the risk of any potential rental defaults, Uchiyama and Bonheure will provide rental income guarantees for the properties for the entire lease period.

Uchiyama and its subsidiaries have also entered into a memorandum of understanding to give a right of first refusal to PLife Reit over future sales of nursing homes owned by them.

PLife Reit noted that this arrangement will enhance its growth potential in Japan. It is now adopting a clustering acquisition and partnership approach to achieve critical mass and reap economies of scale in its core markets, starting from Japan.

Mr Yong said the Reit manager will also continue to explore future acquisition or collaboration opportunities with Uchiyama, such as having them as backup operators or replacement operators for the other nursing homes in PLife Reit’s portfolio.

The acquisition is expected to be fully funded via a five-year unsecured term loan facility of 4.2 billion yen from CIMB Bank Berhad, one of the Reit’s key partner banks.

This loan is at an all-in funding cost of about 2 per cent per annum, better than the recent similar financing PLife Reit obtained in November 2009 at 3.22 per cent per annum.

With this funding, PLife Reit’s gearing will rise to 32.2 per cent from 28.5 per cent as at March 31.

Source: Business Times, 10 Jun 2010

The new Citadines Kyoto Karasuma-Gojo comes a year after the launch of Ascott’s Citadines Tokyo Shinjuku in March 2009.

Lee Chee Koon, Ascott’s managing director for North Asia, said that that property has achieved strong average occupancy of around 80 per cent. ‘It has also received many positive reviews from customers. Hence, we’re expanding our Citadines brand to another key city in Japan.’

The 124-unit Citadines Kyoto Karasuma-Gojo offers studio and one-bedroom apartments with contemporary decor, modern fittings, a fully-equipped kitchen, a home entertainment system and broadband Internet access.

It is located in Gojo, a short walk from the city’s business district and tourist belt where there are many shopping malls, supermarkets, restaurants and entertainment facilities. Renowned Unesco World Heritage sites the Kiyomizu Temple and Toji Temple are less than a 10-minute drive away.

The property is also near Gojo subway station. And Kyoto’s largest downtown shopping area, Shijo Street, and the Kyoto Shinkansen bullet train station are just one stop away. Shijo Street has a wide range of shops, from traditional craft outlets to boutiques carrying designer fashion.

Ascott said its latest property will cater to strong demand for quality accommodation in Kyoto, which is a popular tourist destination and a venue for international conventions.

With this project, Ascott’s portfolio in Japan will increase to over 3,800 apartment units in 53 properties across 10 cities including Tokyo, Kyoto, Osaka, Nagoya, Kobe and Hiroshima.

Source: Business Times, 6 Mar 2010

By contrast, respondents in Brazil, India, Hong Kong and Australia are more optimistic and expect fewer distressed property listings, the Royal Institution of Chartered Surveyors (RICS), which surveyed 430 of its members in 25 countries, said.

RICS, which last polled its members in the final quarter of 2009, defines distressed properties as those with a foreclosure order or are advertised for sale by their mortgagee, and which tend to fetch a lower price than their market value.

It said that the net balance of 85 per cent more respondents in the US polled during the fourth quarter expect distressed property sales to rise in the first three months of 2010, compared with about 68 per cent in Q3.

The turnaround was even more distinct in Japan, where the net balance of respondents predicting an increase in distressed sales this quarter jumped from 12 per cent in the Q3 2009 poll, to 80 per cent in the Q4 poll.

Rounding out the top five markets expected to be worst hit by distressed sales this quarter are Ireland, Scandinavia, and Spain, the survey showed.

It is the major property markets of the world, namely the US and Japan, where agents expect the strongest growth in distressed sales in the first quarter of 2010,’ Oliver Gilmartin, RICS senior economist, said.

RICS also asked its members whether the levels of interest from specialist funds that buy distressed properties was rising, finding that 21 out of 25 countries saw increased interest, with interest in Spain, Ireland, the UK, and the US rising at a faster pace.

‘Significantly, whilst the US is seeing ongoing rises in interest from specialist funds, Japan is not the recipient of the same level of investor appetite for distressed property assets,’ Mr Gilmartin said.

Source: Business Times, 2 Mar 2010