Japan Apartment Real Estate Proving Best: Riskless Return

Investing in Tokyo apartments beat putting money into office buildings, malls and the domestic stock and bond markets over the past five years as a housing shortage cushioned rental incomes from years of deflation.

Apartment real estate investment trusts produced the best returns, adjusted for price swings, of Japanese REITs in the five years through March, the BLOOMBERG RISKLESS RETURN RANKING shows. Daiwahouse Residential Investment Corp. (8984) led all REITs with a 5.5 percent risk-adjusted return, followed by Advance Residence Investment (3269) with a 5.4 percent gain.

REITs that buy apartments benefited from a shortage of new supply and a stable number of tenants in a nation where less than half of Japanese under the age of 40 own their own home. Japan has accelerated efforts under Prime Minister Shinzo Abe to end deflation and boost the world’s third-largest economy, including measures to revive the property industry, which has been struggling since an asset bubble burst two decades ago. The government has a target to increase assets owned by REITs by 40 percent by 2020.

“It’s all about stability,” said Hideyuki Shinkai, who helps oversees 51.4 trillion yen ($528 billion) in assets at Norinchukin Trust & Banking Co. in Tokyo and owns residential REITs he declined to name. “If you are looking for mid- to long-term investments, residential REITs are your best bet because they provide a stable yield.”
Property Revival

REITs pool investor money to buy real estate and are publicly traded like stocks. Japanese apartment REITs gained a risk-adjusted 3.2 percent in the five-year period, followed by offices at 0.9 percent and retail REITs at 2.3 percent.

The gains compared with declines of 1.7 percent for 10-year Japanese government bonds and 0.2 percent by the Topix (TPX) index, a benchmark for domestic stocks.

The risk-adjusted return, which isn’t annualized, is calculated by dividing the total return by the volatility, or the degree of daily price variation, giving a measure of income per unit of risk. A higher volatility means the price of an asset can swing dramatically in a short period, increasing the potential for unexpected losses.

The ranking compared 39 members of the Tokyo Stock Exchange (1345) REIT index, 44 publicly traded property companies, the stock benchmark and the 10-year JGBs. The 44 companies had an average 0.7 percent risk-adjusted return in the past five years.

Six of the top 10 performers in the ranking were REITS that invest in residential real estate. Daiwahouse had the best total return, with a cumulative gain of 275 percent over the five-year period, before adjusting for price swings. Advance Residence had the fourth-highest total return, at 129 percent, and the fourth- lowest volatility.

Tokyo Apartments

The supply of new apartments in Tokyo this year will reach the highest level since 2007 because of expectations of an economic recovery, according to an estimate by Real Estate Economic Institute Co. in December. The inventory will rise 9.6 percent in 2013 to about 50,000 units, according the Tokyo-based industry researcher.

“The supply of rental apartments is extremely low at the moment,” said Tokyo-based Tomoyuki Kimura, director and general manager of the corporate management department at Advance Residence, Japan’s biggest residential REIT by market value. “A lack of supply in Tokyo has boosted our occupancy rate.”

Advance Residence manages 16,127 apartments across 190 buildings and had an occupancy rate of 96 percent as of July 31, according to the company.

REITs get most of their profit from rental income, paying the majority of it as dividends. While investors receive a yield that is competitive with bonds, they can also benefit should the value of the underlying properties rise.

Supply Shortage

Residential REITs have an average yield of 4.6 percent, compared with 3.4 percent for office REITs and 4.4 percent for retail REITs that hold shopping malls and retail stores, according to Nomura Securities Co.

In a weak market, rents at residential REITs tend to decline less than office REITs and are less likely to suffer from sharp declines in occupancy rates, according to Kimura. Commercial REITs tend to be directly affected by the revenue of tenants, he said.

Housing rents in Tokyo’s 23 wards rose or fell as much as five percentage points since 2008 on average, according to Recruit Co., a housing-data provider. Office rents had more than 10 percentage points of fluctuation, according to data compiled by broker CBRE Group Inc.

The supply of new apartments in the city’s metropolitan area averaged less than 43,000 a year since the global financial crisis in 2008. That was about half of the more than 81,000 units in the 10 years to 2007, according to the institute.

Market Rally

REITs still outperformed stocks and bonds in the first three months of this year, as Abe’s push to revive the economy prompted the Bank of Japan (8301) to introduce unprecedented asset purchases that fueled a stock market rally. The Tokyo Stock Exchange REIT Index gained a risk-adjusted 2.1 percent in the first quarter, compared with a 1 percent increase for the Topix and a 0.7 percent decline for 10-year government bonds.

Nippon Prologis REIT Inc. (3283), which invests in distribution centers and warehouses, and started trading in the first quarter, was the best performer in the period with a risk- adjusted return of 2.5 percent. Activia Properties Inc. (3279), which invests mainly in commercial and office buildings in the Tokyo metropolitan area, ranked number two, with 2.2 percent.

“Office REITs are likely to outperform because they are the only type of asset that tends to benefit when the economy enters into an inflationary stage,” said Tomohiro Araki, a Tokyo-based senior analyst at Nomura. “Having said that, as time goes by, when office rents fail to rise and large tenants continue to move out, people will rediscover the attractiveness of residential REITs.”
First REITs

About 61 percent of Japanese own their own home, based on a survey by the statistics bureau. About 46 percent of people between 35 years and 39 years have their own home, while home ownership for people between 30 years and 34 years is at 30 percent, the data shows.

Japan started the REIT market in September 2001 when Nippon Building Fund Inc. (8951) and Japan Real Estate Investment Corp. (8952), which both invest in offices, were first listed. The securities were pioneered in the U.S. in the 1960s.

Nippon Residential Investment Corp., listed in 2004, was the first residential REIT to go public and was merged with Advance Residence in March 2010, according to the Association for Real Estate Securitization.

An index of residential land prices has slid by half from its 1991 peak, according to Japan Real Estate Institute. The Nikkei 225 Stock Average is about one-third of its peak in 1989, while the 10-year Japanese government bond yield is 0.62 percent compared with 8.685 percent in 1990.
High Occupancy

Housing starts fell 23 percent in the 10 years to the end of 2012 from the previous decade, according to land ministry data. They gained for a third year in 2012, up 5.8 percent, the fastest pace since 1996.

REITs that hold housing properties have 20 tenants on average per building, almost double the average 12 for an office building, according to Nomura. The average occupancy rate of residential REITs was 96 percent as of December, according to Japan’s Investment Trusts Association. It was 95 percent for office buildings.

“The risk of residential REITs not being able to pay their dividend as promised is extremely low because of stable income,” said Nomura’s Araki, who favors residential REITs over all other real estate investments. “So from that angle, the risk of investing in residential REITs is the same as investing in JGBs.”

Tokyo’s Growth

Starts Proceed (8979) Investment Corp., a Tokyo-based residential REIT that focuses on cheaper apartments mainly for singles, had an occupancy rate of 97 percent as of October, according to company material. The valuation of the REIT’s properties has increased for two years because rental income helped boost the value of its assets.

A lack of new apartments in Tokyo as the population grows will continue to support residential REITs, said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo. The population in the capital has increased 6 percent to 13.1 million in the past decade, while the number of households has risen 17 percent to about 6.6 million, according to the Tokyo Metropolitan Government.

“Even though residential REITs may underperform in the early stage of an economic recovery, they are likely to pick up speed by boosting dividends when the economic growth accelerates,” Otani said.



http://www.bloomberg.com/news/2013-04-16/japan-apartment-real-estate-proving-best-riskless-return.html

April - Real Estate demand in Japan heats up

As Japanese corporate sentiment gets a boost from “Abenomics” the country’s sluggish property market is showing signs of life, with office prices in Tokyo expected to surge 10 percent over the next 18 months, according to one of the world’s largest real estate funds.

AXA Real Estate, the property arm of Europe’s second largest insurer that has 45 billion euros ($59 billion) of assets under management, is now looking at buying office space in Tokyo, says its global head of Asia Frank Khoo.

He forecasts higher demand for commercial property in the coming months stemming from an improvement in corporate profitability in Japan.

“The weak yen is going to help the exporters and smaller manufacturers as well, this should lift confidence and translate into higher demand. With higher demand we should see vacancy coming down and rentals going up,” Khoo said. “Companies are going to use current low rental rates to move from outer Tokyo into inner Tokyo for better quality buildings [in turn pushing rentals up],” he added.

He forecasts vacancy rates will fall to 4 percent in 2014 from 8 percent currently, adding that office rents, which have largely remained flat for the past three years, will climb 1-2 percent this year and 2-4 percent next year.

Tokyo’s central business district is currently ranked the world’s fifth most expensive market to rent office space in, according to global real estate services firm Cushman and Wakefield, down from third place in 2012.

Investors have flocked into Japanese real estate investment trusts (REITs) in recent months on hopes “Abenomics” – or Prime Minister Shinzo Abe’s economic revival plan that pushes for both monetary and fiscal stimulus – would drive a recovery in the property market.

Shares of REITs including Japan Real Estate Investment and Nippon Building Fund have surged more than 50 percent year to date. “The REITs are back in the market acquiring assets,” Khoo said.

In further evidence of rising optimism over the property sector, Japan’s Nippon Prologis REIT, which owns and manages warehouses across the country, raised $1.08 billion through an initial public offering in February after pricing the stock at the top of the range.

Khoo added that with Japanese government bond yields look set to remain low, there has been a shift in attitude towards investing in property among both institutional and retail investors.

“If you look at the mom and pops, they are really hungry for yield. With 10-year Japanese government bonds below 0.6 percent, if you can get a 4 percent yield in commercial real estate, or 3.5 percent investing in a Japanese REIT, I think money will go that way,” he said.


http://www.globalpost.com/dispatch/news/regions/asia-pacific/japan/130430/property-demand-japan-tokyo-increases

Orix to Raise US$1bn in Stock Raising to Repay Debt

Orix Corp, Japan's biggest leasing firm and a major property investor, said today it plans to raise about $1bn in a public share offering to fund investments and repay debt.

Orix said it will sell 18 million new shares to Japanese and overseas investors later this month, and invest some of the proceeds into real estate, to bolster its financial solutions business and to help it expand in Asia.

The share issue, which was first reported by Reuters yesterday, will increase its total number of shares by about 20%.

Orix becomes the latest Japanese company to tap the equity market for funds, encouraged by a near 40% rally in the Japanese stock market over the past four months amid investor hopes the economy has bottomed out.

Orix has been shrinking its asset base and slashing debt as fallout from the global credit crisis sliced into its profits and hit its balance sheet. But it has also been looking to take advantage of the crisis to buy assets cheaply.

The share offering will follow a ¥150bn convertible bond sale announced in November last year.

A capital raising of ¥100bn would improve Orix's debt-to-equity ratio to about 4,1 from 4,5, Nomura Securities estimates, helping allay concerns among some investors that it has relied too heavily on debt to finance its operations.

Orix was sitting on a total of ¥7,2 trillion debt as of March.

The announcement was made after the close of trade. Shares in Orix, which fell to a low around ¥1 700 in late February, closed at ¥5 490.

http://www.bdlive.co.za/world/asia/2013/02/20/orix-to-raise-1bn-for-investments-and-repay-debt#comments

Yoshinoya Drops Gyudon Price 100Yen to Yen280

Yoshinoya Holdings Co. on Thursday cut prices for its mainstay “gyudon” beef-on-rice bowls to take advantage of eased restrictions on beef imports from the United States.

The relaxation of strict import curbs in February is allowing the stable procurement of cheaper beef suitable for gyudon, the company said.

Yoshinoya slashed beef bowl prices by ¥100 to match its two biggest rivals — Zensho Holdings Co.’s Sukiya chain and Matsuya Foods Co. — which are currently charging ¥280 for a standard bowl.

The price of a large bowl dropped by ¥40 to ¥440, while the extra large bowl fell by ¥90 to ¥540. The price cuts are expected to produce about 30 percent more customers and a 15 to 20 percent boost in sales, the firm said.

Prices for other ingredients, however, are starting to rise, thanks to Prime Minister Shinzo Abe’s “Abenomics” policies. Players in the fast-food industry say that lower gyudon prices are the key to winning market share.


www.japantimes.co.jp/news/2013/04/19/business/yoshinoya-slashes-beef-bowl-prices/

March - Bonuses Up 8.2% YOY

Bonuses and other special payments for Japanese workers increased 8.2 percent from a year earlier in March, the Health, Labor and Welfare Ministry said in a preliminary report Wednesday.

Special payments per worker stood at 15,046 yen, rising for the third straight month, the ministry said.

The rise apparently reflects an increase in the number of companies that paid extra bonuses following recent gains in stock prices, a ministry official said.

Special allowances paid by financial and insurance companies averaged 42,035 yen per worker, jumping 82.3 percent from a year before.

Workers' total wages, combining basic wages and special payments, declined 0.6 percent to 275,746 yen on average, falling for two consecutive months. The fall came as March had one more Sunday this year than last year and working hours fell as a result, the ministry official said.


http://the-japan-news.com/news/article/0000183697

March - Household spending jumps; unemployment eases

apan's household spending surged in March, while the unemployment rate eased, the Finance Ministry reported Tuesday, with both results surpassing economists' expectations. Spending by households of two or more people rose 5.2% from a year earlier, as housing expeditures jumped by more than 23%. The gain -- marking the third straight month of increase -- was well above a median estimate for a 1.8% gain, according to separate Dow Jones Newswires and Reuters surveys. The labor market also firmed, with the jobless rate for March falling to 4.1% from 4.3% in both January and February. The Dow Jones Newswires survey had projected unemployment at 4.2%, while the Reuters poll had estimated 4.3%. The relatively upbeat data sent the yen higher, with the dollar falling from ¥97.93 just ahead of the numbers to ¥97.88 in the minutes following the release. March data on industrial output and retail sales were due later in the morning.

http://articles.marketwatch.com/2013-04-29/economy/38900849_1_unemployment-rate-upbeat-data-household-spending

Golden Week - Declining Yen Leads to Surge in Foreign and Domestic Tourists

The yen’s sharp drop is transforming Japan’s reputation as a prohibitively expensive place to visit, turbocharging the country’s tourism industry long identified as a growth engine for the maturing economy.


With a dollar now fetching close to ¥100—up from less than ¥80 in November—foreign visitors have surged, while Japanese curb overseas travel and do more sightseeing at home.

The number of foreign visitors to Japan in March, the latest figure available, jumped 26.3% from a year earlier to 857,000, the highest for a March since 1964, when the Japan National Tourism Organization started taking statistics.

The weaker currency has helped Japan’s tourism sector overcome a number of setbacks in the past two years. The 2011 nuclear accident scared away visitors worried about radiation. Heightened territorial tensions with Beijing have since last year led to a sharp drop in tourists from China, once the fastest-growing source of visitors to Japan. While Chinese travelers continue to shun Japan, visitors from the rest of Asia, Europe, and Russia have more than made up for the gap.

In Ginza, Tokyo’s high-end shopping district, a group of 34 tourists from Sweden was riding a large tour bus after shopping on a recent afternoon.

“Japan is selected as the most desired holiday place by the Swedish,” said tour guide Magnus Carlsson. “It’s a hot destination, which used to be too expensive. But it’s now cheaper,” added Mr. Carlsson, who has guided about 100 Swedish tourists over the past two months, not only in Tokyo but also to Nagano and to Kanazawa of Ishikawa prefecture in northern Japan.

Hiroshi Saito, a tourism promotion official in Ishikawa, said his prefecture saw a 44.5% increase in the number of foreign visitors to its famous Kenrokuen garden for the first three months of this year compared with the same period a year earlier.

Seeing a sharp increase in the number of travelers from South Korea, the prefecture invited 22 travel agencies from the neighboring country last month to show them around tourist spots as well as golf courses.

“We’d like to take advantage of the weak yen to lure more tourists,” from South Korea, Mr. Saito said. “It’s a market that has room to grow.” He also thinks Ishikawa can now “take back” Korean tourists who were traveling by ferry in recent years to Japan’s southern island of Kyushu, when the strong yen led them to try and cut travel costs.

As for China, “as it is a big market we need to watch, but for now we’re taking a wait-and-see attitude,” Mr. Saito said.

In Tokyo’s Akihabara electronics district, a duty-free shop catering in particular to Chinese tourists remained empty on a recent afternoon. “The weak yen won’t lure them back,” a Chinese clerk said. “What matters is the political issue.”

But Akihabara was packed with visitors from other countries.

Daniel Wijono from Indonesia was waiting with his two boys for his wife and his mother to finish shopping for cosmetics outside an Akihabara drugstore, the last day of his nine-day trip to Japan. The 37-year-old employee of a manufacturing firm was holding three bags containing electronics gadgets, game character figures, and Uniqlo sweaters.

“It’s quite good. Things are cheaper more than 10% this time,” he said, comparing prices to his prior visit early last year. “One yen equals 115 [Indonesian] rupiah last time. It’s now 103,” said Mr. Wijono. “But I’m afraid that I ended up spending more than I had expected,” he grinned.

Meanwhile, the number of Japanese who plan to take an overseas trip during the so-called Golden Week holiday that started Monday is expected to be down 5% from last year, while the number of people traveling within Japan will likely set a record, according to data released last month by Japan’s leading travel agency JTB.


http://blogs.wsj.com/japanrealtime/2013/05/02/for-golden-week-tourists-flood-a-newly-affordable-japan/