Monday, December 20, 2010

Property investors homing in on Japan

Straits Times: Mon, Dec 20
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.

Malaysia's YTL intends to develop the scenic Niseko Village in Hokkaido into a mountain resort.

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