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Foreign investors flocking to Japan's crowded capital
Foreign investors have been on a shopping spree in Japan's real estate market for the past year, with Tokyo's continuous population growth further whetting their appetite for properties in the capital.
In Tokyo's Asakusa neighborhood, various development projects are under way near Sensoji Temple, which receives some 30 million visitors a year. Mitsubishi Estate Co. completed a new 37-story condominium there last month, with all 693 units sold thanks in part to excellent views of the set-to-open Tokyo Sky Tree tower. Keisei Electric Railway Co. has built a hotel, while Tobu Railway Co. is renovating its train station in a project expected to be completed as early as this autumn.
Major operators of discount shops, convenience stores, restaurants and parking garages are also looking for opportunities to open new locations in this section of Taito Ward, according to a bank official.
Redevelopment projects have contributed to growth in the ward's population, which has been increasing 1% each year over the past few years. This year, it reached 170,000.
"Foreign investors see the most growth potential (for real estate prices) in Tokyo," said Yoji Otani, a senior analyst at Deutsche Securities Inc.
Tokyo and the surrounding areas continue to enjoy population growth even as the overall population of Japan declines. Greater Tokyo is one of the most populated metropolitan areas in the world.
Akihiko Mizuno, head of capital markets in Japan at U.S. real estate firm Jones Lang LaSalle Inc., also sees a lot of interest in the country's property. "There is strong demand for Japanese real estate among overseas investors," he said.
Tokyo stands out in LaSalle's projections for office rents in cities around the world, Mizuno noted. The company predicts office rents to start rising in Tokyo while increases slow in Shanghai and London. In Singapore and Hong Kong, where rents are already falling, the pace of decline is expected to pick up.
Overseas investors made several large real estate purchases in Japan in the second half of 2011. At the end of the year, investment funds backed by the governments of Singapore and China jointly acquired 15 logistics facilities in greater Tokyo, Osaka and elsewhere for 122.6 billion yen. This is believed to have been the largest-ever purchase of logistics facilities in Japan.
Japan's individual investors have also sprung into action. The rise in stock prices through the end of March spurred real estate purchases, according to an official at Orix Bank.
The official noted that with the appetite to invest in real estate growing across all age groups, the bank's loans for such investment have recently jumped 20-30% from a year earlier. These investors, he added, are buying not just properties in cities but also in suburbs with good neighborhoods.
The BOJ's goal for 1% inflation over the medium to long term has also sparked investment in real estate. Expectations of higher consumer prices would enhance the benefits of holding real estate as a hedge against inflation.
Although gold is another inflation hedge, there are concerns that the metal is overbought while the domestic real estate market appears to be lagging. And unlike gold, real estate investment generates rent income.
Source: JETRO - GAI
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