Japan’s real estate transaction volumes have been decreasing for four consecutive quarters since Q4 2015, mainly due to the scarcity of available assets on the market. Currently, many landlords are in hold mode because they can increase their net income by refinancing favourably thanks to negative interest rates. This is driving some to hold on even once the investment term is complete.
However, there are some exceptions. J-REITs have been actively acquiring properties this year, utilising a robust property supply pipeline from their sponsors. In this market situation, cross-border transaction volumes rapidly decreased in 2016 since foreign investors tend to have have limited access to the landlords and assets in the market, while domestic investors are able to tap in more easily.
Despite decreasing transaction volumes, however, investment appetite remains high from both domestic and foreign investors. In particular, those from China, Singapore and Taiwan are very active in the market. Chinese investor Fosun’s subsidiary, Idera Capital, acquired Harumi Island Triton Square, a Grade A office building located in Tokyo’s Chuo ward, for around JPY 50 billion (US$440 million) this year.
Further, China Investment Corporation (CIC), a sovereign wealth fund, acquired the Meguro Gajoen building in January 2015, a complex asset located in Meguro ward close to central Tokyo. In Singapore sovereign wealth fund GIC purchased Pacific Century Place Marunouchi which is an iconic Grade A office located in the most prestigious office submarket in Japan. This shows the considerable interest in Japan’s real estate market at a government level.
Among the Asian investors interested in Japan’s real estate, the Taiwanese are particularly active and across a range of sectors. Some notable transactions include Dynasty, a Taiwanese part of a growing trend for investing in condominium assets in Japan.
The first reason why Taiwanese investors like to invest in Japan is because the gross rental yield in Taipei is much lower than in Tokyo, at around 2.3% for a Grade A office and about 1.7% for residential, compared to around 4.1% for Grade A office and about 3.3% for residential in Tokyo (see figure below). Although the gross rental yield in Tokyo has been decreasing, it is still relatively high compared to Taipei.
Secondly, Taiwan as a market is relatively small, meaning that Japan offers a great deal more choice for Taiwanese investors. As a comparison, the average transaction volume for the last five years in Taiwan is around US$4.3 billion per year compared to US$33 billion per year in Japan.
Figure 1: Gross Rental Yield for Tokyo & Taipei
Note: Office is as Grade A Office.
Buying price and gross rental yield are based upon the standard size apartment, which is located in a prime inner city area.
Source: JLL, The Global Property Guide (as of 19 October 2016)
Given current market conditions, gross yields available in Taiwan are unlikely to surpass those available in Japan any time soon. So as long as there are still assets available, Taiwanese investors are likely to continue – and possibly increase – their investment in Japan.
