Knock on Wood

Japanese Landlords' Home Run

A weak yen and negative interest rates make property especially attractive for foreign investors.
Photographer: Whitaker Studio/Getty Images
At Closing, April 22rd
37000.00 JPY

Bank of Japan Governor Haruhiko Kuroda likes to moan about how tough it is to end his country's deflationary mindset. Residential real estate, however, is one area in which he can claim success for almost five years of monetary experimentation to produce that psychological effect.

A weak yen and negative interest rates have made it worthwhile to be a landlord in Japan once again. That's especially the case for foreign investors such as Norway's $1 trillion sovereign wealth fund, which earlier this month made its first property purchase in Asia, buying 70 percent of a Japanese retail and office portfolio.

Bitcoin This Ain't

Condominium prices in Tokyo have surged thanks to unprecedented monetary easing, migration from rural centers and a weak yen, which is stoking foreign demand

Source: Ministry of Land, Infrastructure and Transport, Japan

Still, office vacancy rates are creeping up as new supply zooms. Besides, at 533 yen ($4.70) per square foot, rents are 17 percent below their August 2008 peak. Upside is limited, according to Bloomberg Intelligence analysts Patrick Wong and Mohsen Crofts.

Home prices, meanwhile, tell a different story. Residential properties, which began a precipitous slide after the 1980s and kept falling as the population shrank and manufacturing declined in cities like Osaka, have steadied. Parts of Tokyo have experienced a strong wealth effect from cheap-money-fueled stock markets. In some trendy neighborhoods, like Shibuya, land costs have risen between 35 percent and 40 percent in four years. 

Prices of residential REITs have surged 51 percent in dollar terms since November 2012. Their performance, versus Japan's office and industrial REITs, has been steadily improving this year.

Home Is Where Money Is

Japan's residential landlords are widening their lead over commercial property owners

Source: Bloomberg

Mori Building Co., Japan's biggest privately owned developer, has begun work on a condominium where unit prices will start at 1 billion yen. Singapore's SC Global Developments Pte, meanwhile, has bought a 12-story commercial block in the shopping district of Ginza, its first foray into the Japanese market. The project has a couple of Michelin star restaurants, a sound bet ahead of the 2020 Tokyo Olympics.

Ultimately, though, the excitement is about cheap money. Anton Pil, managing director of JPMorgan Chase & Co.'s alternative asset management unit, is bullish because leverage is inexpensive and the BOJ is on a different schedule to other central banks.

The big risk is Japan starts to dismantle monetary expansion sooner than the market anticipates, and without waiting for its 2 percent inflation goal to materialize.

Still, that's at least 12 months away, if not longer. Until then, homebuyers can party on.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Andy Mukherjee in Hong Kong at

    To contact the editor responsible for this story:
    Katrina Nicholas at

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