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Mizuho Targets Foreign Student Boom With Japan Dormitory Fund

  • Bank to provide about 15% of fund’s $91 million in equity
  • Fund has approached about 50 universities to build housing

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Mizuho Financial Group Inc. is raising a fund to build dormitories to profit from the shortage of accommodation for the surging number of international students at Japan’s universities.

The Tokyo-based megabank will provide about 15 percent of the fund’s 10 billion yen ($91 million) in equity, with Marubeni Corp., Tokyo Tatemono Co. and other domestic and overseas investors contributing the rest, Shu Takata, deputy general manager of Mizuho’s real estate finance department, said in an interview. The fund will put that equity, as well as about 10 billion yen in debt, toward constructing dormitories, he said.

“We’ve approached about 50 national universities since March, and we have specific discussions in progress with about 10,” said Takata. “Almost all universities are telling us they don’t have enough accommodation for international students.”

Foreign student numbers have climbed in Japan as the government targets international scholars in the hope they will stay on and work in the country. That would help ease tightness in a labor market where there are 15 job openings for every 10 applicants -- the highest ratio since the 1970s.

The Japanese government has said it wants to boost the number of foreign students to 300,000 by about 2030. That would represent a 25 percent increase from the 239,287 international students the country had as of May 1, 2016, latest data from the Japan Student Services Association show. 

About a quarter of foreign scholars in Japan live in student housing, according to the JSSA data, a number that Takata says is constrained by the lack of suitable properties. Mizuho hopes to have about three projects started by the end of next March and invest in a total of about 10 by March 2020, he said.

Student accommodation typically offers better returns than offices and residential housing, making it an attractive asset for institutions looking for stable income and higher yields in a low-return world. Mizuho and its two largest domestic rivals have been seeking ways to bolster profits hampered by the central bank’s negative interest-rate policy, mainly by trying to expand in overseas and fee-earning businesses.

Read more: How Mizuho is seeking $100 billion from overseas transaction banking

Yields on the dormitory investments will be “at least 5 percent,” Takata said, adding that the fund may consider purchasing and renovating existing properties in addition to new developments. That compares to the average 0.87 percent return on loans and bills discounted in Japan at Mizuho’s two main banking units in the March quarter.

The fund plans to lease land from mainly national universities to develop the dormitories under a law change in April this year that expanded what the schools are able to do with land holdings.

The completed properties will be leased back to the colleges and operated by a management company that will sub-lease furnished rooms to students at prices ranging from 30,000 yen to 80,000 yen per month, Takata said.

Takata said the fund will seek to exit the investments after about five years through avenues including private real estate investment trusts offered to a group of investors. Another option the bank may consider is listing a larger REIT and including other assets such as libraries, Takata said.

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