Japanese Property Market Quarterly Review, Fourth Quarter 2015-J-REITs Decline for First Time in Four Years, Foreign Visitor Arrivals Increase 47%-

Financial Research Department Economic Research Department Researcher Hiroto Iwasa

4.J-REIT and Property Investment Markets

The TSE REIT Index rose by 4.2% in the fourth quarter based on an improved demand supply balance with limited private offerings. The office sector rose by 3.7%, residential sector by 3.7% and other sectors – including retail and logistics – by 5.1% (Chart-18). The Bank of Japan announced a new rule that they can acquire 10% of each J-REIT unit, an increase from the current 5%. At the end of December, the J-REIT market value was 10.5 trillion JPY, while the price to NAV ratio was 1.3 times and the dividend yield was 3.5%, with a 3.2% yield spread on 0.3% of ten year JGBs.
The TSE REIT Index declined by 7.9% through the whole year of 2015 for the first time in four years. The index fluctuated by 24% from a peak of 1,990 points in January to a low of 1,509 points in September on the back of global economic uncertainty before the recovery from the expectation of additional monetary loosening measures.
J-REITs acquired property assets amounting to 1.6 trillion JPY in 2015 no more than that of 2014. The very high pace of acquisition until the third quarter slowed down in the fourth quarter declining 43% y-o-y to 288 billion JPY. Acquisitions of retail stores and hotels increased by 63% y-o-y and 133% y-o-y respectively (Chart-19), while offices still accounted for the largest share of 42%. Three J-REITs went public with the number of J-REITs increasing to 52 with a total asset value of 14 trillion JPY. The funding environment has been comfortable with the J-REIT bond issuance conditions being 7.9 years and 0.67% (Chart-20).

Chart-18 TSE REIT Index /Chart-19 J-REIT Asset Acquisitions

According to Nikkei Real Estate Market Information, the transaction volume of the Japanese property investment market declined by 13% y-o-y to 3.6 trillion JPY in 2015. The transaction volume of hotels doubled and acquiring property owner companies increased to avoid acquiring each physical asset at an expensive price.
In the property investment market survey conducted by NLI Research Institute², “Good” or “Somewhat good” responses accounted for nearly 90% of the responses in terms of the current sentiment for the third consecutive year. However,“Worse” or “Somewhat worse” responses in terms of six-month outlook outnumbered “Better” or “Somewhat better” responses for the first time in seven years (Chart-20, 21).

Chart-20 Six-Month Market Outlook (SA)/Chart-21 Six-Month Market Outlook (DI)

² Mamoru Masumiya “Utmost Optimistic Sentiment Still Rising, but Property Prices to Peak Out by 2017-The Eleventh Japanese Property Market Survey-” Real Estate Analysis Report, February 6, 2016

Japanese Property Market Quarterly Review, Fourth Quarter 2015-J-REITs Decline for First Time in Four Years, Foreign Visitor Arrivals Increase 47%-

4.J-REIT and Property Investment Markets

Hiroto Iwasa

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