27/01/2017

Interest Rate Concerns Emerge, Property Prices Forecasted to Decline after Going Sideways~The Thirteenth Japanese Property Market Survey~

mamoru masumiya 

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Introduction

NLI Research Institute conducted the thirteenth annual Property Market Survey of investment market sentiment among Japan-based property professionals1. This time we sent out 196 questionnaires by email on January 5, 2017, and received 127 valid responses by January 13 (65% collection rate).
 
1 The Japan-based property professionals are those engaged in various work such as development, construction, banking, insurance, brokerage, property management, fund management, advisory, consulting, research and publishing.

Results

Results

1. Current Sentiment
Regarding the current sentiment in the property investment market, “Good” or “Somewhat good” accounted for 74% of responses, declining however from around 90% of responses over the past three years (Chart-1). The sentiment apparently lost some steam, but still remains very healthy with “Somewhat bad” responses accounting for less than 10% of the responses.
Chart-1 Current Market Sentiment (SA)
2. Six-Month Outlook
Regarding the six-month outlook of the property investment market, “Somewhat better” or “Better” anticipating higher prices or more transactions declined to 14.9% after peaking out last year (Chart-2). However, “Somewhat worse” or “Worse” also declined and the overall outlook did not necessarily deteriorate (Chart-3). Thus, “No change” ranked first, selected by the largest ever 66.1% of respondents. The property investment market seems to remain stable supported by the BOJ attempting to adjust 10-year-bond yields to around 0%. Not only that, but it seems not a few players cannot read the market direction with the uncertainty of how the new U.S. government will impact the global economy.
Chart-2 Six-Month Market Outlook (SA)/Chart-3 Six-Month Market Outlook (DI)
3. Preferred Sectors
When asked which property sectors were the top three preferable investment targets in terms of price appreciation and market growth, “Hotel” ranked first for the third consecutive year, selected by 60.6% of respondents (Chart-4), which, however, was 20% less than last year (Chart-5). “Hotel” is still regarded as a promising sector and many new projects are actively developed. However, the pace of foreign visitor increase has slowed recently and the number of hotel stays in Japan has been shrinking y-o-y almost every month. In addition, private accommodation units operated with Airbnb and others have grabbed some market share from hotels.

Besides the slowing growth of foreign visitors, consumption per visitor during stays in Japan declined significantly2. This has brought a noticeable reduction in sales of luxury goods at department stores and retail malls. Thus, “Urban retail” declined to 20.5%.

“Healthcare property” or “Logistics facility” remained at high ranks, selected by 39.4% and 37.8% of respondents, respectively. Even though healthcare properties are difficult to invest in due to the small size of individual assets, and the logistics market is suffering from the recent supply glut, both sectors have been regarded as high growth markets for the medium to long term.

“Overseas property” rose noticeably to 34.6%. In addition to growth opportunities in Asia, many investors have become interested in the U.S. in order to capitalize on Trump’s America first policy.

“Infrastructure” also ranked high, selected by 39.4% of respondents. Several privatization cases of local airports have been progressing, thus the Japanese infrastructure investment market has become diversified from the solar panel-oriented market. In the current low property yield conditions, many investors have become interested in infrastructure investment.
Chart-4 Preferable Sectors Expected Price Appreciation and Market Expansion (MA3)/Chart-5 “Last Year” Preferable Sectors Expected Price Appreciation and Market Expansion (MA3)

mamoru masumiya

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