TOKYO -- Land prices in Japan rose for the first time in eight years in 2016 as foreign tourists on buying sprees and other factors boosted commercial land values in central Tokyo. Together with the Bank of Japan's monetary easing policies, this news has spurred real estate investment in the country.
The last uptrend in land prices was stopped in its tracks by the global financial crisis. What is fueling it this time?
In Tokyo's Ginza district, one of the nation's busiest shopping areas, land prices jumped about 10%-20% in all locations surveyed in 2016. Near Tokyo Station, they rose about 7%, and there still remains strong demand for office buildings. In the suburbs, the construction of outlet malls and other commercial buildings as well as large logistics facilities has resulted in an increase in land prices.
Prices as of Jan. 1 are announced every March. After the BOJ decided to adopt a negative rate policy in late January, market interest rates declined substantially. The negative rate policy allowed real estate investment trusts to borrow money from banks and raise funds through bond issuance at low interest rates, prompting investors to put more money into the property market.
Japan Retail Fund Investment acquired a commercial building in Tokyo's Ginza district for 13 billion yen ($115 million) this month. Yields -- obtained by dividing annual rental income by acquisition price -- are about 3%. Real estate investment trusts tend to purchase properties with yields of more than 5%. JRF likely expects rents and property prices to increase.
"Including properties in good locations in their portfolios will make it easier for the REITs to raise funds from foreign investors," said an analyst of a foreign-affiliated brokerage.
Seeing some bright spots
JRF is also active in the Kansai region of western Japan. This month alone, it acquired commercial buildings in central Kyoto and Osaka.
Meanwhile, on March 11 Hulic Reit announced it would raise about 30 billion yen by issuing new investment units. It was Hulic's first capital increase in one year and four months, reflecting its aggressive stance in the wake of a booming property market. The company plans to acquire commercial buildings in the Hibiya district in central Tokyo with the funds raised.
Major real estate companies and REITs remain aggressive about buying properties in central Tokyo's commercial districts. On the other hand, some real estate market analysts say that because REITs selectively invest in properties that are expected to make profits, it is unlikely that land prices will go through the roof.
http://asia.nikkei.com/Markets/Property/Real-estate-investment-up-as-Japan-s-land-prices-rise
