JAPAN - Pension funds which snapped up top-notch office buildings in downtown Tokyo are benefiting from booming office prices on the back of a resurgence of interest in property investment by Japanese investors.
Analysts are predicting that annual yields on those property investments made by pension funds will run as high as 6%. Investment surveys show property is still one of the country’s most popular destinations for international funds.
Japan has an estimated US$792bn of investment grade property, loosely measured by quality, design and commercial viability, which is 1.5 times the value of the market for the rest of Asia and Australia put together. Property values have fallen back by as much as 70% since 1991, and some Japanese companies are continuing to cut their losses by offloading buildings on the cheap.
This in turn is fuelling demand among pension funds that are expected to benefit from investing in real estate as prices rise in Tokyo.
Average Japanese land values slid for the fourteenth straight year in 2004, a recent national survey showed. But prices in central Tokyo edged up 0.9%, their first rise in 17 years. Anecdotes abound of buildings in hot spots changing hands at double the price of five years earlier.
But despite the property hike, foreign funds are also becoming ever more inventive in Japan to boost returns. Many are turning to building homes for the ageing population sparked by low interest rates that allow funds to leverage their assets more cheaply to finance investments.
“One of the most exciting opportunities in Japan at the moment is elderly housing,” said Chuck Larson, head of the Japan property business at Macquarie Bank, which is buying apartment blocks to turn into a property trust.
The Japanese population is expected to begin shrinking in 2007 because of a low birth rate, which has encouraged interest from other investment banks.
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