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10 Years Kenzo – Success in Japan with residential real estate
Dr. Meyer zu Brickwedde, why did you start Kenzo Capital Corporation 10 years ago?
I took this step because at that time, the Japanese real estate market became ready for the arrival of central European, long-term oriented core investors. I wanted to advise and support these institutional investors.
What do you mean by the market became “ready”?
The Japanese real estate market is very young. For a long time, the market was almost entirely in the hands of Japanese companies and individuals. Real estate was held as an investment, but without
the intention and ability to maximize returns. Only since the year 2000, institutional investors became active. When I built up a team for structured real estate financing at HypoVereinsbank, only opportunistic investors such as US hedge funds and investment banks invested. In 2001, Japan launched the new segment for listed mutual funds in real estate. These J-REITs are legally required to reveal all information about the evolution of their investments and their portfolios. As a result, transparency gradually improved until the Japanese market in 2007 received the rating “transparent” in the Real Estate Market Transparency Index Jones Lang Lasalle. That was the starting signal for Kenzo.
In retrospect, the timing could have been better. How did Kenzo develop?
At first, we were stopped by the Lehman crash. Real estate sales plummeted and US investors left Japan. As soon as this dry spell ended, the tsunami catastrophe in Fukushima and East Japan in the spring of 2011 caused negative headlines. Investors from Germany and Europe cancelled planned investments because they feared a price erosion. Prices remained stable even in the six months immediately following the disaster, though. In the residential real estate area, prices even rose.
What lessons did you learn with Kenzo from those difficult times?
We realized back then that we should not only advise investors because this makes us dependent on decisions which may be taken in isolation from the Japanese market. This insight led us to initiate the Kenzo Japan Residential Fund. The launching of such a fund was in my mind anyway. When managing the fund, we still need investor approval, but now we are actively involved in their decisions.
Why did you choose residential real estate as the focus of Kenzo?
First, residential real estate rewards the investor in Japan with a 4% to 4.5% return. That’s about 1 to 1.5 points above office yields in Japan. Second, residential returns are much more stable than office returns. Third, investment risks can be more easily diversified with residential property. A small entry into the office market in the business districts of central Tokyo requires 250-350 million euros and one competes with many other bidders. Residential is completely different. We invest 10-25 million euros in one object and have the choice between good locations in the five metropolitan centers Tokyo, Osaka, Nagoya, Fukuoka and Sapporo.
What about the demographic change in Japan – it does not contradict an investment in residential property?
Japan’s population is aging and shrinking. That is undeniable. But there are opposing trends, in particular urbanization. Japan’s metropolitan areas continue to grow: young rural Japanese are looking for work there, older Japanese people in the countryside move closer to shopping malls and medical care. There is also an increasing number of foreign workers coming to Japan. Our fund invests in affordable housing and is therefore a beneficiary of this strong and long-term change.
The Kenzo Japan Residential Fund has been well received by investors. How do you explain this success?
Indeed, half of the equity has already been committed and we have invested 150 million euros so far. By mid-2019 we will reach 250 million euros. The explanation for this success is quite simple: the market is very attractive and the general environment very positive. The government is stable and pro-business oriented. We have full employment in Japan. Deflation has been overcome thanks to the monetary policy of the Bank of Japan. Salaries are rising and rents increasing. The equity ratio of real estate investments is also very solid at 35-40%. Core margins have fallen, but remain attractive by international standards. In the residential sector, you continue to earn significantly more here than in other markets.
In retrospect: What was the most exciting experience of the last ten years?
That is certainly the recognition of our strategy by our Japanese partners. The Japanese appreciate very much that we are bringing long-term, stable capital from Europe. One expression of this trust is the Japanese German Roundtable on Real Estate, which was initiated by the Deputy Minister of the Ministry of Land, Infrastructure and Transport. The Ministry provides for the Japanese and Kenzo for the German participants. This roundtable with top managers from both countries takes place this year for the eighth time. This roundtable also proofs that Japan has opened up to the outside world – for international capital and investors as well as for tourists and guest workers. For example, the number of foreign visitors of Japan has increased fivefold since 2011 and the number of foreign workers in Japan has doubled since 2012.
And where do you see Kenzo in ten years?
I founded Kenzo 10 years ago with the vision of creating the competence center for Japan real estate investments for Central European investors. I think in ten years we will have achieved that goal and
have become the most recognized investor and advisor to this market. Of course, there are institutional investors who are looking for someone to do everything for them everywhere worldwide. But for investors who prefer a specialist advisor and asset manager, we are the ideal partner.
What makes you so confident?
We focus solely on the Japanese market and our advisory activities are focused solely on German- speaking institutional investors. Our company also has the knowledge under which legal and regulatory conditions these investors can invest in Japan. We also know how risk-averse or risk-friendly their money invested with us is. That’s why we can serve each individual investor. No other than Kenzo offers this added value.
Investment pioneer strengthens Kenzo team
Kenzo Capital Corporation is adding a Chief Investment Officer to its management team. Mr. Takehiko Uehara, an experienced finance specialist, will take over the newly created position on 1 September.
“I am very pleased that with Mr. Uehara we have been able to win a real pioneer in the Japanese real estate sector for us,” said Dr. Leonard Meyer zu Brickwedde, President and CEO of Kenzo Capital Corporation.
As Chief Investment Officer, Mr. Uehara will be responsible for investment, underwriting, asset and portfolio management as well as – in conjunction with the President and CEO – developing and implementing the Kenzo investment strategy for Japan’s complex but lucrative real estate market. Dr. Meyer zu Brickwedde will concentrate more on servicing investors.
Most recently, Mr. Uehara was Deputy President & COO of Genkei Capital Management, a renowned real estate asset management company. From 2008 to 2016, Uehara headed the Japanese subsidiary of German Hypo Real Estate (later Deutsche Pfandbriefbank). In 2004, he was appointed Head of Real Estate Structured Finance and served as Deputy to then President Dr. Meyer zu Brickwedde.
“Together, we have built Hypo Real Estate Japan into the largest non-Japanese real estate balance sheet financier and achieved an annual lending volume of 250 billion yen (2 billion euros) in 2006 and 2007,” recounted Meyer zu Brickwedde.
During that period, Uehara has achieved many breakthroughs and accomplishments. These included:
- the largest ever mezzanine real estate loan issued in Japan;
- one of the very first non-recourse real estate loan financing in Japan at a time when Japanese banks were not yet available for this purpose;
- the only refinancing of a Japanese real estate loan portfolio to date via a German Pfandbrief – for which Mr. Uehara developed a structure for the admission of Japanese credit claims into a Pfandbrief cover pool;
- one of the two first and for many years only invitation of a foreign bank to finance a real estate deal in Japan by one of the largest Japanese developers.
“I am therefore convinced that with Mr. Uehara as Chief Investment Officer, we can increase our services for investors and serve our clients even more,” Meyer zu Brickwedde said.
Seven good reasons to invest in Japanese real estate now
2017 has been a good year for Japan – First German Spezialfonds for Japan Estate launched
The spirit of optimism sparked by Prime Minister Shinzo Abe in 2013 has now spread throughout Japan. All sectors of Japanese society are pulling together to once again make their nation a leading economic force.
Japan’s leading share index, the Nikkei 225, rose by 19% in 2017, thanks mainly to foreign investors, who helped propel it to its highest level since the beginning of 1992.
It was amid this positive atmosphere that the Kenzo Japan Residential Fund was launched in July – the rst German real estate Spezialfonds (fund targeting institutional investors) interested in Japanese residential properties.
In our opinion, 2018 will be another good year for Japanese real estate.
First, some important background information: Even though Japan real estate prices have recently reached levels similar to that seen during the 2007/8 real estate boom (see below chart), the environment then contrasted dramatically from the one of today. Those differences are illustrated by the following
1. Japan’s elite pursues a vision of the future
For the rst time in decades, Japanese bureaucrats, managers and politicians share a common vision – 3 to modernize the economy and establish Japan as a leading global player.
Under the slogan “Society 5.0”, Japan intends to harness digitization as a means to accelerate globalization and to address the challenges posed by the country’s rapidly aging population.
Once a consensus has been reached among, there is every indication that it will be implemented smoothly and consistently in terms of policy. By contrast, the Japan of ten years ago was politically weak and divided.
An example of this new, consistent, approach is the decline in the proportion of reciprocal shareholdings held by enterprises. According to the investment bank Nomura, the rate had shrunk to around 10% by the end of March 2017.
By contrast, the gure stood at 50% a decade ago. This means that the companies of today are almost free of con icts of interest as they plan their future strategy.
2. The long economic upswing will continue
In each of the seven quarters from Q1 2016 to Q3 2017, Japan’s real gross domestic product (GDP) grew compared to the previous quarter, marking the second longest period of recovery in the post-war period.
In 2017, nominal GDP rose to a record high, and Japan’s government expects real GDP growth of 1.8% in 2018.
In just under ve years, the Bank of Japan has bought more than 40% of Japanese government bonds and, in so doing, chased away the specter of state insolvency. Contrast that with the situation ten years ago, when high levels of government debt made headlines around the world.
3. Japan’s economic strength nally recognized
Japan’s experience proves that economic growth is possible in a country with an aging and declining population, according to Daniel Gros, Director of the Centre for European Policy Studies (Source).
As evidence, Gros cites gures showing that since 2000, Japan’s GDP has risen annually by just under 2%, if calculated per person of working age (15-64 years). This growth rate was twice as high as in the US.
Gros says Japan accomplished this feat because almost 80% of its working population is in employment. In Europe and the US, the share is lower, at about 70%. The situation in Japan was very different ten years ago, when it was regarded as the “sick man” of the global economy.
4. Political stability expected beyond the 2020 Olympics
Prime Minister Abe’s Liberal Democratic Party won a resounding election victory in October 2017 – a result that again gave his coalition government a two-thirds majority in both houses of parliament.
Voters have given Abe another four years to continue his economic reforms – known as “Abenomics” – up to and beyond the Tokyo 2020 Olympics.
For investors, this means a stable economic and political landscape over the long term. This contrasts with the instability of a decade ago, when Japanese prime ministers came and went so frequently that people were barely given enough time to remember their names.
5. Japan shakes off de ation
Despite rising US interest rates and the European Central Bank’s decision to taper monetary stimulus, Japan’s central bank intends to maintain its extremely expansionary monetary policy until de ation is nally erased. The in ation rate climbed to 0.9% in November, the 11th consecutive monthly rise.
As a result of the continuing labor shortages, 2018 is expected to see stronger wage increases than before, and the long coveted virtuous cycle of higher prices, rising wages and healthier household consumption and capital expenditure is expected to be set in motion, albeit slowly. Ten years ago, by contrast, the Bank of Japan raised interest rates too early, and was later forced to correct itself.
6. Long-term oriented real estate investors dominate
Domestic investors are shaping Japan’s real estate market. Increasing in ows of capital come from domestic institutional investors, including insurance companies and pension funds, both of which invest in the long term.
This trend is supported politically, as the government calls on pension funds to change their risk orientation. This demonstrates a signi cant departure from the situation 10 years ago, when the market was dominated by short-term investments by overseas players.
7. Real estate investments are nanced conservatively
For some time, borrowed funds have nanced 60% to 70% of real estate transactions in Japan, which means they rest on solid foundations. That is a signi cantly lower proportion than the 80% to 95% of deal volumes nanced with outside funds and securitized on the capital market seen ten years ago.
The current investment environment for Japanese real estate is far better than that during the mini-boom of ten years ago. There can be no talk of a bubble in the current context.
Rather, we expect a further rise in real estate prices in the coming years and a decline in risk premiums on real estate investments, despite rising rents in the residential and of ce sectors.
Our con dence in this environment is re ected by the Kenzo Japan Residential Fund, which on December 21 successfully acquired four more properties and increased its investment volume by JPY 4 billion (EUR 33 million).
As part of our Active Asset Management Strategy, we acquired three residential properties in Tokyo comprising 80 residential and ve retail units. The fourth property containing 90 apartments, at risk class core, is located in Osaka.
The investment pipeline is already primed with up to JPY 6 billion (EUR 50 million) for our next purchase, scheduled for the rst quarter of 2018.
Kenzo Japan Real Estate Fund successfully launched
The Japanese investment adviser and asset manager focusing on German investors, Kenzo Capital Corporation Inc., Tokyo, successfully launched the Kenzo Japan Residential Fund on July 28, 2017, with an initial investment in four apartment buildings for approximately EUR 30 million equivalent. Capital commitments by two initial investors over EUR 45 million are the cornerstone: a large Frankfurt investment management and consulting firm and a professional pension fund.
The Kenzo Japan Residential Fund invests in the major metropolitan areas of Japan, mainly in Greater Tokyo and Greater Osaka, as well as in Nagoya and Fukuoka. Modern residential properties of the core risk class are supplemented by objects with an active management approach (Core Plus and Value Add). With this allocation of the fund plans an average annual distribution of 5% and a return on investment (IRR) of 8%, after sale in approximately 7 years. The total equity target volume of the fund is expected to reach around EUR 250 to 300 million, the investment volume is around EUR 480 to 550 million. The fund is denominated in yen, and is directed to institutional investors in Germany, mainly capital collectors such as utilities and insurance companies.
Kenzo Capital Corporation Inc., Tokyo, is closely working with Haseko Real Estate Investment Management Inc., a member of Haseko Corporation, the largest Japanese residential construction company. In Germany, Kenzo is represented through “Kenzo Japan Real Estate GmbH” in Munich and was able to attract the leading real estate fund provider specialized in residential real estate, PATRIZIA Wohninvest Kapitalverwaltungsgesellschaft mbH, as the administrator of the fund.
“Building upon the know-how and experience of our team, this mandate strengthens PATRIZIA’s competitive position in a market that is increasingly attractive to investors due to strong Japanese economic growth and political stability,” reports Dr. Sven Olaf Eggers, Managing Director of PATRIZIA WohnInvest Kapitalverwaltungsgesellschaft mbH, Augsburg, “We are planning a further expansion of our fund administration with the experience of this collaboration of specialists, who in part already know each other through Japanese investment business for more than a decade.”
In the establishment of the Kenzo brand in the circle of German investors, Metzler Real Estate GmbH advises and assists Kenzo with regards to marketing strategy, set-up and management of the fund business. “Metzler’s good networking in both the German and Japanese capital and financial markets helps to do this,” says Bernd Sommer, Managing Director, Metzler Real Estate GmbH, Frankfurt.
The investment structure – an open special AIF – has been developed by Rödl & Partner from a tax perspective. Clifford Chance has examined investment law compliance and KPMG’s tax concept in Japan.
“The Japanese market offers a wide selection of excellent investment opportunities in residential real estate in its metropolises. In the case of core objects, we can, as a matter of experience, rely on stable earnings. Collaboration with Haseko gives us access to good opportunities to develop residential real estate in prime locations through active management back to core real estate. We are delighted to be able to provide such investment opportunities to German institutional investors with the Kenzo Japan Residential Fund,” says Dr. Leonard Meyer zu Brickwedde, President & CEO, Kenzo Capital Corporation, Tokyo. Since the end of the 1990’s, he has played an important role in the development of the institutional quality of the Japanese real estate market and today states: “The deal pipeline for possible further acquisitions is well filled”.
Tokyo advances to Top 3 among Global Cities
The latest revision of the Global Power City Index (GPCI) has ranked Tokyo in 3rd place in its evaluation of the world’s major cities. Tokyo overtook Paris to make it into the top 3 for the first time.
The GPCI first published in 2008 by The Mori Memorial Foundation’s Institute for Urban Strategies evaluates major cities in 6 categories, main functions representing city strength (Economy, Research and Development, Cultural Interaction, Livability, Environment, and Accessibility)
The GPCI is created by a international research team of two groups of individuals: 1. The Committee, chaired by Heizo Takenaka (Professor of Toyo University) supervises the ranking creation process. It is comprised of six members, with the late Sir Peter Hall (Professor, University College London) as Principal Advisor. 2. The Working Group with experts from London, Amsterdam and California, headed by Hiroo Ichikawa (Professor Meiji University) performs the data collection and analysis to create the rankings for the cities
London retains its top position, with New York in 2nd place.
The institute says Tokyo’s score was boosted by an increase in the number of foreign visitors and more direct flights connecting the city with overseas destinations.
Japan Real Estate rewards its investors
Analysis of IPD confirm a total return (income return and capital growth) by 86% over the 12 year period since January 2004 to December of 2015 in local JPY currency
1. Office and Residential Markets
The vacancy rate of Tokyo CBD 5 Wards reduced steadily since 2012 and reached to 4.0% at the end of 2015 despite of a large supply of new class A buildings in 2015.
The decrease paused in Q1 of 2016 while the rent continued to increase, mainly because of the relocation of some huge occupiers to better and larger spaces. The vacancy rate started decreasing again in Q2 of 2016.
New supply of Class A buildings in 2016 is expected to be almost the same level as in 2015 and many occupiers, such as trading companies and financial firms, are now planning to move to higher quality and larger spaces.
We believe, that the continuing solid demands of occupiers will keep the vacancy rate at low levels and rents will continue to grow.
Residential occupancy maintained at healthy levels above 95% and rent of each area in Greater Tokyo kept stable with some rent growth seen in some areas.
2. Investment Market
Asset under Management (AuM) of J-REITs and Private Funds continued to grow, reaching to JPY 28.8 trillion in December 2015 and increased by JPY 1.1 trillion (4%) for the year.
Real estate transaction volume in 2015 was JPY 4.3 trillion, remaining at a high level though decreasing by JPY 0.7 trillion from 2014 which saw the highest level since 2008. J-REITs’ acquisition power weakened in Q4 of 2015, however J-REITs became active again in Q1 of 2016, with a transaction volume of JPY 552 Billion compared to Q1 2015 with JPY 496 Billion
J-REITs dominated the market in Q1 of 2016, closing 23 deals priced at more than JPY 10 billion. In 2015 J-REITs closed 11 transactions priced over JPY 10 billion in the first Q, and 17 deals from Q2 to Q4.
The largest J-REIT Transaction in Q1 2016 was a logistics facility in Greater Tokyo executed by LaSalle Logiport REIT at JPY 26.6 billion. All top ten transactions in Q1 2016 were either logistic and hotel properties.
The largest office transaction in Q1 2016 was made by Hulic REIT. Hulic REIT, sponsored by a Mizuho Group, acquired a additional 30 % share of Hulic Kamiyacho Building in Minato Ward at JPY 16.7 billion.
J-REITs acquired 12 apartment buildings all together amounting to JPY 42.3 billion in Q1 of 2016.
Private finds and companies were less active, with only 4 deals priced at more than JPY 10 billion in Q1 of 2016 reported by Japanese media. They closed 13 deals priced over JPY 10 billion in the same quarter 2015, and 31 large transactions during Q2 to Q4 last year. US firm, Lone Star, acquired a residential portfolio from Saizen Real Estate Investment Trust at JPY 44.7 billion in Q1 of 2016. With this transaction, Saizen, a Singapore stock exchange listed REIT, soled its total portfolio consisting of 136 apartment buildings all over Japan. This deal followed soon after US Blackstone’s similar deal in Q4 last year. Blackstone acquired Japan Residential Investment Company, listed on the AIM section of the London Stock Exchange, who invested in 57 properties worth JPY 47 billion in Japan.
Private Households and Corporate Investment bring Japan back on Growth Track
All figures in %, annualized
Japan is back on growth track. Following a weak Q2 2015 with negative growth, Japan returns to positive territory supported by a solid domestic demand.
All areas of private domestic demand have seen growth in Q3 2015. Also exports have recovered well. Only the reduced inventory put pressure on the GDP result.
The consumption and investments from private households was supported by overall growth in salary payments to employees which at the end of Q3 stood at an annualized JPY 262,6 trillion which was 0,7% more than in Q2 and 1,4% higher than one year before.
A further indication of the overall confidence in the domestic market is the growth in bank lending which at the end of November 2015 stood at a total of JPY 493 Trillion, an increase of 2.4% compared to November 2014.
According to a survey by the Bank of Japan among the 50 largest banks in Japans, lending demand from none-producing mid and small size companies is especially high. These firms serve to the domestic market.
The government expects a 1.5% growth for the fiscal year 2015 (April to March 2016). Following a slow first quarter (Q2 2015) this may look optimistic, though the strength of the domestic demand will enjoy further backing by wages benefitting from increased seasonal bonuses again in Nov/Dec.
New Tax Treaty between Japan and Germany to promote Investment Flow between both Countries
On July 16, 2015 Japan and Germany communicated an agreement in principle on a new Tax Agreement.
The Ministry of Finance Japan published on its homepage: “The new Agreement reduces taxes withheld at source on investment income (dividends, interest and royalties) to further promote the investment exchanges between the two countries.”
Strong Labor Market:
Success Ratio of Job Hunting by University Students hit Record High
On August 7, 2015, Japanese Ministry of Education and Science and Technology (MEXT) announced that the success ratio of job hunting by university students graduated in March 2015 hit 72.6%, highest in the past 10 years. The last peak was 69.9% for students graduated in March 2008. In terms of volume, 409,754 newly university graduates secured job by March 2015, compared to 375,957 newly university graduates by March 2013. This confirms the labor market improvements triggered by the policy of the Abe government in the last two years.
In fact, overall labor market in Japan has been improving considerably since Prime Minister Abe took office in December 2012. According to the labor market survey by the Government Statistics Bureau, employed persons (employees and self-employed) were 63.9 million in June 2015, compared to 62.5 million in December 2012. Thus, the number of employees has increased by 1.4 million in the past 2.5 years. The labor force (employed and job seekers) also increased significantly. The labor force in June 2015 was 66.1 million, compared to 65.3 million in December 2012. Unemployment rate declined to 3.4% in June 2015, compared with 4.3% in December 2012.
Japanese Female flock the Labor Market as the Government promotes female Carrier and Management Opportunities
Of particular note is the increasing role of female in the Japanese labor market. Of the 1.4 million increases in the employment above, female accounted for 1.2 million and male accounted for 0.2 million. Of the 0.8 million increases in the labor market participants, female accounted for 1 million and male accounted for minus 0.2 million. The increasing contribution of female in the recent labor market improvement is encouraging for the Japanese economy. It indicates the potential success of the government’s policy, motivating a significantly higher female contribution to the economy through improved carrier and management opportunities.
Real Estate Market:
Office demand remains strong with vacancies decreasing and rents improving
The vacancy rate of Tokyo CBD 5 Wards descended to 5.1% in June 2015, still having further room to decrease considering the previous low of 2.7% recorded in 2007. The rents have increased 7 % from the bottom in 2013, remaining at a level of 80% from the 2008 peak.
According to Japan Office Market View Q2 2015 by CBRE, rents rose in nearly all regional cites in Japan.
Central Tokyo Grade A rents continue to rise at an accelerated pace. In our view this trend will continue and spread to other markets in Tokyo and regional cites as well.
Residential Rents on the upswing
The rent of Greater Tokyo started to grow in 2013 and continuedgrowing through June 2015.
According to an apartment rent index prepared by Sumitomo MitsuiTrust Research Institute, rents in Greater Osaka, Nagoya, Fukuokaand Sapporo were stable and gradually increasing in Q1 2015.
Transaction Volumes continue to grow; foreign Investors increase activities; growing investment activities reach regional cities
In December 2014, J-REITs and Private Funds collectively held JPY 27.7 trillion in Assets under Management (AuM; a plus of JPY 300 billion since June 2014), While J-REITs grew by JPY 700 billion, Private Funds decreased AuM by JPY 400 billion. The outlook for Private Funds though is positive, according to Sumitomo Mitsui Trust Research Institute, there are a number of overseas investors looking to increase real estate investments in Japan.
According to CBRE, Q1 2015 total transaction volume rose by 8.6% y-o-y to JPY 1.1 trillion. The increase was driven by a jump in acquisitions by overseas investors who along with a rise in transactions in the Greater Tokyo Area invested in regional cities. Acquisitions by J-REITs continued to drive market activity, accounting for 45% of all transactions by value. Overseas investors transaction volumes doubled in Q1 2015 from Q1 2014 to JPY 158 billion.
A report named issued by CBRE shows J-REITs share of regional investments increased again to over 40% in 2014 (from 30%). Overseas investors increased their regional investment to 18% in 2014 (from only 8% in 2009).
Great Success for the first MIPIM Japan coincides with solid economic development news
The inaugural MIPIM Japan in Tokyo on May 20/21 attracted more than 2,500 attendees from 30 countries. 335 investors and delegates from financial institutions focused their attention on the real estate investment opportunities available in Japan. 596 companies were represented, including some 222 from outside Japan.
It was by far the largest real estate specific event devoted to the Japanese real estate market. The success will confirm the organizer (Reed Midem) in its strategy to establish MIPIM Japan as an annual event.
Prior to MIPIM Japan a Japan German Real Estate Investment Round Table Meeting, engaging representatives of the Japanese real estate elite and German real estate investors was hosted by the German Chamber of Commerce in Japan, initiated by the Ministry of Land, Infrastructure, Transport and Tourism was organized and moderated by Dr. Meyer zu Brickwedde, President and CEO of Kenzo Capital Corporation.
Link: Japan Journal & Japanmarkt
Transaction volume in FY 2014 close to 2007 record high with foreign investments sharing 23% of the transaction volume
According to Urban Research Institute, a Mizuho Group company, the real estate transaction volume during the fiscal year 2014 (April 2014 – March 2015), reached to JPY 5,289 Billion. It increased by 15 % compared to 2013 and thereby was almost at 2007 record volume (JPY 5,328 Billion) and the highest after 2007.
Foreign Investor’s acquisition volume went up from JPY 429 Billion to JPY 1,195 Billion in 2014, the share of foreign investments increased from 10 % to 23 %. Among those foreign investments Germans accounted for JPY 60 Billion, mainly from institutional investors. J-REITs purchased properties worth JPY 1,804 Billion, down by 4 %. Its share decreased from 42 % to 34 %.
Noteworthy transactions: GIC from Singapore bought Pacific Century Place Marunouchi, a Class S office building in the Tokyo CBD, at a price of JPY 170 Billion from a fund managed by PAG in Hong Kong, who acquired Commerzbank’s real estate finance subsidiary in Japan last year, that had originally financed the property. Blackstone Group from the US acquired a nationwide portfolio of residential properties from General Electric Group at JPY 200 Billion. Mori Trust, a Japanese developer, bought Meguro Gajoen, a complex consisting of offices and a hotel outside the Tokyo CBD, at JPY 130 Billion from Lone Star Group of the US. The US investment group Green Oak bought Aoyama Building, a Class B office building in the central Tokyo, at a price of JPY 46 Billion from a fund managed by Mitsubishi Estate Investment Advisor.
Interview: Vice Minister for Land, Infrastructure, Transport and Tourism Ishii Kisaburo about real estate investment in Japan, the government’s policies for urban development
Link: Interview Vice Minister Ishii
Q1 2015 real GDP (seasonally adjusted) was up by 3.9% on an annual rate, compared to +1.1% in Q4 2014.
Japan annualized GDP change compared to previous Quarter and annualized contribution by sector
Q1 GDP released on June 8, 2015: corporate investment contributed 2.4%, compared with -0.8% contributions in Q4. It seems the drag in investments, both in residential and non-residential, that followed the consumption tax hike in April 2014, is finally over and its contribution turned distinctly positive. Net export contribution is -0.7% due to strong import. The trend of economic activity is clearly positive. Even after deduction of inventory and net export, final demand of Japanese economy is up 2.3%. Large inventory pile-up in Q1 may not be a bad sign. It could be interpreted as positive mind-setting among corporate sector given strong corporate investment.
Japanese Exports increased 8.2% in April 2015 while trade balance in April 2015 was negative with JPY 53 billion, compared to the surplus of JPY 227 billion in March
Released in May 25, 2015: Exports were up 8.2% from the same month last year (JPY 6,551 Billion). Since September 2014 monthly exports have been up from the same month one year ago. Monthly imports have been lower compared to last year’s months since January due to weaker oil prices. From here on, we expect imports to increase due to stronger domestic demand and higher oil prices.
Japan’s tax revenues up in FY2014 by 12,5% hitting a 17-year high for fiscal 2014 (ending March 2015)
According to NHK News on June 1, 2015, Japan’s tax revenues rose to a record high in over 17 years, benefitting partially from a hike in consumption tax that has been raised in April 2014 from 5% to 8%. Consumption tax revenues were up by 30%, but also income tax revenues increased by 8.2% and corporate tax revenues were higher by 14.8%. Income and corporate tax together contribute over 50% to the tax income of the Japanese government. The positive development of tax income in both areas will support the government’s intention to postpone a further consumption tax hike.
Property Market Japan at the Global Stage – The successful Japanese presentation at Cannes is now being followed by MIPIM Japan
“Unrecognized by many or at least not noticed in its full dimension, Japan is experiencing a remarkable globalization wave. Perspectives, weight and priorities develop increasingly different from those of European companies. With high emphasis and speed Japanese companies expand their positions in target markets, especially in Asia.” from a paper of the delegate of the German business community, Mr Manfred Hoffmann, Managing Director German Chambers of Commerce in Japan
The same is true for the real estate industry of Japan. Following a strengthening of the business in Europe and the US by companies like Mitsui Fudosan and Mitsubishi Estate, further investment and development focus is put on Asia. Besides the landmark development ‘Shanghai World Financial Centre’ by Mori Building many further investments and developments have been made and many more are to come to Asian and Pacific markets. A few days ago, Sekisui House Ltd. won the ‘Best Innovative Green Building’ Award at MIPIM for its ‘One Central Park Building’ development in Sydney.
This trend of foreign investments and developments is going to grow further. According to Naoki Umeda, Managing Director & CEO, Mitsubishi Estate London Ltd., Mitsubishi Estate plans to increase the share of foreign investments from 10% to 20% by 2020, as stated in a panel discussion during the ‘Focus on Japan’ conference at MIPIM.
At the same conference event, Mr Kisaburo Ishii, Vice Minister of Land, Infrastructure, Transportation and Tourism introduced over 20 large ‘landmark’ projects only for Tokyo alone, besides several mega infrastructure projects. “Each of these projects has its development position established and land the land bought but needs a lot of money from now on.” said Mr Ishii at the conference.
Prime Minister Abe successfully motivates pensions funds and insurance firms to increase their allocation to risk assets within their investment portfolio, part of such investments will benefit the real estate sector.
Nevertheless Japan is intensively approaching foreign investors to participate.
At MIPIM Japan informed about the real estate market during three conferences and various presentations at the Japan Pavilion, including one by Mr Yoshifumi Iitsuka, Director at Tokyo Metropolitan Government, on Tokyo’s plans as a world financial centre. Events like these and MIPIM Japan in May (20th to 21st) demonstrate the intention to promote the Japanese market for investments. The growth strategy of the Abe government is based on foreign investments as one major pillar. The ‘Buy Japan’ initiative of the Prime Minister is being followed up by the administration actively supporting measures that lead to increased interaction between Japan and foreign investors and professionals.
Vice Minister Ishii taking leadership of a 120-member delegation from Japan at MIPIM and Ministry for Land, Infrastructure, Transport and Tourism sponsoring the MIPIM Japan convention in May are concrete examples.
Shuji Tomikawa (Managing Officer, Mitsui Fudosan Co., Ltd.; President Mitsui Fudosan Investment Advisors, Inc. from April 1st, 2015) promoted MIPIM Japan during ‘Japan Breakfast’ at MIPIM: ” ‘Cross-Border Investments (Inbound and Outbound)’, will become one of 4 key subjects at MIPIM Japan.” In his presentation he explained that in the first 7 months of the fiscal year 2014 (Nov. 2014: FY 4/2014 to 3/2015) foreign investments had a share of close to 19% of the total transaction volume in Japan. In order to maintain and increase this share MIPIM Japan will provide the platform for an open dialogue about investment opportunities and product access.
On the Japanese Economy:
Jesper Koll, Managing Director, Head of Equity Research, JP Morgan Securities Japan Co., Ltd. sees the Japan age pyramid at a sweet spot. “The baby boomer ‘Mick Jagger’ generation that has been dragging the household income is no longer part of the countries labor force and the younger next generation with a large population share is approaching a stage of income growth.” He continued at the ‘Japan Breakfast’ at MIPIM that companies shift from part time employment to a stronger share of full time employees among their workforce. For the employees this results in very significant income rise. Considering the large share of part time workers among the Japanese working population this is another significant source of income growth likely to feed consumption growth.
Germany’s Bankhause Metzler summarises under the headline “The end of deflation in Japan”:
“For months bank lending volume has increased by 2% per month and wages have grown, the labour market is in a solid situation (unemployment in February 3,5% and ratio of open positions to job applications stands at 1.15%). Consequently inflation reached over 2%.”
(Edgar Walk, Chef Economist, Metzler Asset Management GmbH, Frankfurt am Main)
During MIPIM in Cannes the question “Why to invest now” has been answered with good arguments and facts.
At MIPIM Japan in May the focus will be on discussions about opportunities and ways to invest in Japan and on concrete measures of execution.
Kenzo Capital Corporation will proudly assist the shaping of MIPIM Japan in a same manner as at MIPIM in Cannes. We are looking forward to guiding the discussions on the market entry and to supporting the execution of resulting possible investments.
Detailed GDP Information suggests Japan’s Economy is now out of tax hike shock and of deflation
The flash Q4 real GDP released on February 16, 2015 shows an annualised growth rate of 2.2%. Of particular note is that nominal GDP growth rate is now annualized 4.5%, and GDP deflator is +0.5% compared with -0.3% in Q3 and +1.9% in Q2. While deflator may still be affected by consumption tax hike in last April, the trend of deflator and strong nominal GDP show that Japan is on track out of deflation.
Household spending (Consumption and Investment) contributed 1.0%, compared with 0.1% contribution in Q3. It seems the drag in household investment due to consumption tax hike is also finally over. Net export contribution is robust 0.8%, thanks to strong export (up 2.7% from previous quarter) and not so strong import (up 1.3% from previous quarter). Weaker yen and cheaper crude oil price finally bear fruit in Japan.
The drag in GDP growth is a result of a too early tax rate hike
As the above table clearly shows, the drag in GDP growth is the result of too early consumption tax hike. Prime Minister Abe understood this and called election on December 14 with Mr Abe and his party ‘asking for a mandate’ to postpone the second step of a consumption tax hike from October 2015 to April 2017 and the election result was overwhelmingly supportive to Prime Minister Abe and his economic policy. As uncertainty over consumption tax has cleared, Japanese economy is now on track to robust growth in 2015.
Japanese fiscal condition is improving due to higher tax revenue
Though many international observers of Japan argue that Japan should reduce its public debt, which stands at close to 2.5 times GDP (Japan’s net debt though stands at 140%), this issue cannot be the centre of economic attention at present. Japan’s debt is financed almost exclusively internally (by Japanese investors).
It is important to note that the public debt can also be reduced by nominal GDP growth and resulting tax revenue increase rather than tax rate hike. On February 10, the Japanese government (ministry of finance) announced that nominal government debt as of the end of 2014 is JPY 1,029 trillion, JPY 9 trillion decline from the previous quarter end (Sept. 2014). The consumption tax hike contributes at most JPY 2 trillion in 3 months. Thus decline in public debt is due mostly by tax revenue increase due to higher nominal growth rate.
Corporate Expansion Plans continue to stimulate Office Rents in Tokyo
Rent for new space in Class A buildings continued to grow since 2Q 2012. The average year on year growth rate from the same quarter the year before was 11 % for the time Q2 2012 to Q4 2014. With supply in the coming years a stable moderate levels and increase office space demand, we expect office rent to continue on its upwards trend.
Investment Market: J-REITs continue to be the domination investor group throughout 2014, regardless of stronger demand from foreign investors. Investment returns compressed to 3.4% for prime Tokyo office and 4.0 to 4.5% for top Tokyo residential property and we expect such compression to continue during 2015 due to steady strong demand for investment products from J-REITs, private REITs and an increasing investment interest from foreign investors.
Detailed GDP Information suggest Japan’s Economy still on Track to Recovery
While the Q3 real GDP growth result at an annualised minus 1.6% leads to the initial interpretation that Japan may be in recession, a look at the details suggests differently.
Household spending (Consumption and Investment) was up, though in aggregate only by a disappointing 0.1% and so was Government spending (contributing +0.7%) and Export (+0.3%).
The overall result has been triggered mainly by a reduction in corporate inventory. Corporate Japan reduced inventory to balance the reduced private consumption that was dragged down after the April 1, 2014 consumption tax hike from 5% to 8%. Since inventory overall has decreased during 2014 it is generally expected that such inventory will increase again in Q4.
On the other hand December salary bonus is expected to be the highest in 5 years. Japanese corporate pay salary bonuses of 1.5 to 4 month of salary equivalent twice a year (June and December) depending on corporate business developments.
Consequently we can expect a further stimulation of household consumption and investment as a result of the increased available income of private households.
The drag in GDP growth is a result of a too early tax rate hike
The government under Prime Minister Abe has understood the message and reacted. The parliament has been dissolved, elections will take place on December 14 with Mr Abe and his party ‘asking for a mandate’ to postpone the second step of a consumption tax hike from October 2015 to April 2017 and for the economic policy under Mr Abe called ‘Abenomics’.
Though many international observers of Japan argue that Japan should reduce its public debt, which stands at close to 2.5 times GDP (Japan’s net debt though stands at 140%), this issue cannot be the centre of economic attention at present. Japan’s debt is financed almost exclusively internally (by Japanese investors). Japan needs to focus on the denominator of such debt to GDP ratio. The economic policy therefore has to focus on growth and controlled inflation. With the private and the corporate sector trusting in the economic policy and the likelihood of the policy to achieve its target, private households will spend and corporate will invest.
Corporate Expansion Plans stimulate Office Space Search in Tokyo
The result of a annual survey on office needs in Tokyo, by Japanese developer Mori Building shows that for the first time in 5 years Expansion is the top reason for companies to search for new office space. In past years the dominating reasons were rent expenses (no. 1 reason in 2009 to 2011; now no. 4) seismic design.
We trust that Q4 2014 figures will confirm that the economic growth is on track.
First indicators are encouraging: The industrial output published on Friday November 29 showed an improvement by 0.2% over the previous month. This is the forth increase in a row. Experts expect a further increase by 2.3% in November. Consumption improved during October by 0.9% from the previous month. Also here figures confirmed an improvement over 3 month in a row, although consumption was still 4% below the previous year’s figure. We expect consumption to increase further, with December’s salary bonus expected at a 5 year high and the plan of the government to postpone the next hike of consumption tax by 18 months.
Land of rising Wages
As of May 2014 total wages (average wage per capita x number of employees) in Japan increased by 1.4%, while nominal wages increased by 0.8% compared to May 2013. Although this means that employees are losing out at an inflation rate of 2.3% (June core inflation rate) job data looks favorable for further wage improvements as corporate need to compete for employees. Job-to-applicant ratio further improved to 1.10 from 1.09, the highest in 22 years. Results released on July 29 show unemployment at 3.7% as of June 2014. The increase in unemployment by 0.2% (from 3.5%) is due to an increase in job applicants as they see the labor market conditions improving. Especially women starting to look for jobs, encouraged by the Abe administration to enter the job market and seek a carrier.
Robust growth lifts hopes for Japan’s economy
Real GDP for the first quarter of 2014 is estimated at plus 6.7% p.a., up from an initial reading of a 5.9 percent rise and above market expectations for a 5.6 percent rise.
However, economist’s consensus on the second quarter (Apr-Jun 14) is estimated at minus 4.9%. Consumption, industrial shipments, housing starts are weak due to consumption tax hike in April 2014. The Bank of Japan remains confident about the economic growth for the fiscal year March 2014 to March 2015 at 1.0 percent and a growth of 1.5% for 2015 and 1.3% for 2016. At the same time it forecasts an inflation (excluding the effect of the tax hike) of 1.3 percent this year, 1.9 percent in 2015 and 2.1 percent in 2016.
Japanese life insurers recommenced real estate investment in serious manner
Nikkei Newspaper posted an article stating that Japanese life insurers are seriously looking for opportunities for developing and investing real estate properties as an investment alternative.
According to the article, Daiichi Life acquired six rental apartment properties in Tokyo for JPY 12 billion, jointly with Goldman Sachs. The price tag of each property ranges from several hundred million to JPY 3 billion. They envisage investment yield of high 3% handle. They believe that, although investment yield of rental apartment properties is relatively low compared with office property, they are relatively stable and easy to diversify because of each size being relatively small. They envisage in enlarging the rental apartment investment to JPY 100 billion in 2 to 3 years.
On the other hand, Nippon Life, together with Obayashi, a major constructor, acquired a land parcel in Tokyo for developing office property for JPY 80 billion. They also acquired a logistic property in suburban Tokyo.
Tightening labor market shows effects, First Retailing converts 16,000 part time workers to full-time employees
Nikkei Newspaper posted an article stating that First Retailing, Japan’s largest casual wear retailer running Uni Qlo stores, will start converting their 16,000 part time workers to full-time employees in the coming 2 to 3 years commencing this April. First Retailing currently employs approximately 30,000 part time workers in 850 Uni Qlo stores in Japan. Thus, the plan is to secure about half of their part time workers by providing better compensation in view of forthcoming labor shortage.
The rationale behind such a move is the current tightening of labor market in Japan due to improving business sentiment. According to a survey by Recruit Jobs, an employment agency, average hourly wage of part-time workers increased by 0.4% in January to JPY 948 per hour, highest in record. This is 7th consecutive increase on a month-over-month basis.
Other retailers such as Starbucks Coffee follow such a move. They decided to convert 800 contracted workers to full time employees.
Sovereign Wealth Funds have been aggressively investing in equities of Japanese Companies; Norwegian fund doubled its holdings
Nikkei Newspaper posted an article stating that sovereign wealth funds have been expanding the holdings of equities of Japanese companies in the past one year. According to the article, their investment scope is mostly long-term and they view Abenomics as positive for the restructuring of Japanese companies and for enhancing potential growth rate of Japan.
Of particular note is the Norwegian Wealth Fund. It is one of the largest sovereign wealth funds in the world with total AUM equivalent to over JPY 80 trillion. According to the disclosure by Norwegian Central Bank, their holdings of equities of Japanese companies amounted to JPY 3.77 trillion as of the end of 2013, almost doubled compared to JPY 1.94 trillion one year ago. Their holdings include Toyota (JPY 161.3 billion) and Softbank (JPY 120 billion)
Other sovereign wealth funds such as SAMA (Saudi Arabian Monetary Authority) and GIC (Government Investment Corporation of Singapore) are also aggressive in Japanese equities. SAMA held JPY 230 billion of Japanese equities as of September 2013, the amount doubled within 6 months. GIC held JPY 100 billion as of September 2013.
Mobile telecom entrepreneur Mr. Son acquires Tiffany Ginza for JPY 32 Billion
Reuters and Nikkei newspaper reported that Mr. Masayoshi Son, the founder and CEO of Softbank, a major telecom carrier, bought “Tiffany Ginza Building” in Ginza, CBD Tokyo for JPY 32 Billion. It is the landmark property that Tiffany, US based upscale jeweler, operates their flagship store in Tokyo. Judging from the purchase price, cap rate is estimated to be approximately 2.6%. Thus, this acquisition is believed to be the most expensive investment since the recovery of real estate price commenced early this year. The last time cap rate dropped below 3% was 2006-2007. Market observers believe that only none institutional investors can afford to pay such high price.
Back in 2007, a fund arranged by Goldman Sachs acquired the subject property for JPY 38 billion. Due to the bank loan default, ownership moved to creditor banks. Thereafter in 2010, Asia Pacific Land (APL) acquired it from creditor banks. In June of this year, APL announced the sale of the property, and several investor groups, including some sovereign wealth fund, participated in the auction.
Tokyo chosen to host the Olympic Games 2020
Charm and a convincing Concept win the 2020 Summer Olympic Games at the 125th IOC Session for Tokyo.
Tokyo will become the first Asian city to host the Olympic games for a second time, after the first successful games were held in Tokyo in 1964.
The plan, to hold over 85% of the competitions and build the Olympic village within a radius of 8 km in the heart of Tokyo, together with the already committed US$ 4.5 billion in funding from the Tokyo Metropolitan and corporate Japan convinced the voting IOC members.
In his final appeal Prime Minister Abe stated: “One of the safest cities in the world now and in 2020. Some may have been concerned about Fukushima. Let me assure you, the situation is under control. It has never done and will never do any damage to Tokyo.”
At Kenzo Capital Corporation we are very happy about this decision. The greatest sporting event will is going to come to one of the world’s major centres of technology, finance, and trade. In our November ‘Market Outlook Japan’ we shall address the potential stimulation of the economy and real estate market through the effects of a further improvements of an already leading public infrastructure and attractive new facilities. Further we shall provide access to information platforms on ‘Tokyo 2020’ from our homepage.
European public pension funds allocate funds for Investments in Japan
Nikkei newspaper reported that, in June, FRR, one of the French public pension funds, announced to allocate EUR 400 million (JPY 52 billion) exclusively for Japanese equity and to publicly look for retaining asset managers. In July, a Dutch pension fund also decided to allocate funds exclusively for Japanese small cap stocks. A Swedish pension fund invested in the Japanese equity fund managed by Sumitomo Mitsui Trust in March. According to Sumitomo Mitsui Trust, it is quite remarkable that several foreign pension funds publicly look for Japanese equity asset managers in such a short period. On top of European pension funds, Middle East funds are also increasing their asset allocation to Japanese equity.
Data on Tokyo Stock Exchange shows that net acquisition by foreign investors, i.e. acquisition minus disposal, reached JPY 9 trillion in January-July of this year, three times as large as that of the whole last year. Although there is periodical sell-off such as first two weeks of August, sellers are mostly hedge funds. It is noteworthy that long-term investors such as foreign public pension funds get bullish in Japanese equity.
Jones Lang LaSalle says real estate investment in Japan up 85% in 1st half 2013
According to the research report prepared by Jones Lang LaSalle, the real estate investment in Japan increased by 85% in local currency terms (or 50% in JPY terms) year over year in the first half of 2013. Global real estate investment in the same period grew by 11% YOY. Thus, the increase in real estate investment in Japan is quite remarkable compared with other markets, closely followed only by Germany (plus 43%). Other markets: Australia (plus 10%), USA (plus 9%), France (plus 6%) and UK (plus 4%).
Of the major markets, the only country that experienced negative growth in real estate investment in 1H 2013 is China, down 20%.
For further details:
Real Estate acquisition volume almost doubled in 1st half 2013, surpassed volume before 2008 financial crisis
Nikkei Newspaper reported that, according to the research made by Urban Research Institute, the real estate acquisition volume by listed companies for 1H 2013 reached JPY 2.36 trillion, almost 100% YOY increase from the same period in 2012. The volume surpassed JPY 1.76 trillion in 1H 2008, the same period right before the 2008 financial crisis. It is the highest 1H transaction volume since 2005.
J-REITs and other foreign REITs accounted for almost half of the transaction volume. Notable transactions, for instance, include: a J-REIT sponsored by Nomura Real Estate invests JPY 220 billion for logistic and commercial facilities, and Croesus Retail Trust, a Singapore-based REIT supported by Daiwa House and Marubeni, acquired a large scale shopping mall in Moriya-city, suburban Tokyo for JPY 12 billion.
Corporations are also quite active in acquiring real estate. Notable transactions include: Ito-Yokado, the major supermarket chain operator, acquired a large land parcel, used to be a factory site, in Kawasaki-city, metropolitan Tokyo for JPY 17.8 billion. They plan to development the site. Daiwa House, a major housing constructor, acquired a large land parcel in metropolitan Osaka for JPY 4.4 billion. They plan to develop a logistic facility there. According to the article, main decision drivers are; expectation of the higher real estate price in the future and the very low nominal interest rate currently.
Abe cements Power with LDP’s sweeping Victory in Upper House Race, opening Gates to Reforms
As widely expected, the Liberal Democratic Party (LDP) achieved an overwhelming victory by winning 65 seats out of 121 at the upper house election conducted on Sunday, July 21, 2013. Together with 11 seats won by coalition partner New Komeito and their 59 incumbent seats not due at this time, LDP and New Komeito secured clear upper house majority (135 seats out of the total 242 seats). This election result is viewed as voters’ approval of Prime Minister Abe’s performance and a mandate for Abenomics, his economic policy initiative. Now holding the majority in the upper house as well as the lower house, the prime minister strengthened his grip on power enabling him to pursue his goal of economic recovery.
With this victory, Mr. Abe’s leadership in the LDP shall be strengthened. Regaining control of the upper chamber, which Abe lost in 2007 during his first stint as prime minister, is likely to accelerate his drive toward key policy goals. Focus will be shifted to the next initiatives Mr. Abe will present to the economic policy agenda. An immediate issue is raising the consumption tax next April to restore fiscal health while keeping economic recovery running. He has to decide how to orchestra this issue in August/early September.
Mr. Abe’s commitment to participate in negotiations on the Trans-Pacific Partnership (TPP) unifies Japan in its effort to counterbalance the increasing influence of China. Consequently the prime minister can use the TPP in his upcoming negotiations with his opponents on long necessary reforms in the agriculture and healthcare industry as well as the labor market. All will become important issues for the government’s “growth strategy”. The resistance against those reforms is strong, but the common goal to counterbalance the increasing influence from China and the clear mandate from the voters to execute Abenomics should overcome such resistance. With those reforms in sight we expect corporate Japan to invest in Japan and share the benefits with its labor force.
The Nikkei 225 has moved up 50.5% since Mr. Abe took office in mid December and closed a 14,785 today (Tuesday July 23, 2013), a gain of 1.31% from Friday’s closing. We think financial markets will continue favorably on this election results that signal a clear mandate for the present government and its fiscal and economic policy.
Real estate investment in Japan increased 33% to USD 10.6 billion in Q1 2013 compared to Q1 2012, Tokyo transaction volume up by 60%, according to Jones Lang LaSalle
Jones Lang LaSalle, a global real estate service company, issued its quarterly research report, stating that the 1Q 2013 global commercial real estate investment amounted to USD 105 billion, up 20% from Q1 of 2012. In Japan the transaction volume increase by 33% to US$ 10,6 billion. Transaction volume in Tokyo was up by 60% to US$ 6 billion.
Already fort the year 2012 transaction volume in Japan was 25% up from the total investment in 2011. Thereby the Japanese market clearly outperformed other markets the US (plus 11%) the UK (plus 0%) and Germany (minus 1%).
For further details:
A once and for all regime change as the Bank of Japan (BOJ) adopts “Quantitative and qualitative monetary ease.”
On April 4th 2013, Bank of Japan, led by the new governor Mr. Haruhiko Kuroda, announced a sweeping policy change adopting the so called “Quantitative and qualitative monetary ease.” Under the program, BOJ officially adopted monetary base instead of overnight rate as their monetary operation target. Specifically, in order to achieve a 2% inflation target by the end of 2014, BOJ will (1) increase monetary base JPY 60-70 trillion per year in 2013 and 2014 by purchasing JGB and other assets, (2) extend average remaining maturity of JGB for their purchase to 7 years from the current 3 years to help flattening yield curve, and (3) purchase ETF for JPY 1 trillion per year and J-REITs for JPY 30 billion per year in 2013 and 2014 thus helping reduce risk premium. This is quite a bold policy in the sense that monetary base will be doubled in two years from JPY 138 billion (year-end in 2012) to JPY 270 billion.
When policy statement was announced at around 1:40 PM on April 4th the stock market reacted quite positively. Nikkei 225 closed at 12,833 on Friday April 5th, which was up 3.8% when they closed at 12,362 two days earlier on Wednesday April 3rd. The J-REIT index closed at 1,662, which was up 5.23% from the previous day. The positive stands of the markets towards the new economic policy under Prime Minster Abe is reflected in 23.46% YTD gain for Nikkei 225 and 49.12% YTD gain for J-REIT.
Market observers are mostly surprised by the baldness of the new program. Wall Street Journal quoted Mr. Masaaki Kanno, Chief Economist of JP Morgan, Tokyo, stated, “On every aspect of the program, BOJ beats market expectation. This is way over Ben Bernanke’s Federal Reserve Bank.” Ambrose Evans-Pritchard of the Telegraph wrote, “The Kuroda policy is radically different from past episode of BOJ stimulus, mostly half hearted tinkering to fend off political pressure. It brings BOJ in line with US, UK and Swiss central banks.”
Japan No. 3 in‚ Best Countries for Business’ Ranking
Japan ranks no. 3 in this year’s Bloomberg survey of best countries for business, that sees Hong Kong in the lead, followed by the US. The new agency and publishing company ranked 161 nations on six broad criteria that included the cost of starting a business, the cost of labor and materials and the cost of moving goods.
Japan ranks no. 1 in ‘Cost of Labor and Material’ and in ‘Readiness of the local Consumer Base’ that includes size of middle class, household consumption, tariff on imports and GDP per capita. It ranks no 3 in ‘Degree of economic Integration’.
Nikkei 225 rallies as government’s actions convince investors
Nikkei 225 stock index reached over 10,800 COB Friday, January 11. The level is almost two-year high. The market strongly reacted on the announcement that the cabinet led by Prime Minister Abe decided the supplementary budget for the amount of JPY 10.3 trillion, corresponding to approximately 2% of GDP. Nikkei newspaper reported in the morning that the accord between the Government and Bank of Japan (BOJ) will stipulate the 2% inflation target, suggesting more aggressive monetary easing by the central bank coming soon. Current inflation “goal” set by BOJ early in 2012 was 1%.
Nikkei 225 has rallied 25 percent since elections were announced on Nov. 14 amid expectations Abe would win and pursue a more aggressive policy in terms of both fiscal stimulus and monetary easing.
Large scale logistic facilities doubled in 5 years in greater Tokyo
Nikkei Newspaper reported that the aggregate gross floor area of large scale logistic facilities in greater Tokyo doubled in the past five years and that in greater Osaka increased 80%. The article cites, as background of these developments, the pursuit of efficiency through logistic integration by drug stores, discount stores and internet retails.
Logistic management business has also grown rapidly because of outsourcing requirements. Hitachi Logistics, one of major logistic management companies in Japan, recorded 40% increase in sales in April-September of this year from the same period in last year. Clients include pharmaceuticals, drug stores, sports apparels and internet retails. Internet retails traditionally secured logistic facilities by themselves, but recently reverted to third party logistic managers due to their scalability.
Japanese companies complete record number of overseas M&As
Kyodo news agency reported that the number of M&As of foreign business by Japanese companies in the January-September period amounted to 364, a record high for the reporting period and 7.4 % higher than that of the same period last year. The news service agency quoted a survey prepared by Recof Corp., an M&A advisory firm. According to the survey, the previous record for the reporting period, i.e. January-September, was 359 deals in 1990, almost the end of bubble economy era.
The survey underscored the role played by the yen’s strength against US dollar and other major currencies in encouraging Japanese companies to pursue investment overseas. With Softbank announcing a deal to acquire a 70 percent stake in Sprint Nextel Corp., a major US cell phone company, for JPY 1.57 trillion, the current momentum shows no sign of slowing. Other notable deals include: Acquisition by Dentsu, a major advertising agency, of British peer Aegis Group for JPY 390 billion and acquisition by Daikin, an air conditioning equipment manufacturer, of their US rival Goodman Global for JPY 290 billion.
BOJ eases monetary condition, issues joint statement with the Ministry of Finance to tackle deflationary environment
Bank of Japan announced that they will enhance monetary easing further. Such easing moves by BOJ are in a row in two months. Specifically, they will increase the size of their fund for asset purchase, i.e. program for quantitative easing, from JPY 80 trillion to JPY 91 trillion. They have so far utilized JPY 63 trillion under the asset purchase program.
Of particular interest at this time is that the Governor of BOJ and the Japanese Government, particularly the Minister of Finance and the Minister in charge of Economic Policy, issued the joint statement, the resolution to tackle deflationary environment in Japan. This is an unprecedented move. As stated in our Market Outlook in September, the Japanese economy experienced a surprisingly sharp deceleration recently. Thus, such a move should be warranted.
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