The market capitalization of Japanese real estate investment trusts (REITs), which gather funds specifically for property investment, currently stands at over 10 trillion yen, making it the second largest in the world. And its getting bigger.
With Japan on the verge of escaping deflation, investors are taking action, aiming to get ahead while the Bank of Japan continues the nation`s massive monetary easing into 2015.
The U.S. currently has the largest REIT market in the world, with a market capitalization of about 90 trillion yen,. Australia has the second largest, but on January 5th the market value of REITs listed on the Tokyo Stock Exchange reached around ¥10.5 trillion, basically putting it on par with Australia. REITS are calculated by multiplying the number of units issued by the price of the investment units corresponding to shares,
Japanese REITs have increased by close to 40% in the last 12 months, mostly as a result of the number of properties owned increasing, thanks to the inflow of investment money coming into the country.
Office buildings and condominiums, which have been the main destination for REIT funds, have seen further expansion. REITs have also acquired the Hilton Tokyo Bay (Urayasu, in Chiba Prefecture), which is a hotel adjacent to Tokyo Disneyland, as well as making increased investments in shopping malls and distribution centers. REITs have also appeared that specialize in care homes and other facilities for senior citizens.
REITs pay investors a dividend from rental income funds. With the annual yield for REITs around 3% on average, they have gained popularity from both individual and overseas investors who are seeking higher yields. With the additional monetary easing by the Bank of Japan, this had led to a greater sense of security, and the amount of annual REIT purchases has increased three times to ¥90 billion.
A booming REIT market also offers a big advantage to companies. If real estate developments are sold to REITs, funds can be recovered quickly, allowing them to then be directed to new properties.