World’s Largest Pension Fund Invests in Japanese Real Estate

PView of Tokyo from Roppongi Hills
View of Tokyo from Roppongi Hills | Photo Courtesy of METROPOLIS

Up until 2018, the world’s largest pension fund, Japan’s Government Pension Investment Fund (GPIF), had maintained a stable operation centred on government bonds which are yielding close to nothing. However, the pension ‘whale’ is changing its portfolio strategy and as a result, is expected to invigorate the market and economy by pouring in trillions of Yen.

A 1% investment in Japanese real estate translates to 3 trillion yen entering the market

Previously, the pension fund invested mainly in low-risk low-return government bonds, but since 2018, it has started to expand investments in alternative assets including real estate.

GPIF’s Exposure to Real Estate has Grown Since 2018
GPIF’s Exposure to Real Estate has Grown Since 2018 | Chart courtesy of Infrastructure Investor 

The GPIF’s investment reform not only supplements the nation’s pensions but also contributes to raising the Japanese economy in the long run due to the substantial positive impact on the entire Japanese real estate market. The ratio of real estate investment in major overseas pension funds and government investment institutions is in the 3% to 10% range of total assets. The GPIF’s total assets under management are approximately 159 trillion yen (1.4 trillion USD) with a maximum of 5% allocated to alternative asset investing, which includes real estate. Even if 1% of its portfolio was invested in real estate, that would amount to approximately 1.5 trillion Yen (13.8 billion USD) – a tremendous amount. 

Currently, the GPIF has not directly investing in real estate – instead, its exposure is mainly in funds. If they do start investing directly, and assuming they utilize a borrowing ratio of 50%, a total of approximately 3 trillion yen (27.6 billion USD) will flow into the Japanese real estate market. As a comparison, transactions in domestic commercial property transactions in 2018 totalled 4.1 trillion yen (37.8 billion USD), according to a Jones Lang LaSalle survey.

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Tokyo’s Skyline at Dawn
Tokyo’s Skyline at Dawn | Photo courtesy of greenandturquoise.com

Improvement of Transparency in Japan’s Market

The entry of the GPIF and possibly other pension funds is a hot topic for the Japanese real estate market. One reason: the market can be energised with the large amounts of funds being invested. Secondly, this is another opportunity for Japan to improve transparency and continue its rise in international ranking tables. Pension funds emphasize compliance programs and will demand a high degree of transparency from the domestic property market. 

International Real Estate Market Transparency Rankings
International Real Estate Market Transparency Rankings | Table courtesy of Jones Lang LaSalle 

All in all, the entry of GPIF and other pension funds to the Japanese real estate market is beneficial for both the Japanese real estate market and the economy. The declining birthrate and ageing population have accelerated pension asset management reforms and resulted in positive side-effects: ongoing stimulation of the real estate market and supporting further improvements in both liquidity and transparency.

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Mori Nishimura

Editor’s Note: Mori Nishimura is in the Sales Division at Housing Japan. With a keen eye for finding market gaps, Mori has successfully consulted both individuals and companies on landing exclusive opportunities in the opaque Tokyo market. He began his career at a real estate startup and is an up-and-coming name in the Tokyo real estate industry.