Japan's Housing Market Enters a Transition Period

Japan's Housing Market Enters a Transition Period
by Tatsuya Ishikawa
Economic Research Group, NLI Research Institute

A comprehensive report on the state of the housing market in Japan can be found here
.

Japan's DaVinci to set up $9 bln real estate fund

Here is more information on DaVinci's fund, about which I posted a few days back.

Japan's DaVinci to set up $9 bln real estate fund
Tuesday 30 August 2005, 5:10am EST

TOKYO, Aug 30 (Reuters) - Japanese real estate investment adviser K.K. DaVinci Advisors said on Tuesday it plans to launch next year the country's biggest privately placed real estate fund, with assets of 1 trillion yen ($9 billion).

The fund will be large enough to purchase profitable, large real estate assets in a rapidly growing market, President Osamu Kaneko said in a telephone interview with Reuters.

A growing number of real estate assets are available for investment in Japan as companies are seen eager to get rid of buildings and other property to minimise exposure to price risks and avoid becoming takeover targets, analysts say. Bidders often look for asset-rich companies.

"The bigger a fund is, the more flexibly we can buy larger properties," Kaneko said.

DaVinci will start soliciting 250 billion yen for the fund from corporate and institutional investors at home and abroad from November, while DaVinci itself will inject 50 billion yen into the fund.

The remaining 700 billion yen will be raised by non-recourse loans from financial institutions, Kaneko said.

Property-linked non-recourse loans are a type of asset financing business which Nomura Holdings Inc. (8604.T: Quote, Profile, Research) and other financial institutions in Tokyo see as having high growth potential.

"There is more money flowing into the debt market currently given that widening spreads make it more attractive than equities," Kaneko said.

DaVinci, given discretion by investors to make investment decisions for the fund, plans to purchase 70 to 80 office buildings, condominiums, commercial compounds and hotels, as well as shares of companies which operate such facilities.

DaVinci will manage the fund up to 10 years before it exits the fund by transferring the properties to the company's other real estate funds or to other investors, as well as by selling stock. It targets an internal rate of return (IRR) for the fund of 25 percent a year.

DaVinci currently manages some 200 billion yen in a fund investing in medium-sized buildings.

It is one of the few real estate management firms with the ability to create "blind-pool" funds, according to Daiwa Institute of Research

Blind-pool management allows a company to make decisions and act quickly on acquisitions and sales of properties, and to expand the scale of property investment, Daiwa said.

($1=110.73 Yen)

Tokyo Report: Foreigners Actively Buying Japan REITs

Tokyo Report: Foreigners Actively Buying Japan REITs
2005-08-29
Jiji Press English News Service

Tokyo, Aug. 29 (Jiji Press)--Foreign investors are noticeably increasing their purchases of Japanese real estate investment trusts, prompting analysts to say that the management of REITs and related price trends have come to a major turning point.

Domestic financial institutions, such as regional banks and life insurance companies, accounted for 42.26 pct of the total amount of REIT purchases in 2004, compared with 21.74 pct for foreign investors, according to the Tokyo Stock Exchange.

In July this year, however, the respective ratios reversed to 27.31 pct and 37.67 pct.

The trend has been seen with Nippon Building Fund Inc. (8951), a REIT established by Mitsui Fudosan Co. (8801), among others. Nippon Building Fund Management Ltd., which manages the REIT, speculates that Japanese REITs are attracting foreign investors looking for active investment in stable Japanese stocks following the government's declaration that the domestic economy has pulled out of a lull.

President Koichi Nishiyama of Nippon Building Fund Management will shortly visit investors abroad in a bid to analyze their stance on REITs.

Prices of REITs have been on the rise due to domestic financial institutions' stable purchases aimed at securing income gains as well as an increase in assets held by REITs or companies that manage real estate portfolios in order to earn profits for shareholders.

But domestic institutional investors are slowing investment in REITs, possibly because the ratio of investment has reached the upper limit in their portfolios. Expectations of higher interest rates are another factor behind the change in their investment stance.

As a medium-risk investment tool offering relatively high dividend yields, REITs have attracted financial institutions facing drops in interest income caused by the continuation of extremely low interest rates.

Since regional banks and other financial institutions have substantially boosted their outstanding balance of REIT investments, they are allegedly unable to buy new ones unless they sell their current holdings.

Some analysts point out that REITs have become less attractive to domestic investors because long-term interest rates are showing upward trends while dividend yields on REITs are falling as a result of intensifying competition in the acquisition of office buildings and other kinds of real estate for portfolios.

Foreign investors are sharply increasing their purchases of Japanese REITs evidently because the domestic market has grown big enough to process their investments.

In fact, successive listings in July have raised the number of listed REITs to 22 and expanded the scale of the market to more than 2 trillion yen.END

Copyright (c) 2005 Earl G. Graves, Ltd. All Rights Reserved.

Offices up, in big cities at least

Offices up, in big cities at least
2005/08/29, THE NIKKEI WEEKLY, page 30, 504 words

TOMIO SHIDA
Despite uncertainty surrounding the price of steel products and other commodities dependent on the course of the Chinese economy, recovery in the domestic office building market provides evidence that the Japanese economy is picking up steam.
Since the market cleared the 2003 problem that sparked concerns of an oversupply of large office buildings in central Tokyo, vacancy rates have fallen drastically, indicating that building rents are about to bottom out and move higher.
According to real estate consultancy Ikoma Data Service System, total rental office space in Tokyo's 23 wards accounts for 59% of the Japanese office building market, while Osaka makes up 19%, Nagoya another 6% and Fukuoka and Yokohama just over 3% each.
IDSS releases a quarterly report on rental office space in central Tokyo, while Miki Shoji Co. provides similar monthly data covering the five central Tokyo wards of Chiyoda, Chuo, Minato, Shinjuku and Shibuya.
Miki Shoji's data shows that the average vacancy rate in the central wards declined to 4.76% at the end of July 2005, the lowest level since January 2000, after rising as high as 8.57% in the middle of 2003.
IDSS survey results revealed a similar trend in Tokyo's 23 wards, where the average vacancy rate showed a 0.9 percentage-point drop to 5% in June this year from a year ago.
Lagging indicator
Demand for rental office buildings is regarded as a lagging economic indicator because even companies that have gained substantial financial leeway from a recovery in earnings tend to put other management concerns ahead of extending their office space.
In the current economic upturn, Japan's office building vacancy rate finally stopped climbing about 18 months after hitting a cyclical trough in January 2002 and has begun to move downward.
The office building market was last in a recovery phase around 2000, when the IT boom was at its peak. The average vacancy rate in Tokyo's five central wards fell below 5% in early 2000 and then declined constantly to reach 3.07% in January-February 2001.
"Since the previous recovery cycle of the office building market was driven by demand from IT-related firms, the end of the IT boom also caused the market to lose its upward momentum quickly," Miki Shoji president, Kiyoshi Iijima, said. "The market's present recovery cycle is being supported by a broad range of industries, from IT firms to basic materials producers to law offices."
The downside, however, is that the office building sector in regional cities remains in an unfavorable business environment. In addition, a projected problem in 2010 is expected to unfold in Tokyo, causing a glut of office buildings, when a large chunk of baby boomers reach retirement age.
Because the present strong recovery in the office building market appears to be a phenomenon that has trailed moves in the broader economy, no optimism is possible in predicting the market's future trends.
Tomio Shida is a senior staff writer of The Nihon Keizai Shimbun. The original appeared in the Aug. 22 morning edition of The Nihon Keizai Shimbun.

CapitaLand May Tie Up With Wal-Mart, Other Retailer in Japan

CapitaLand May Tie Up With Wal-Mart, Other Retailer in Japan

Aug. 26 (Bloomberg) -- CapitaLand Ltd., Southeast Asia's largest property developer, may tie up with Wal-Mart Stores Inc. or another retailer in Japan to speed up expansion of its business in the country, said Liew Mun Leong, chief executive of CapitaLand.

CapitaLand, which partnered with Wal-Mart in acquiring 15 retail malls in China this year, may form alliances with retail chains in Japan to expand at a faster pace, Liew said in an interview in Tokyo.

``Most malls are owned by retailer chains in Japan. Now they've realized that it's not cost effective for them to own their malls,'' said Liew. ``Wal-Mart is very concentrated on retail, not on the real estate, so if there is an opportunity, we will definitely look into it.''

CapitaLand has two real estate funds in Japan as part of an overseas expansion into real estate in China and Australia. Real estate prices in central Tokyo rose for the first time last year as the country's economy, the world's second largest, expanded at an annual 1.1 percent in the second quarter, the third straight quarter of gains.

The Topix real estate index rose 15 percent this year, outperforming the Topix's 10 percent gain. The Tokyo Stock Exchange REIT index has risen 7.6 percent.

``Japan is firmly on a recovery trend. We think it is the right time to go into property fund management in Japan as property prices are recovering,'' said Liew.

REIT Listing

CapitaLand said it may list a real estate investment trust in Japan or Singapore in the next 2 to 3 years when the size of the trust reaches $300 million to 400 million. The listing may also happen in China and Malaysia, he added.

``The appetite for REITs in Asia is very big,'' said Liew. ``The ideal plan is whenever we package funds, we can place them into REITs.''

CapitaLand has a 45 billion yen ($408 million) fund focusing on retail properties in Japan and forecasts it may grow to 150 billion yen in the next three years. It is close to buy its third mall in Japan.

The company also has started a $300 million residential fund in Japan with Bahrain's Arcapita Bank BSC that is compliant with Islamic law, aiming to tap a growing overseas market for Islamic banking.

``Raising funds is not a problem,'' said Liew. ``Islamic funds are very strong. The challenge is to be able to buy good portfolio of rental apartments because projects in Japan are not large.''

The Singapore Property equities index, which consists of 21 companies, has risen 27 percent this year, beating an 11 percent return from the Straits Times index.

CapitaLand's overseas investments, led by Australia and China, made up 51 percent of its total assets and contributed 67 percent of pretax profit.

Wal-Mart

The possibility of CapitaLand working with Wal-Mart in Japan as well as China, follows speculation the U.S. retailer may buy control of Tokyo-based Seiyu Ltd. Wal-Mart, the biggest shareholder in Seiyu, has an option to raise its Seiyu stake to more than 50 percent from 42 percent by the end of this year.

``The fact they increased to 42 percent was a major step towards Wal-Mart's commitment to Seiyu and to the Japanese retailing market,'' said Peggy Furusaka, co-head of credit research at BNP Paribas Securities in Tokyo.

Seiyu's net loss widened to 2.5 billion yen in the three months ended June 30 from 1.86 billion yen in the same period a year earlier.

Seiyu, which is expecting a third straight year of net losses, is receiving management assistance from Wal-Mart, the world's largest retailer. The company's decision to raise it's stake in Seiyu added to speculation Wal-Mart may buy control of the Japanese retailer. Both companies last week said no decision has been made on that.

``They were giving themselves three years to see whether they would succeed in Japan or not,'' Furusaka said last week in response to questions about Wal-Mart's intentions.

``They maintained their stake of less than 20 percent in Seiyu for three years. If they were to pull out, they would have pulled out already.''

To contact the reporter on this story:
Kathleen Chu in Tokyo at kchu2@bloomberg.net.

Last Updated: August 25, 2005 21:50 EDT

Real Estate Markets in Asia To Outperform Stock Investments : Expert

`Dr Doom' eyes Asian real estate
INVESTMENT: The real estate markets in several Asian countries are underdeveloped and should outperform stock investments, emerging markets expert Marc Faber said
By Jackie Lin
STAFF REPORTER
Taipei Times, Friday, Aug 26, 2005,Page 10

Investors should pour money into Asia's underdeveloped housing markets as they are expected to yield higher returns than stock investments, emerging-markets expert Marc Faber said in an interview in Taipei yesterday.
Faber, popularly known as Dr Doom due to his ability to forecast when economic bubbles will burst, suggested that the real estate markets in India, Vietnam, Malaysia, Thailand and Indonesia are favorable targets.
Investment opportunities, however, exist everywhere as long as investors take advantage of local knowledge of the cities they reside in, such as Taipei, Taichung or Kaohsiung, he said.
Therefore, betting on local housing or stock markets would appear less risky than speculating on overseas markets, Faber added.
Faber, publisher of a monthly investment newsletter called the Gloom Boom and Doom Report and author of the bestseller Tomorrow's Gold, was in Taipei at the invitation of the Chinese-language weekly Business Today to give a speech and share his insight into investment trends.
Marc Faber Ltd, the investment company he established in Hong Kong, currently manages assets equivalent to around US$300 million.
While skyrocketing crude oil prices have forced people to tighten their belts, prices will keep going up, considering limited supply and increasing demand, especially from Asian markets, Faber said.
Global oil production is at 82 million barrels per day. Of that, Asia consumes 21 million barrels a day, while the US uses 22 million barrels per day.
In the next 10 to 12 years, Faber expects Asian demand to double to around 40 million barrels a day, causing a shortage and pushing up crude prices.
Turning to local stocks, Faber expressed optimism, saying that some Taiwanese companies have achieved a 5 percent dividend yield, making them favorable targets.
"I'm tempted to buy some shares in Taiwan. Along with Japan, Taiwan could actually perform quite well," he said.
The TAIEX has been fluctuating above 6,000 points this year, closing down 17.58 points at 6109.66 yesterday.
He said the nation has potential, given significant numbers of professionals in the high-tech, biotechnology and nanotechnology fields.
However, the government should launch direct links with China right away, he said, as they will bring more advantages to Taiwan than to China. Lifting restrictions to allow businesses to set up factories across the Taiwan Strait will enhance corporate competitiveness, he said.
The problems Taiwan faces regarding the migration of industry to China are the same ones challenging Japan and other advanced nations, he said.
The government should instead emulate Singapore and focus on developing the service and education sectors, he said.
Asked about the golden rule of investing for the general public, he said, "Don't listen to analysts. Listen to the markets."

DaVinci To Form Largest Privately Offered Real Estate Fund

August 27, 2005
DaVinci To Form Largest Privately Offered Real Estate Fund

TOKYO (Nikkei)--DaVinci Advisors KK (4314) plans to establish the country's biggest privately placed real estate fund, with assets of 1 trillion yen.

The fund will have the financial backing necessary to purchase large properties amid intensifying competition, particularly in Tokyo, for real estate assets. It will also acquire the stock of companies that use commercial establishments such as hotels as sources of income.

Slated to begin operating as early as summer 2006, it will start in November soliciting 250 billion yen in funds from companies and institutional investors at home and abroad. DaVinci is tapping mainly companies that have already invested in its other funds and expects about 50 firms to participate. DaVinci itself will inject 50 billion yen, with the remaining 700 billion yen coming from nonrecourse loans by financial institutions.

The fund will be given discretion by investors to make investment decisions and plans to purchase 70-80 office buildings, condominiums, commercial facilities and hotels, including large properties that other funds and real estate investment trusts (REITs) find difficult to handle.

In addition, it will propose improvements to properties it acquires to raise profitability.

DaVinci will manage the fund for 10 years and plans to recoup its investment by transferring properties to its other funds, REITs or other investors as well as by selling stock. It targets an internal rate of return of 25%.

Since the end of last year, DaVinci has managed funds with 400 billion yen in assets and has invested 270-280 billion yen this year. It expects to complete the acquisition of the properties by mid-2006.

(The Nihon Keizai Shimbun Saturday morning edition)

Kokudo To Sell Tokyo HQ To Recrm In Y27bn Deal

Friday, August 26, 2005
Kokudo To Sell Tokyo HQ To Recrm In Y27bn Deal

TOKYO (Nikkei)--Kokudo Corp., the core firm of the Seibu Railway Co. group, agreed Friday to sell its Tokyo headquarters building to real estate management firm Recrm Research Co for approximately 27 billion yen.

Proceeds from the sale will go toward repayment of a portion of the group's 1.4 trillion yen in interest-bearing liabilities.

Kokudo on July 29 held an auction in which 12 foreign and domestic companies participated. The two highest bidders were given priority rights to negotiate. The contract will be officially signed this coming Wednesday or later.

The headquarters building was completed in 1972 and is five stories high. It has Prince Hotels Inc., Seibu Golf Co., Ohmi Kanko KK and others as tenants. About 350 of the group's employees work there. Kokudo plans to continue using the building after the sale until the end of January 2006.

(The Nihon Keizai Shimbun Saturday morning edition)

CapitaLand To Raise Investment In Japanese Properties 10-Fold To Y180bn

Friday, August 26, 2005

CapitaLand To Raise Investment In Japanese Properties 10-Fold To Y180bn

TOKYO (Nikkei)--CapitaLand, a Singapore government-affiliated real estate company, is set to expand the combined assets of its investment funds targeting Japanese real estate to more than 180 billion yen within three years, 10 times the current levels, said President and CEO Liew Mun Leong on Thursday.

The Capital Retail Japan Fund, an investment fund the company formed to acquire Japanese commercial facilities, currently has a pool of 44 billion yen collected from investors.

The firm will add borrowed funds to this amount to pump more money into Japanese shopping centers and other facilities in the years to come, aiming to bring the total amount of its assets to 150 billion yen in three years from the current 13 billion yen-plus, he said.

The largest realty firm in Southeast Asia has another investment fund, jointly set up with Arcapita, a Bahrain investment bank. The fund recently purchased Japanese condominiums for 4.5 billion yen. It plans to expand its total investment in Japanese real estate to some 30 billion over the next 18 months.

(The Nihon Keizai Shimbun Friday morning edition)

Elderly offered reverse mortgages

Elderly offered reverse mortgages
2005/08/22, The Daily Yomiuri, page 1, 388 words

Elderly offered reverse mortgages
Chuo Mitsui Trust and Banking Co. has struck a deal with izakaya chain operator Watami to extend reverse mortgage plans for residents to pay the 10 million yen entry fee to nursing homes run by the leading pub-eatery company, The Yomiuri Shimbun learned Sunday.
A reverse mortgage--a loan against the borrower's home--does not require the debtor to pay back the loan as long as he or she is alive. The lender recovers the principal and interest by selling the mortgaged home upon the death of the borrower.
Tokyo-based Watami, which operates a nationwide chain of about 450 izakaya outlets, currently runs 16 nursing homes for the elderly in Tokyo and its vicinity--a new division it purchased in March.
The company plans to expand its nursing home operation nationwide and use Chuo Mitsui's reverse mortgage plans to attract as many residents as possible, sources close to the two companies said.
Until now, some nursing home residents have opted to sell their homes to cover the entry fee. But the trust bank's loan scheme will allow nursing home residents to keep their homes so that they can spend weekends at home.
A mortgaged home can also serve as a backup if a resident is unable to adjust to life in a nursing home.
Watami has entered into an agreement with Chuo Mitsui as it is the only major bank offering reverse mortgage plans.
Leading banks suspended reverse mortgage services in the wake of the burst of the bubble economy. This spring, Chuo Mitsui resumed reverse mortgage deals after a 15-year break as property prices in Tokyo and some other large cities showed signs of recovery.
Chuo Mitsui wants to expand its customer base by focusing on loans to the elderly as it expects the aging population to result in a rise in the number of elderly people wanting to use nursing facilities.
The bank plans to lend the equivalent of up to 35 percent of the home value in an initial lump-sum deal, to be followed by a scheme to extend loans of up to several hundred thousand yen per annum.
People aged 65 or older with single-family houses in Tokyo, Osaka, Aichi and five other prefectures are eligible for the reverse mortgage loans. The land value of each house must be above 50 million yen.

Sumitomo Trust Advising Regional Banks On Non-Recourse Loan Projects

Sumitomo Trust Advising Regional Banks On Non-Recourse Loan Projects
2005/08/22, The Nihon Keizai Shimbun, page 0, 160 words

TOKYO (Nikkei)--Sumitomo Trust & Banking Co. (8403) has started offering regional banks advice on real estate-related financing projects.
The move is partly designed to deepen ties with regional banks and thereby build stronger operational bases in areas where Sumitomo Trust has traditionally lacked a strong business footing, company officials said.
Sumitomo Trust will offer consulting on projects involving non-recourse loans, whose repayments are made only with proceeds produced by real estate.
The advice will cover such areas as evaluating real estate, analyzing the risks involved and building a system to monitor the profitability of real estate.
Sumitomo Trust has already agreed to provide the service to one regional bank and has received requests from about a dozen others.
The market for non-recourse loans has been rapidly expanding recently, with regional banks alone holding a combined balance of several hundred billion yen. Sumitomo Trust estimates that the market currently stands at 7-8 trillion yen.
(The Nihon Keizai Shimbun Monday morning edition)

Funds' property holdings to hit 10 tln yen --- Real estate funds own 15% of rental properties amid warnings of overheating

Funds' property holdings to hit 10 tln yen --- Real estate funds own 15% of rental properties amid warnings of overheating
2005/08/22, THE NIKKEI WEEKLY, page 9, 441 words

The value of properties owned by investment funds specializing in real estate is expected to triple from three years ago to about 10 trillion yen ($91.7 billion) this fiscal year.
While financial institutions and nonfinancial firms are selling off properties, real estate funds have been picking up office and apartment buildings, with some funds taking on large-scale redevelopment projects in urban areas.
The value of properties for lease, including commercial and distribution facilities, totals about 70 trillion yen, according to an industry estimate. Exchange-traded real estate investment trusts, privately held real estate funds established by Japanese firms, and privately held funds set up mainly by foreign firms account for 15% of this.
In comparison, Japan's six major life insurers, including Nippon Life Insurance Co., hold about 4.2 trillion yen in real estate for lease.
The value of REIT-owned real estate came to slightly less than 3 trillion yen as of July 31. Because REITs continue to acquire properties after becoming listed, Takashi Ishizawa, chief real estate analyst at Mizuho Securities Co., said their assets will likely grow to 3.3-3.5 trillion yen by fiscal year-end.
Total assets held by 15 major foreign real estate funds are estimated at just over 3 trillion yen. Morgan Stanley Real Estate Funds, believed to be the biggest fund that invests in Japanese real estate, has about 1 trillion yen in assets.
Total assets of Japanese funds are estimated at 3.3 trillion yen, according to STB Research Institute. Based on these figures, the combined assets of REITs and domestic and foreign funds would be just shy of 10 trillion yen. Because "domestic funds are increasing their assets by over 100 billion yen each month," according to a senior analyst at the institute, the total will likely exceed 10 trillion yen by the end of the current fiscal year.
Major real estate companies are accelerating efforts to develop properties by tapping real estate funds, which enable these firms to raise money from many investors and reduce risks.
Investment funds calculate the value of real estate based on projected rent revenue, and there are more and more cases in which they acquire properties that have not been completed yet. One example is DaVinci Advisors KK's acquisition of a building being redeveloped in Tokyo's Shibuya district.
Investors can usually expect yields of 3-4% from REITs and about 5-10% from other real estate funds. On the other hand, there have been many cases recently in which real estate funds have been compelled to purchase properties at unreasonably high prices. REIT prices have been unstable since July, leading some market participants to point out that investors are exposed to greater investment risks.

Commercial Mortgage-Backed Securities To Top Y1tln In FY05 / Tokyo Tatemono To Issue Y10bn In Condo-Backed Securities

Commercial Mortgage-Backed Securities To Top Y1tln In FY05
2005/08/19, The Nihon Keizai Shimbun, page 0, 283 words

TOKYO (Nikkei)--Spurred by the recovering real estate market, the value of commercial mortgage-backed securities (CMBSs) issued domestically since April has reached almost 700 billion yen, about the same as in all of fiscal 2004.
The total amount for fiscal 2005 is expected to exceed 1 trillion yen. Domestic sales of CMBSs got into full swing in 2000. According to the Association for Real Estate Securitization, the value issued stood at 755 billion yen in fiscal 2004, up 24% over the previous year. And fiscal 2005 has a string of high-profile deals exceeding 100 billion yen, including the Shinagawa Mitsubishi and Shinjuku Sumitomo buildings.
The investor base is expanding as the market grows. During the upcoming rollover of past securitization, Seibu Department Stores Ltd. plans to add funds needed for quake-proofing and other work at its flagship Ikebukuro store, for a package totaling 116.5 billion yen. This will be the largest-ever financing for a single department store, of which more than 70 billion yen in CMBSs will be sold to nearly 100 investors.
"Not only large commercial banks and life insurance companies, but also regional banks, credit associations and credit cooperatives, will participate," according to an official at lead manager Nomura Securities Co.
More than 70 foreign banks, life insurers, regional financial institutions and other investors took part in the 125 billion yen issuance in July for the Shinagawa Mitsubishi building.
Returns are relatively high, "exceeding corporate bonds by about 0.2% to 0.5 percentage point," in the words of Miwa Suzuki, senior ABS analyst at Mitsubishi Securities Co. (8615).
CMBSs represent a large chunk of the securitization market, after residential mortgage-backed securities, asset-backed securities and other products.
(The Nihon Keizai Shimbun Friday morning edition)

Tokyo Tatemono To Issue Y10bn In Condo-Backed Securities
2005/08/23, The Nihon Keizai Shimbun, page 0, 152 words

TOKYO (Nikkei)--Tokyo Tatemono Co. (8804) will sell securities to individual investors in September backed by rental income from the Shinonome Canal Court condominium in Tokyo's Koto Ward, company sources said.
The securities will be divided into preferred and subordinated portions to reduce the risk of the preferred instruments falling below par.
Of the 10 billion yen in securities to be offered, Tokyo Tatemono will sell 7 billion yen in preferred securities having superior rights to interest payments and redemption. The real estate developer will purchase the riskier subordinated portion worth 3 billion yen.
The five-year instruments will be sold in units carrying a minimum purchase price of 5 million yen. Interest payments will be made biannually, with Tokyo Tatemono projecting a pretax investment return of 2.6% per annum.
The firm will manage the condo, completed in March, and remit interest payments to investors from rents.
(The Nihon Keizai Shimbun Tuesday morning edition)

Japan Post may hold a nation's fate

Japan Post may hold a nation's fate
By James Brooke
The New York Times
WEDNESDAY, AUGUST 24, 2005

KOBE, Japan
Red and white loading cranes loomed like steel sentinels over an empty wharf on a recent afternoon here. Capable of unloading shipping containers at a rate of almost one a minute, these computerized towers often stand frozen for days at a time for lack of ships.

Kobe's ranking in world container traffic tumbled to 43rd place last year from fourth in 1980. Though Kobe's importance as a port started waning in the early 1990s, government bureaucrats responded to the 1995 earthquake here by renovating and expanding the port - at a cost of $50 billion.

Kobe's idle cranes and deserted wharves are emblems of a broader habit in Japan: the propensity to spend lavishly on public projects that may or may not have much use, let alone economic return. Given the country's dependence on such building, the proposed sale of Japan Post, a linchpin for government spending, has triggered a political firestorm.

Japan Post, which still delivers the country's mail, is also Japan's largest savings bank, with \329.7 trillion, or $3 trillion, in assets, and sells insurance as well. The question posed by its sale is this: Will Japan take a decisive turn toward free markets and privatize Japan Post, converting the world's largest state-run bank into the world's largest private bank? Or will the country continue as a semi-socialist economy in which bureaucrats and politicians make multibillion-dollar investments with little regard to the country's economic health?

An arcane issue to outsiders, the privatization of Japan Post was volcanic enough in Japan to spark a revolt in Parliament among members of the Liberal Democratic Party, which has held almost uninterrupted power here for the past half-century. Fearful of losing access to Japan Post's assets, upper house members rejected a privatization bill Aug. 8.

For Prime Minister Junichiro Koizumi, who first called for postal privatization in 1992, it looked like the defeat of a lifetime dream. But, breaking with Japan's tradition of bland consensus politics, he responded that very day with a huge political gamble. He dissolved the lower house, called an election for Sept. 11, and kicked 37 legislators who had voted against privatization out of the party. The upper house cannot be dissolved; its members serve fixed terms.

"The post office has been the big piggy bank for the bureaucrats and the politicians," said Alex Kerr, an American who chronicled in his book, "Dogs and Demons," the long-running love affair between Japan's politicians and cement for construction. "The politicians really depended on the flow of these funds."

Although Japan's landscape is littered with monuments to what is often called "the construction state," engineers continue to build what some observers lampoon as "bullet trains to nowhere."

In Okinawa, Japan's southernmost prefecture, the authorities recently inaugurated a bridge 1.9 kilometers, or 1.2 miles, long to Kourijima Island. It is billed as the country's longest toll-free bridge, and it is easy to see why no one expects to recoup the investment through tolls. The \27.4 billion bridge serves an island with a population of 361.

In Hokkaido, Japan's northernmost prefecture, work started in May on a 10-year, \472.6-billion project to extend bullet train service north to Hakodate, population 280,000.

After decades of spending on public works, Japan has a ratio of government debt to gross domestic product of 150 percent, the highest for a major, developed economy. The weight of this debt, compounded by the shrinking of Japan's work force and by politicians' resistance to changes that would enhance productivity, will give Japan, through 2010, the lowest per capita growth rate among 30 major economies, according to an economic forecast issued in May by the Organization for Economic Cooperation and Development.

Although Japan's economy is growing at an annualized rate of 1.1 percent, the economy has been in recession for almost half of the 14 years since the stock and real estate bubble burst in 1991.

In an emerging country, like China or Brazil, infrastructure investment often unleashes growth. But in Japan, with a mature economy and stagnant population growth, a new railroad, bridge, port or airport often gives no more than a quick shot of economic stimulus.

The bills for those projects will be increasingly difficult to pay. Over the next decade, the number of Japanese workers is expected to decline by four million.

Yet the building continues. Japan, which is slightly larger than Italy, has 83 airports. Five more are under construction. Although Osaka's Kansai International Airport has yet to make a profit after a decade in operation, Nagoya recently opened its own international airport, only 128.7 kilometers away.

In 2006, Kobe is scheduled to open a multibillion-yen domestic airport, about 30 kilometers from Kansai. In 2007, Kansai will counterattack with a new runway. Both airports are built on expensive landfill, the kind of base that turned to mush during Kobe's 1995 earthquake.

Japanese airports, notably in Tokyo and Osaka, charge the highest jet-landing fees in the world. In this environment, Japanese cities often build their airfields of dreams, only to discover that the passengers do not come.

In Kobe, the overinvestment in the port was obvious on a recent motorboat tour of the harbor, a bay that opened to foreign ships in 1868.

"Most of the cranes are up - up means no ship," Takashi Shimada said during one of his last tours as director general of the Kobe Port and Harbor Office. After the earthquake, he recalled, "the facilities were completely restored, but the cargo did not come back."

Even though Kobe's cargo traffic stagnated in the early 1990s, shipping lines still concentrated regional cargo here for shipping overseas. But when the earthquake halted most operations at the port, Japanese companies discovered that they could send their goods to places like Pusan, South Korea, for shipment to the United States and Europe, and it was faster and cheaper.

With such white elephants taking shape before the public's eyes, austerity is catching on. Despite the political firestorm, Koizumi's election call has been greeted with advances in Japan's stock market and upticks in polls charting public and business approval ratings for his cabinet.

Tokyo office vacancy rate falls to 4.76 pct in July - Miki Shoji

Tokyo office vacancy rate falls to 4.76 pct in July - Miki Shoji
08.10.2005, 03:44 AM AFX News Limited

TOKYO (AFX) - The office building vacancy rate in central Tokyo fell 0.27 percentage points month-on-month in July to 4.76 pct, the 11th decline in 12 months, according to data compiled by real estate broker Miki Shoji.

The vacancy rate is below 5.0 pct for the first time in 41 months.

The average rent in central Tokyo fell 0.25 pct last month to 17,665 yen per 3.3 square meters, Miki Shoji said.

The data covers five wards in central Tokyo -- Chiyoda, Chuo, Minato, Shinjuku and Shibuya -- which have the greatest concentration of offices occupied by major companies.

The data provides further evidence of improving conditions in the property market in Tokyo, which is sparking investor interest in the nation's long-depressed real estate market.

Kiyori.Ueno@xfn.com

Carlyle to invest in Asia property

Carlyle to invest in Asia property

By Dominic Whiting, Asia property correspondent
Reuters
Thursday, August 18, 2005; 2:09 AM
washingtonpost.com

HONG KONG (Reuters) - U.S. private equity firm The Carlyle Group will invest in around $1.5 billion of property in China, Japan and South Korea, the manager of the company's first Asian real estate fund said on Thursday.
The fund, which will borrow heavily to bolster $410 million of equity recently raised from investors such as pension funds and private banks, is keen on Chinese shopping centers and housing, and offices in Japanese cities and Seoul.
Carlyle's managing director for Asia real estate, Jason Lee, told Reuters the fund would soon sign a deal with a Chinese developer to build middle-class homes in Beijing, despite government efforts to cool a housing boom.
Measures including a capital gains tax to curb speculation and mortgage rate rises have hit the Shanghai property market hard since May, slowing transactions to around a third of the previous level and slashing some apartment prices by 20 percent.
"Everyone's concerned about overheating, especially in the luxury market in Shanghai. We're cautious as well," Lee said, declining to give details of the planned partnership.
But every major city in China had different property market characteristics. "And even within cities you have different dynamics in each asset class," Lee said.
Carlyle is also looking to build or buy shopping centers in Shanghai and Beijing, to cash in on an influx of foreign retailers that has gathered pace since last December when China eased investment rules for the industry.
A host of property investors are thinking along the same lines, with Singapore's CapitaLand Ltd. and Australia's Macquarie Bank snapping up shopping centers this year, and U.S. firms Taubman Centers Inc. and Simon Property Group on the prowl.
"It's a race to team up with foreign operators in particular," said Lee, referring to firms such as Wal-Mart Stores Inc., which is setting up 10-15 new stores this year.
"ASIA GROWTH STORY"
Carlyle, which runs Asian venture capital and leveraged buy-out funds, has so far dabbled in pure real estate investment in Asia, buying a 900,000 sq ft Japanese warehouse complex, a 14-storey office in a Tokyo satellite town, and two 20-storey offices in Seoul.
In Japan, the new fund is looking beyond central Tokyo for offices, to Osaka and Fukuoka, because prices in the capital have been rising fast.
"We're in the midst of putting together a strategic partnership on the retail side," Lee said. "And for office, we're looking at sub markets of Tokyo and other cities with good demographics."
Lee said the Seoul office market was still attractive, with yields of 8-9 percent, despite a flow of domestic capital into property that has raised prices.
"You still have rental growth. There's virtually no new supply," Lee said, adding that Carlyle also wanted to diversify into residential and retail property in South Korea.
International investors were gaining enthusiasm for property in Asia, Lee said, as China's economic growth rates of around 9 percent, and trade growth of around 30 percent, spurs the region's economies.
"People feel comfortable that one way to play the Asia growth story is to get into real estate," he said.
Lee said the Carlyle fund could venture outside its three core markets of China, Japan and South Korea if the right deal were offered. He had received several proposals from India, where foreign property investment rules were eased in February.
"I can't say we will invest in any significant way with this first fund," Lee said. "But hopefully, when we move onto the fund number two, India will be a market that we pursue."

(c) 2005 Reuters

不動産投資、カーライルが１０００億円――中韓と合わせ２０００億円ファンド。
2005/08/19, , 日経金融新聞, 1ページ, 　, 717文字

　米投資会社のカーライル・グループが日本を中心とするアジアでの不動産投資を加速する。今月上旬に二千億円の不動産ファンドを立ち上げ、日本、中国、韓国で投資を始める。日本の不動産市場は投資採算の低下が懸念されるが、対象を介護施設やホテルなどまで広げ、企業買収チームとも連携することで、有望物件の確保や高い利回りをねらう。
　カーライル・グループが日本向けの不動産ファンドを設定したのは初めて。二千億円のうち半分を日本、残りを中国、韓国に向ける。投資対象はオフィスビルやマンションだけでなく、介護施設やホテル、ショッピングセンターにも広げる。
　グループの企業買収チームと連携し、投資物件を発掘する。企業買収チームの対象企業には不動産を保有している例が多く、ファンドで買い取り企業にリースバックしたり、商業施設などに用途変更したりする。「経営支援と一体でカーライルの総合力を発揮していく」（不動産投資を担当する南亮一マネージング・ディレクター）戦略だ。
　日本の不動産投資信託（ＲＥＩＴ）の市場規模は約三兆円だが、「三―五年という期間でみれば確実に拡大する。十兆円程度に成長してもいい」（南氏）とみている。テナント集めの失敗や改装・修繕の不備など管理手法の失敗で、開発後、一定の期間が経過して賃料収入が少し下落した物件を狙う。最終的にＲＥＩＴに売却する。
　ファンドの二千億円の約七割は借入金で調達、残りは機関投資家、年金基金、個人富裕層が出資した。投資家の九割が海外で、年利回り二〇％以上を目指す。
　中国ではオフィスなどの新規開発案件への投資が中心になる。「北京五輪や上海万博までは開発需要は大きく、市場は加速度的に拡大する」（南氏）とみている。

Commercial Mortgage-Backed Securities To Top Y1tln In FY05

August 19, 2005
Commercial Mortgage-Backed Securities To Top Y1tln In FY05

TOKYO (Nikkei)--Spurred by the recovering real estate market, the value of commercial mortgage-backed securities (CMBSs) issued domestically since April has reached almost 700 billion yen, about the same as in all of fiscal 2004.
The total amount for fiscal 2005 is expected to exceed 1 trillion yen. Domestic sales of CMBSs got into full swing in 2000. According to the Association for Real Estate Securitization, the value issued stood at 755 billion yen in fiscal 2004, up 24% over the previous year. And fiscal 2005 has a string of high-profile deals exceeding 100 billion yen, including the Shinagawa Mitsubishi and Shinjuku Sumitomo buildings.
The investor base is expanding as the market grows. During the upcoming rollover of past securitization, Seibu Department Stores Ltd. plans to add funds needed for quake-proofing and other work at its flagship Ikebukuro store, for a package totaling 116.5 billion yen. This will be the largest-ever financing for a single department store, of which more than 70 billion yen in CMBSs will be sold to nearly 100 investors.
"Not only large commercial banks and life insurance companies, but also regional banks, credit associations and credit cooperatives, will participate," according to an official at lead manager Nomura Securities Co.
More than 70 foreign banks, life insurers, regional financial institutions and other investors took part in the 125 billion yen issuance in July for the Shinagawa Mitsubishi building.
"Returns are relatively high, "exceeding corporate bonds by about 0.2% to 0.5 percentage point," in the words of Miwa Suzuki, senior ABS analyst at Mitsubishi Securities Co. (8615).
CMBSs represent a large chunk of the securitization market, after residential mortgage-backed securities, asset-backed securities and other products.

(The Nihon Keizai Shimbun Friday morning edition)

Tokyo still costliest city but Oslo now close second - Economist

Tokyo still costliest city but Oslo now close second

LONDON (Kyodo) Tokyo has retained its title as the world's most expensive city, but Oslo is vying for top spot, according to the biannual Worldwide Cost of Living Survey released Monday by the Economist Intelligence Unit.

Oslo leapfrogged Osaka to become the world's second most costly city, due to robust economic growth and inflation boosted by rising property and oil prices, according to the survey.

"Japan has been locked into a pattern of low or negative inflation for some years now as a result of unemployment and a number of economic problems," said Jon Copestake, an editor of the report.

The London-based Economist Intelligence Unit is the business information arm of The Economist Group, publisher of The Economist magazine.

Its biannual survey compares the cost of a representative basket of goods and services in dollar terms from more than 130 cities worldwide to help firms calculate executive allowances.

New York is used as a base index of 100 for comparison.

In real terms -- when combined with the yen's poor performance against a number of currencies -- several countries have gained ground on Japan because they have a generally upward trend in prices, as seen in Oslo, according to the report.

Similar reasons have seen Reykjavik prosper enough to take fourth place, while London has stopped its ascent of recent years, slipping two places to eighth.

China's decision to unpeg the yuan to the dollar and falling prices of Western consumer items meant Chinese cities -- despite the buoyant economy -- have seen the most significant drop in the rankings, with Beijing falling 17 places.

The Japan Times: Aug. 10, 2005

Tokyo Office Rentals Push It to World's No. 2, London Tops List

Tokyo Office Rentals Push It to No. 2 Behind London's West End

Aug. 16 (Bloomberg) -- Central Tokyo office costs have risen by 13 percent in the past year, making it the second most expensive rental area in the world after London's West End, the real estate broker CB Richard Ellis Group Inc. said.

The total occupancy cost of prime space in Tokyo's inner central district rose in the past 12 months to $131.10 per square foot a year, trailing only the West End, the broker's report said. Similar rents in London's financial district slipped 0.3 percent to $119.11 a square foot, dropping it to fourth from second. Paris at No. 5 and Moscow at sixth showed rents in continental European cities to be rising faster outside the U.K. than in Britain.

A lack of speculative office developments and rising demand, particularly from financial companies such as banks and insurers, have combined to cut vacancies, prompting owners to raise charges or cut such incentives as rent-free periods, today's report said.

``Strong demand and diminishing space availability acted to boost rental growth in most major business centers in Asia,'' the broker said, offsetting weakening economic conditions in Europe. ``The slow recovery in the office market has gathered pace so far this year.''

Total occupancy costs, including taxes and maintenance charges, in London's West End rose 0.7 percent over the past year to $178.67, the report said. Midtown Manhattan has the most expensive office space in the U.S. at $53.69. That's 27th of the top 50 locations as measured by CBRE compared with 20th a year earlier when costs totaled $52.04.

Moscow jumped to the sixth most expensive place in the world for offices behind the two London districts, two in Tokyo and Paris. Costs now total $85.29 per square foot a year in the Russian capital, 29 percent higher than a year earlier as high levels of construction failed to keep pace with demand, the report said.

Eight of the 20 most expensive office locations in the world are in the U.K., the report said, including four in the top 10.

Top 10 for Office Rental Costs:
1. London's West End
2. Inner Central Tokyo
3. Tokyo's Outer Central District
4. London Financial District
5. Paris
6. Moscow
7. Dublin
8. Hong Kong
9. Edinburgh
10. Manchester, England

To contact the reporter for this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net

Last Updated: August 16, 2005 11:18 EDT

Investors turn cautious on real estate as prices rise

August 15, 2005
Investors turn cautious on real estate as prices rise

A smaller proportion of financial institutions are investing in real estate securitization products in fiscal 2005 due to rising property prices and lower returns, according to a survey by the Association for Real Estate Securitization.

The poll was conducted in May and collected responses from 107 life insurance companies, casualty insurers, trust and regional banks, as well as other financial institutions and company pension funds. The number of respondents who said they invest in real estate investment trusts, including funds of funds, fell 10 percentage points from last year to 78%. Some 38% of investors said they invest in privately held investment funds, a 7-percentage-point drop. With the high influx of investments from foreign funds and other investors, commercial and other buildings in urban areas continue to sell at high prices. "If prices keep rising, it will start looking more like a bubble," said a top manager at a major real estate firm.

Amid such warnings, the market price of listed real estate investment funds plunged last month. The QREIT index released by Quick Corp. closed on Aug. 9 at 189.53, sharply lower than the high for the year of 200.92.

On the other hand, corporate pension funds are boosting their investments in real estate products as they seek to diversify risks. Some 16% of them said they invest in real estate investments, while 22% replied that they invest in privately offered funds, both increases from last year.

_____

Copyright 2005 Nihon Keizai Shimbun, Inc. All rights reserved.

Investment-Fund-Owned Real Estate To Reach Y10tln In FY05

August 16, 2005
Investment-Fund-Owned Real Estate To Reach Y10tln In FY05

TOKYO (Nikkei)--The value of properties owned by investment funds specializing in real estate is expected to triple from three years ago to about 10 trillion yen this fiscal year.

While financial institutions and nonfinancial firms are selling off properties, real estate funds have been picking up office and apartment buildings, with some funds taking on large-scale redevelopment projects in urban areas.

The value of properties for lease, including commercial and distribution facilities, totals about 70 trillion yen, according to an industry estimate. Exchange-traded real estate investment trusts, privately held real estate funds established by Japanese firms, and privately held funds set up mainly by foreign firms account for 15% of this.

In comparison, Japan's six major life insurers, including Nippon Life Insurance Co., hold about 4.2 trillion yen in real estate for lease.

The value of REIT-owned real estate came to slightly less than 3 trillion yen as of July 31. Because REITs continue to acquire properties after becoming listed, Takashi Ishizawa, chief real estate analyst at Mizuho Securities Co., says their assets will likely grow to 3.3 trillion yen to 3.5 trillion yen by fiscal year-end.

Total assets held by 15 major foreign real estate funds are estimated at just over 3 trillion yen. Morgan Stanley Real Estate Funds, believed to be the biggest fund that invests in Japanese real estate, has about 1 trillion yen in assets.

Total assets of Japanese funds are estimated at 3.3 trillion yen, according to STB Research Institute. Based on these figures, the combined assets of REITs and domestic and foreign funds would be just shy of 10 trillion yen. Because "domestic funds are increasing their assets by over 100 billion yen each month," according a senior analyst at the institute, the total will likely exceed 10 trillion yen by the end of the current fiscal year.

Major real estate companies are accelerating efforts to develop properties by tapping real estate funds, which enable these firms to raise money from many investors and reduce risks.

Investment funds calculate the value of real estate based on projected rent revenue, and there are more and more cases in which they acquire properties that have not been completed yet. One example is DaVinci Advisors KK's (4314) <http://www.nni.nikkei.co.jp/servlet/Stock?CODE=4314> acquisition of a building being redeveloped in Tokyo's Shibuya district.

Investors can usually expect yields of 3-4% from REITs and about 5-10% from other real estate funds. On the other hand, there have been many cases recently in which real estate funds have been compelled to purchase properties at unreasonably high prices. REIT prices have been unstable since July, leading some market participants to point out that investors are exposed to greater investment risks.

(The Nihon Keizai Shimbun Tuesday morning edition)

Govt. Publishes 2030 Population Projections

A government study finds that out of 85 Japanese cities, 15 will lose 20% of their populations by 2030, while 10 cities including Tokyo, Fukuoka, and Sapporo will maintain their current numbers.

国交省、２０３０年全国８５地点予測、都市圏の９割人口減――地方の格差拡大。
2005/08/14, , 日本経済新聞　朝刊, 1ページ, 有, 1088文字

　国土交通省は全国に八十五ある都市圏の二〇三〇年時点の人口予測をまとめた。二〇〇〇年と比べると、約九割にあたる七十四の都市圏で人口が減る。特に十五都市圏では二割超減少する。人口を維持できるのは東京、福岡、札幌など十一都市圏だけになる。少子高齢化に伴って地方都市の格差が一段と進み、多くの都市圏で今までのような行政サービスの維持が難しくなる。（都市圏は３面「きょうのことば」参照）
　この予測は、国立社会保障・人口問題研究所が二〇〇四年に公表した市区町村別の人口予測をもとに国交省が都市圏別に集計した。人口十万人以上の都市に、その通勤・通学圏内の周辺都市を加え、一つの都市圏とする。この定義に基づいて集計すると全国に八十五の都市圏が存在し、全人口の八九％、面積では全体の四五％を占める。
　日本の総人口は二〇〇六年にもピークを迎えるとされる。都市圏全体で見ると、ピークは二〇一〇―一五年となり、二〇三〇年の人口は二〇〇〇年比で五百七十一万人、五％分減る。
　都市圏別にみると、室蘭（北海道）、石巻（宮城県）、会津若松（福島県）、鶴岡（山形県）、八代（熊本県）など十五都市圏で人口が二割超減る。北海道、東北、九州で減少が目立つ。こうした都市圏は地域ブロックの中核ではないうえ、産業基盤が弱く、若年人口の流出が加速すると分析している。
　二〇三〇年の人口が二〇〇〇年比で減らないのは、札幌、盛岡、仙台、東京、土浦・つくば（茨城県）、豊田・安城・刈谷（愛知県）、浜松、彦根（滋賀県）、京都、福岡、那覇の十一都市圏。東京都の大半の自治体に埼玉、千葉、神奈川各県の一部を加えた東京圏は一・一％増える。札幌や福岡などは地域ブロックの中核でブロック内から人口が流入すると分析。那覇は本州など他のブロックからの移住が増えるとしている。
　過疎地を含む非都市圏は、すでに人口が減っている。二〇三〇年の非都市圏人口は二〇〇〇年比でさらに三百六十三万人、二六％分減る。
　非都市圏では、すでにこれまでのような行政サービスを維持しにくくなり、市町村合併が進んでいる。今後は都市圏でも生活や交通基盤の整備を維持しようとすれば住民や国の財政負担が重くのしかかる。都市圏でも人口に見合った行政サービスの縮小が迫られる。
　人口減少は避けられないため、国交省は都市圏の機能を集中させ、インフラ整備を効率化することが望ましいと判断。病院や商業施設の郊外への立地を規制するなど都市圏機能の拡散に歯止めをかける考えだ。現在の都市計画は人口増を前提にしており、郊外にいくほど規制が緩い。これを郊外にいくほど厳しくする方針に転換する。

Japan bubble offers lessons

Japan bubble offers lessons
Joongang Daily

August 13, 2005
TOKYO ― Japan's real estate "bubble" in the 1990s was exacerbated by over-eager lenders, and an irresolute and uncoordinated government response, three former and current Japanese government officials at the center of the crisis said 15 years after the bubble burst.
The three, including Representative Tamisuke Watanuki of the Liberal Democratic Party, who was serving as chief cabinet secretary director general of the Ministry of Construction in 1990, recently talked to the JoongAng Ilbo about what they did wrong, hoping to offer lessons for the current Korean government's fight against real estate speculation.
"Financial institutions were most to blame for the real estate bubble," said Mr. Watanuki. "Banks stimulated customer demand by saying, ‘Buy land, we will lend you money, you can only make money through real estate.'"
"Everyone knew that excessive liquidity was the problem, but no one could do anything about it," said Yoshikazu Fujiwara, president of Higashi Nihon Construction Guarantee, who worked for the National Land Agency in the early 1990s.
The Finance Ministry's regulations were ineffective, and by the time it decided to limit the amount of real estate-related loans in April 1990, it was too late, he said.
"The real estate bubble was about to burst."
Mr. Watanuki pointed out that contradictory policies among ministries worsened the situation. "When I was the head of the National Land Agency [in the late 1980s], we levied high taxes on capital gains made from short-term investments in real estate.
"But at that time the finance minister lowered interest rates by 0.25 percentage points and released about 6 trillion yen ($54.4 billion) on the market to cope with the high yen value."
Tax regulations were not effective either, according to Toshikazu Suto, an official in charge of land information at the Ministry of Land, Infrastructure and Transportation, who worked for the Construction Ministry in the early 1990s.
"We taxed capital gains based on actual trading prices by as much as 60 percent, but it was not effective," Mr. Suto said. "The government should have worked from the start to block money from flowing into the real estate market," he continued, "and that's what the Korean government should do now."
Mr. Suto also said real estate policies should be coupled with interest rate policies, adding that the Bank of Japan has admitted that it was wrong to lower interest rates at the height of the real estate bubble in 1990.
"The government should be clear about why it has to raise property taxes and how much of an increase is appropriate. Heavy taxes are not always the right answer. Also, the philosophy that the burden should be increased on people who have a lot of land and houses does not help," said Mr. Watanuki.
"Now I don't think that it's the government's place to decide land and housing prices. The government should allow prices to be set by supply and demand," he added.
"The bubble will burst someday for sure, so a soft landing is important. The Korean government must take into account the consequences of its actions when it is formulating policies," said Mr. Fujiwara.

by Kim Hyun-ki < sungha@joongang.co.kr <mailto:sungha@joongang.co.kr>>

Construction, Real Estate Stocks Hit Year-Highs on Economy Hopes

MARKET TALK:Construction, RE Stks Hit Yr-Highs;Econ Hopes
2005/08/11, 10:59, Nikkei English News, 82 words

0158 GMT [Nikkei/Dow Jones] Handful of construction firms and real estate developers hit fresh year-highs on buying by foreign investors spurred by renewed optimism over domestic economy. Shimizu (1803.TO) up 4.3% at Y584, just off new year-high of Y587; Haseko (1808.TO) up 2.2% at Y281, near fresh year-high of Y284. Mitsui Fudosan (8801.TO) up 4.9% at Y1,411, after new year-high of Y1,425; Tokyu Land (8815.TO) up 3.9% at Y607, near new year-high of Y610.(TIN)

Contact us in Tokyo. 813 5255 2929;
MarketTalk@dowjones.com

Railway Firms Renewing Property Development Along Train Routes

August 09, 2005
Railway Firms Renewing Property Development Along Train Routes

TOKYO (Nikkei)--Tokyu Corp. and other major railway companies that serve Tokyo and its environs plan to resume developing land along their rail lines.
Tokyu plans to kick off in April a joint project with other property owners to redevelop an 8.1-hectare site around its Denen Toshi line's Futako-Tamagawa Station in western Tokyo. The project will entail the construction of nine buildings, including a 43-story condominium complex.
The company also plans to build a commercial complex at Tama Plaza Station, also on the Denen Toshi line. To be opened in 2007, the complex is expected to house 150 or so stores.
In addition, Tokyu is considering redeveloping a former train depot site in Jiyugaoka, Tokyo, for construction of a commercial complex and other buildings.
These moves are aimed at enhancing the pulling power of towns along the firm's railway lines.
With baby boomers approaching retirement age, railway companies see a strong need to revitalize the communities in their service areas to attract new blood.
Keihin Electric Express Railway Co. plans to spend 20 billion yen to build about 670 homes for sale in Yokosuka, Kanagawa Prefecture, by around 2010 in its first real estate project in 20 years.
And Tobu Railway Co. is contemplating redeveloping its freight yard in Sumida Ward in Tokyo, where its headquarters are located. The firm plans to build a commercial-residential complex on the 6-hectare plot.
Around 12 million people reside in the areas along Tobu's railway lines, but the company believes this population may start declining in 2010 or later, centering on Gunma and Tochigi prefectures.

(The Nihon Keizai Shimbun Tuesday morning edition)

Tokyo office vacancy rate falls to 4.76 pct in July - Miki Shoji

AFX News Limited
Tokyo office vacancy rate falls to 4.76 pct in July - Miki Shoji
08.10.2005, 03:44 AM

TOKYO (AFX) - The office building vacancy rate in central Tokyo fell 0.27 percentage points month-on-month in July to 4.76 pct, the 11th decline in 12 months, according to data compiled by real estate broker Miki Shoji.
The vacancy rate is below 5.0 pct for the first time in 41 months.
The average rent in central Tokyo fell 0.25 pct last month to 17,665 yen per 3.3 square meters, Miki Shoji said.
The data covers five wards in central Tokyo -- Chiyoda, Chuo, Minato, Shinjuku and Shibuya -- which have the greatest concentration of offices occupied by major companies.
The data provides further evidence of improving conditions in the property market in Tokyo, which is sparking investor interest in the nation's long-depressed real estate market.
Kiyori.Ueno@xfn.com

Tokyo Has World's 4th-Priciest Homes: Trade Group Data

August 10, 2005
Tokyo Has World's 4th-Priciest Homes: Trade Group Data

TOKYO (Nikkei)--The average price of a house in Tokyo is the fourth highest in the world, trailing Singapore, London and Hong Kong, according to figures released Tuesday by an industry group.
The Japanese Association of Real Estate Appraisal's worldwide land price study for 2005 found the average price of a single-family home in Tokyo, including the land, to be 102 million yen.
In an index in which the price in Tokyo is 100, Singapore came in at 272, London at 151, and Hong Kong at 148. Tokyo used to be the costliest city in which to buy a house, but has fallen in the standings because of the drop in land prices stemming from the bursting of the economic bubble in the early 1990s.
The association conducts its study on land prices in 27 cities in 18 countries and regions across the world every two to three years. Looking at the figures for the last decade, land prices in Tokyo have been declining steadily, sinking more than 20% compared to 10 years ago.
Meanwhile, the uptrend in housing prices is growing stronger in European and U.S. cities on the back of robust real estate markets. The average price surged 270% in London over 10 years while climbing 220% in Paris. Prices have nearly tripled in San Francisco and New York as well.
Tokyo was also No. 4 in a study on rent for commercial spaces, behind Taipei, London and Beijing.

(The Nihon Keizai Shimbun Wednesday morning edition)

Mori Building To Begin REIT Operations

August 10, 2005
Mori Building To Begin REIT Operations

TOKYO (Nikkei)--Mori Building Co. will enter the real estate investment trust (REIT) market as early as fiscal 2006, with plans to limit portfolios to high-quality, recently constructed buildings that have advanced earthquake resistance equipment.
The company intends to establish a private-offering REIT investment entity as early as the end of fiscal 2005. After receiving the required permission, it plans to move on to public offerings through the new entity.
Mori Building will aim for assets of 150 billion yen by the time it makes public offerings. Of those assets, 70 billion yen will be from a portion of the buildings that it owns, while some may come from purchases on the market.
The remainder will be diverted from the Mori Building Urban Fund, set up by the firm in 2003, which manages six properties that are under 10 years old, including Roppongi Hills Gate Tower.
Although it has developed, rented and managed its own buildings, the firm has had to rely on borrowings to secure capital because it is not a public company. It will likely use some income from REIT property sales to repay its borrowings.

(The Nikkei Business Daily Wednesday edition)

Financial Institutions Reduce Real Estate Investments: Survey

Wednesday, August 10, 2005
Financial Institutions Wary Of Real Estate Investments: Survey

TOKYO (Nikkei)--A smaller proportion of financial institutions are investing in real estate securitization products in fiscal 2005 due to rising prices and lower returns, according to a survey released by the Association for Real Estate Securitization.

The poll was conducted in May and collected responses from 107 life insurance companies, casualty insurers, trust and regional banks, as well as other financial institutions and company pension funds. The number of respondents who said they invest in real estate investment trusts, including funds of funds, fell 10 percentage points from last year to 78%. Some 38% of investors said they invest in privately held investment funds, a 7 percentage point drop. With the high influx of investments from foreign funds and other investors, commercial and other buildings in urban areas continue to sell at high prices. "If prices keep rising, it will start looking more like a bubble," says a top manager at a major real estate firm.

Amid such warnings, the market price of listed real estate investment funds plunged last month. The QREIT index released by Quick Corp. closed Tuesday at 189.53, sharply lower than the high for the year of 200.92.

On the other hand, corporate pension funds are boosting their investments in real estate products as they seek to diversify risks. Some 16% of them said they invest in real estate investments, while 22% replied that they invest in privately offered funds, both increases from last year.

(The Nikkei Financial Daily Wednesday edition)

Despite Recent Increases, Overall Land Prices will Continue to Slide

東京の路線価、１３年ぶり上昇――「再開発マジック」は続かず（ニュースの理由）
2005/08/09, , 日本経済新聞　夕刊, 2ページ, 有, 1156文字

　東京都の路線価が十三年ぶりに上昇に転じた。上昇地点は名古屋の中心部などにも広がっている。都市再開発で土地の収益力があがり、投資マネーが流れ込んでいるからだ。ただ、再開発による地価押し上げ効果は一時的で、全国での地価上昇にはつながらない。
　一八・二％も地価が上がった東京・丸の内の「丸ビル」前。同ビルに次いで丸の内オアゾが完成し、さらに新丸ビルの建設が進む。一平方メートル当たり一千万円前後の高地価ゾーン丸の内、大手町での再開発ラッシュが地価を押し上げている。
　丸の内では、ビルの敷地面積に対する床面積の割合を示す容積率の上限はもともと一〇〇〇％だった。ところが丸ビルなどは都市再開発に伴う規制緩和策をフルに生かし三割以上も容積率を高めている。一平方メートル当たりの利用率が三割以上高まるので、土地が生み出す収益を基に決まる地価が上昇する仕組みだ。いわば「再開発マジック」である。
　再開発ビルが建てばこのマジックが機能して地価が上がるが、次の年には容積率は増えないので地価の押し上げ効果はなくなる。丸ビル前のように付近で再開発が相次げば相乗効果が期待できる。しかし、地区の再開発計画が一巡すると、それも期待できなくなる。
　再開発が進む東京・六本木近くの防衛庁跡地前の路線価は五％程度上がっているが、かつて再開発の代表例と言われたアークヒルズ前の上昇率は一％程度にすぎない。一九九〇年代後半に大型開発があって地価が上がった新宿駅南口の路線価は横ばいにとどまる。
　そうした事例を見ると容積率の緩和は地価の一時的なカンフル剤にすぎないことがわかる。カンフル剤をあちこちにうつことによって全体的な地価の上昇をようやく取り戻したのが東京の現状だ。東京の地価上昇はあと数年続いてもいずれ息切れする。拡大する土地需要に引っ張られた八〇年代までの右肩上がりの地価上昇とはメカニズムが異なっているのだ。
　しかも、東京で二〇〇八年までに完成する延べ床面積が一万坪以上の大規模賃貸オフィスは七十棟近く。過剰供給になった上に個々のビルが容積率を増やすと、テナントで埋まらなくなる。埋めようとすると賃料の引き下げが必要となり、容積率を増やした効果が落ちる。
　便利な東京で新しいビルが安い賃貸料で供給されれば、周辺県や地方のオフィス需要を吸収する。その結果、周辺県などでは地価の下落に歯止めがかからない。東京のカンフル剤のうち過ぎの副作用が懸念されているのだ。
　日本は人口減少社会への入り口に立っている。中期的に見たときにオフィスやマンションの需要が減少に向かうのは確実で、全国の地価はなお下がり続ける。再開発マジックにそれを阻止するだけの力はない。
（編集委員　太田康夫）

Crowded market for Japan property trusts

Crowded market for Japan property trusts
By David Turner,Tacoma
FT.com - Published: August 3 2005 15:51 Last updated: August 3 2005 15:51

The Shibuya district of central Tokyo boasts one of the world’s busiest pedestrian crossings.
Shopaholics thronging the large square facing Shibuya station are confronted with a sight to fulfil even their most extreme fantasies: a cluster of huge buildings packed with stores selling everything under the sun. Every so often the image of a dinosaur crosses a huge television screen. It seems an appropriate mascot for the district.
The crowds of consumers who flock to Shibuya testify to the value of its real estate market.
The busy Q-Front building lying just off the square may also provide some hope for the future of Japan’s Y2,400bn ($21bn) market in listed real estate investment trusts (J-Reits), whose average` dividend yields have shrunk from a peak of more than 6 per cent in 2002 to about 3.5 per cent.
Much of the rental income from Q-Front’s retail outlets goes to Tokyu Reit. The trust, listed in September 2003, draws income from the high rents for office and retail property close to the Tokyu railway line, running from Shibuya to Yokohama, Tokyo’s sister city.
The traditional assets for J-Reits were upmarket Tokyo office buildings. But faced with the sight of too much money chasing too few properties - which provoked moderate asset price inflation in central Tokyo for the first time in many years - J-Reits expanded into the area’s desirable residential property sector. Now, even this market has become crowded.
“Opportunities for buying competitive properties at a bargain rate have decreased,” says one official at Pacific Investment Advisors, which runs the Nippon Residential Investment Corporation J-Reit.
J-Reits have been looking further afield in their bid to keep yields up. Retail properties provide one possible solution. The Japan Logistics Fund, listed in May, struck a first by specialising in industrial property. The Fukuoka Reit, listed in June, invests in properties on Kyushu, the southernmost of Japan’s four main islands.
Tomoyoshi Omuro, a J-Reit specialist at Standard & Poor’s, says: “Whenever there is a sales transaction [in upmarket office and residential properties in central Tokyo] a lot of managers rush to the bidding party.”
In their hunt for good properties, listed J-Reits are facing competition from privately placed institutional property funds, which boast Y2,000bn of assets under management. “I think differentiation will be key to success in the future,” Mr Omuro says.
When the J-Reit market began in 2001, the first investors were foreign institutions that had observed the success of the US and Australian Reit markets first hand, according to one expert at Nomura, Japan’s biggest securities group.
He says foreigners still account for about 10 per cent of investment in J-Reits. Growing demand, he adds, has come from domestic institutional investors after a dip in the Japanese government 10-year bond yield to below 1 per cent in 2003.
Regional banks and company pension funds have also shown strong interest in J-Reits, according to Hiroshi Torii of the Daiwa Institute of Research. The launch in 2003 of the first funds of funds aimed at J-Reits and overseas Reits brought in many retail investors.
J-Reit dividend yields have fallen partly because investor interest has sent the average premium to net asset value from zero four years ago to about 40 per cent. Another factor weighing on dividends is supply of Reit-friendly properties. J-Reit managers are reluctant to invest in buildings that lack a track record of cashflow, which excludes many properties.
Some analysts are sceptical about J-Reit investments outside Tokyo. Yoji Otani, property analyst at Credit Suisse First Boston, describes this market as “high risk, high return”, with lower purchase prices but lower rents and a greater risk of vacancies.
However, such worries have failed to stem the continuing growth in the J-Reit market. In July, four funds were listed on the stock exchanges, lifting the total to 22. Mr Omuro of S&P expects five or six more funds to list by the end of the year.
While there may be cause for concern there is no cause for panic, says S&P, whose ratings for J-Reits have been stable. The current average yield of about 3.5 per cent is still more than 2 percentage points above the benchmark 10-year Japanese government bond yield. J-Reits enjoy a similar spread above average dividend yields for conventional stocks and look better compared with the virtually zero per cent interest offered by bank savings deposits.
However interest rates and bond yields will not remain low forever. There is already growing speculation about a possible end to the Bank of Japan’s zero interest rate policy as the economy continues to improve. Experts say investors are always likely to demand a return on J-Reits at least 2 percentage points above the risk free rate of return, and if necessary J-Reit prices would have to fall accordingly.

REITs Causing Bipolarization Of Land Prices Based On Use Value

REITs Causing Bipolarization Of Land Prices Based On Use Value
2005/08/02, The Nihon Keizai Shimbun, page 0, 289 words

TOKYO (Nikkei)--The spread of real estate investment trusts (REITs) is a factor that is forcing the prices of some areas to rise and others to drop depending on use value.
The National Tax Administration reported Monday that land prices in Tokyo climbed for the first time in 13 years, a sign that such prices are bottoming out.
But while land prices in some areas in Tokyo jumped almost 20%, prices fell in other areas of the capital such as the Ueno and Kabukicho districts. This is in sharp contrast from the days of Japan's bubble economy, when land prices increased almost equally across the nation.
In one of Kyoto's shopping districts, the prices of the most expensive lots rose in two locations. In addition to a new, large commercial facility that opened there, foreign investors and others have been buying buildings for investment purposes, according to a local real estate appraiser.
The increase in properties handled by investment funds is believed to have pushed up prices in other locations such as Tokyo's Marunouchi business district and in areas around the main train station in Nagoya.
Meanwhile, the maximum prices of land plummeted 25% in Kofu, where the city center has been deteriorating. Prices there are now only about 12% of the peak in 1992. These prices tumbled because value created by the land, such as store sales and office rent, is seen as small.
Thanks to the popularity of REITs, present-value-based property appraisal -- a new way to assess land value -- has started to take root.
"Even if properties are in the same district, their prices can differ substantially depending on projected profit," says an official from a REIT management firm.

In Tokyo, property trusts look vital again

Around Asia's markets: In Tokyo, property trusts look vital again

- Kathleen Chu Bloomberg News

TUESDAY, AUGUST 2, 2005


This year's rally in shares of Japanese real estate investment trusts, which stalled in July as a record number of REITs went public, may resume this month as investors favor the shares for their dividends.
"REITs will perform quite well if bond yields are to remain low," says Chris Reilly, who helps manage Asian real-estate stocks at Henderson Global Investors in Singapore. "The key driver behind REIT performance is really the need for yield from institutional investors."
The Tokyo Stock Exchange's REIT index dropped 0.3 percent last month, its first fall in five months, cutting its gain for the year to 10 percent.
Shares of Prospect Residential Investment, Japan Single-Residence REIT, Kenedix Realty Investment and Joint Reit Investment began trading in July. Their debuts brought the number of Japanese REITs to 17.
The trusts own properties like office buildings and malls that pay dividends from rental income. REITS listed on the Tokyo Stock Exchange are valued at \2.31 trillion, or about $21 billion. That is equivalent to 6 percent of the U.S.'s $326 billion market, the world's largest.
This year's gain in the Tokyo Stock Exchange REIT index, whose largest members include Nippon Building Fund and Japan Real Estate Investment, outpaces the Topix's 4.5 percent rise and the 9.4 percent increase for the 100-member Standard & Poor's REIT Composite index.

Shareholders of J-REITs, as the investment trusts are known in Japan, typically get most of their returns from dividends. J-REITs on average yield about 3.47 percent, almost three times the Topix's 1.13 percent dividend yield, according to data compiled by Bloomberg. The government's benchmark 10-year bond has yielded below 2 percent for almost five years.
The value of the trusts has risen almost ninefold since the nation's first REIT, Nippon Building Fund, began trading in September 2001.
Domestic financial institutions are the biggest holders of J-REITs, representing 58 percent of investors as of March, according to an estimate by Toshihiko Okino, a senior analyst at UBS Securities. Individual investors account for 20 percent.
"I believe that money inflow into J-REITs will continue, particularly from regional banks," said Hirokazu Nihei, a senior analyst at J.P. Morgan Securities Asia. "The current market size will likely expand further."

The recovery in land prices may be bolstering investor confidence. The commercial land price index for Tokyo, Yokohama, Nagoya, Kyoto, Osaka and Kobe rose for the six months to March 31 for the first time since September 1990, according to a Japan Real Estate Institute survey.
Tokyo office vacancies remained at 5.03 percent in June, their lowest level since March 2002, Miki Shoji, a privately held office brokerage company, said on July 7.
"Japanese property as a whole is reasonably good," says Simon Rivett-Carnac, a portfolio manager at Sarasin Investment Management in London.
The Topix REIT index, which reached a record on July 11, fell 3.7 percent in the week to July 15, its biggest weekly drop. Some investors say the listing of two new REITs that week may have been to blame.
"Oversupply in the short term won't be good, but REITs have proven to be a good investment globally," said Rivett-Carnac, whose fund has risen 16 percent this year.
Then there's regional competition. The Singapore-based CapitaMall Trust, the largest real estate investment trust in Southeast Asia by market value, has risen 51 percent this year, outpacing the 13 percent gain in the benchmark Straits Times index.
Mori Trust Sogo REIT, the best performer on the Topix REIT index, has risen 20 percent since Jan. 1.

Tokyo Land Prices Rise for the First Time in 13 Years

Tokyo Land Prices Rise for the First Time in 13 Years

Aug. 1 (Bloomberg) -- Land prices in Japan's capital, Tokyo, rose for the first time in 13 years in 2004, helping to slow the pace of declines in real estate values nationwide.
Land prices in Tokyo rose 0.4 percent to 460,000 yen ($4,097) per square meter, with prices in the capital's central 23 wards gaining 0.9 percent to 593,000 yen, according to a statement released by the National Tax Agency today. Nationwide land prices fell 3.4 percent to 112,000 yen per square meter, the thirteenth straight year of declines.
A recovery in Japan's real estate values may help prompt investments in home construction and spur consumer spending, which accounts for more than half of the world's second largest economy, as people buy furniture and other products for their new homes.
The 3.4 percent decline in national land prices last year was smaller than a 5 percent contraction in 2003 and a 6.2 percent fall in 2002. The value of land in Japan's most expensive spot on Chuo Avenue in Tokyo's Ginza district rose 9.9 percent to 15.12 million yen per square meter, the statement said.
Signs of emerging demand in central Tokyo have prompted investors to buy shares in real estate companies. Japan's Topix Real Estate sub-index of 45 property developers, including the nation's two largest, Mitsui Fudosan Co. and Mitsubishi Estate Co., has gained 9.2 percent in the past 12 months, compared with a 6.6 percent rise in the wider Topix Index.

Osaka, Nara

Land prices in the areas surrounding Tokyo slid, with Kanagawa and Chiba prefectures falling 4 percent, and Saitama prefecture, south west of the capital, declining 3.3 percent last year. Prices in Osaka, the largest city in western Japan, and its surrounding regions of Hyogo, Kyoto and Nara dropped 4.5 percent to 148,000 yen per square meter, the statement said.
Mitsubishi Estate rose 0.1 percent to end morning trading on the Tokyo Stock Exchange at 1,251 yen, while Mitsui Fudosan was unchanged from yesterday's 1,281 yen closing share price.

To contact the reporter for this story:
Tim Kelly in Tokyo at tikelly@bloomberg.net