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.