Real estate investment trusts (REITs) have long been a favourite among stock market enthusiasts who want to capitalise on global property markets without sacrificing affordability, diversity and liquidity.

Many Singaporeans are familiar with Singapore REITs, but not many people are aware of Japan REIT (also called J-REIT).

japan-reit-featured-image

Japan is the second biggest property investment market in the world, they have their own set of REITs for nearly two decades. So if you are a REIT investor, you got to know Japan REIT.

I am glad to introduce Ziv Nakajima-Magen, an insider of Japan’s property market, to share with you the insight about the J-REIT arena.

Magen is a partner and executive manager of Nippon Tradings International (NTI). In this article, he provides a brief introduction to the J-REIT arena, some general and more specific information regarding yields and market capitals, as well as a quick look at what the future might hold in store for these investment vehicles.

Brief History & Current Status of Japan REIT

Japan’s real-estate investment trust market, first launched in 2001, currently holds over 50 listed J-REITs.

These REITs cover all property sectors, from residential and commercial to logistics, hotels, senior assisted living and even infrastructures. Many of the major players covering two or more sectors, and providing nation-wide coverage, as well as some which operated in specific, localised cities and areas, to suit all investor appetites.

Having suffered a slight drop following the 2008 global financial crisis, when several major players went bankrupt and others conglomerated into single entities, the market has since recovered, gained several new and prominent companies (more on those below), and is now responsible for the vast majority of core asset purchases in Japan on an annual basis.

Dividend yields vary from 2.88-8.39%, with the average resting at approximately 3.84%. Considering the average return of these core assets in the country with the yield at about 3.5%, this return is more than reasonable, and on par with market benchmarks.

Major J-REITs in Japan

Following is the chart of the top five J-REITs currently operating in the market, by both dividend yield and Net Asset Value (NAV) ranking:

top-j-reit
Source – “Japan Real Estate Investment Trust Portal

Some of the more internationally renowned J-REITs currently operating in the market, in no particular order, are

  • Nippon Building – 8951 (Office, app. 865 mil JPY cap)
  • ORIX JREIT – 8954 (Diversified, app. 478 mil JPY cap)
  • Japan Real Estate – 8952 (Office, app. 788 mil JPY cap)
  • Nomura Master – 3462 (Diversified, app. 696 mil JPY cap)
  • Advance Residence – 3269 (Residential, app. 394 mil JPY cap)
  • Nippon Prologis – 3283 (Logistics, app. 458 mil JPY cap).

Pros & Cons of investing in Japan REITs

While the advantages of REIT investing are many (affordability, liquidity, centralisation, accountability and diversity are just a few of those), it is widely considered to be a solution for those wishing to stay within their comfort area of stocks and equity trading, while increasing their exposure to the real-estate property investment market sector.

While investing in REITs, you can benefit from the traditional stock market fundamentals of relatively cheap entry levels and liquidity. Even though the dividend yields may be lower on average when compared with direct property ownership, you gain the following:

  • The hassle-free nature of a centrally managed investment
  • The ability to “cut out the middle-man” as far as asset management is concerned
  • Having the ability to potentially gain further profits on equity trades, is a win-win scenario for many.

Furthermore, the attraction of J-REITs is in providing access, albeit limited, to Japan’s property investment market, Asia’s largest and second globally only to the USA, without the need to navigate around the daunting language and cultural barriers normally associated with doing business in the land of the rising sun.

Recent Developments of Japan REIT market

2016 has been an exceptionally good year for J-REITs, mainly due to the Bank of Japan’s two complementary policies–

  • Negative interest rates, a policy which has been introduced in an attempt to force Japan’s bigger companies and institutional funds to allocate more resources to external investments and further buoy local equity markets. As a result, and due to other factors as well, government bond yields have dropped significantly, and are traded at close to 0%, at times branching into negative territory themselves.
  • Government mandatory REIT asset allocation, a policy which has seen the Japanese government committing to purchase roughly $865 million USD in J-REIT shared annually, as part of its re-inflation efforts and unprecedented QE moves in recent years.

The above policies have seen the J-REIT index surging. But rising price is a double-edged sword. Higher price means relatively lower dividend yield. Investors who have been trading these shares actively have made some handsome profits in the process, but it also makes the Japan REIT market one of the world’s priciest REIT market.

However, due to the lack of alternative investment models which allows foreign investors to freely operate in the Japanese real-estate property arena, this hasn’t seemed to dampen the appetite for J-REIT shares globally.

The dwindling stock of lucrative core assets in the market, however, has seen most prominent J-REITs purchasing less and issuing smaller numbers of share units in the last year. This is another factor which has served to maintain demand for these ever-pricier existing units.

japan-reit-property

This situation is unlikely to change significantly before the 2020 Tokyo Olympics, as the supply of new properties is still struggling to meet demand from both local and international investors.

The Near Future of Japan REIT

There are three major property market segments which will likely see an increase in asset allocation in coming years. These markets will most likely attract more J-REIT attention:

  1. Hotels & Accommodation – as the 2020 Tokyo Olympics approach and international tourism increases in anticipation, Tokyo and other major cities, which are already operating at extremely high occupancy rates, will most likely continue to increase in profitability and generate more investment interest.
  2. Logistics – with the high uptake in internet shopping and the commitment to same or next day service in most parts of the country, warehouses and packing facilities on the outer suburbs of these cities are already enjoying, and will most likely continue to enjoy, popularity.
  3. Senior assisted living – as Japan is considered to be the world’s fastest ageing population, the country is facing many unique challenges. These serviced properties and community centres are already being highlighted as increasingly attractive investment targets. While profitable investment models are still lacking, it can be expected that J-REIT exposure to these assets will increase accordingly.

To quickly recap…

Japan’s REITs give you the exposure to one of the world’s most popular real estate property investment markets.

Although the REITs become quite pricey recently when compared with other similar markets around the world, J-REITs offer decent and stable returns.

Japan REITs not only offer the usual, more traditional asset allocations, they start to adopt more creative investment strategies and invest in unique segments.

The author of this article Magen, who also contributed the images, specialises in assisting investors in capitalising on Japan’s real-estate property market. If you find this article useful, he can be contacted at info@nippontradings.com.

If you have any question or comment about Japan REIT investment, simply leave your comment below…

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

  • Hi Ivan,
    Interesting article. Thanks. Are there any unit trust that is Japan Reits related? What’s the best way to invest aside to physically buying a property in Japan.

    Anthony

  • Highly informative! I’m a REIT Investor was looking for some instruction. Good point out from the worlds second largest Japan REIT. Definitely, I will be careful about my investment from now. Keep us update with this REIT markets.

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