Japan Country Report 18-20 April 2013 at Singapore
Monthly Report(MAR2013) by Japanese Government Japanese economy is showing movement of picking up recently, while weakness can be seen in some area. Exports are moderately decreasing recently. in weak tone. Import is increasing largely for the oil and natural gas substituting nukrea energy.trade balance in the red. Corporate profits shows sign of improvement, mainly among large firms.. Private consumption holds firm. Public consumption has shown a steady undertone.. Production is decreasing. Firms judgment on current business conditions shows signs of improvement. Employment shows signs of improvement. Although some severe aspects remain. Housing construction has shown a steady undertone. Recent price movements indicate the Japanese economy is in a mild deflationary face.
Economic forecast after the earthquake and the problem with China Consumption tax rate is going to be raised to 8% by April 2014 and 10% by Oct. 2015.Although this increase is not enough to cover the budget deficit. Big investment for recovery. It is stimulating economy especially in Tohoku district. The dispute over Senkaku Island with China is affecting the Japanese investor in China severely. Shortage of electric power is so far managed. However the cost of electricity has gone up because the operation of the atomic power electricity has been stopped. Manufactures will further transfer factories to developing countries and diversify their sources of supply of goods in foreign countries. Some of them will transfer the factories from China to other developing countries. Some real estate companies and individuals are buying the properties in foreign countries
GDP Against the former semi annual budget year adjusted GDP deflator) By Mitubishi UFJ research %(after 3-9,12 10-3,12 4-9,13 10-3,13 4-9,14 10-3,14 Nominal GDP Real GDP -0.3-0.4 1.4 0.8 0.9 0.2 1.2-0.6 1.0 2.3 1.7 1.0 Domestic Demand 0.6 0.3 1.3 1.2-0.8 0.2 Consumption 0.4 0.4 0.5 1.2-1.4 0.4 Housing 2.2 4.0 0.6 1.7-3.3-3.1 Investment -3.0-2.1 3.2 2.9-0.6 2.5 Inventory -0.1-0.1 0.3-0.2 0.3-0.2 Public consumption 1.4 1.0 0.7 0.6 0.7 0.6 Public investment 11.9 3.1 2.3 1.6-3.5-4.9 Overseas Demand -0.5-0.4 0.2 0.1 0.1 0.1 Export -0.9-5.6 1.9 2.4 2.0 2.2 Import 2.5-2.6 0.6 1.6 1.1 1.2 GDP deflator -0.8-0.7-0.4-0.4 1.1 1.4
Abenomicus At the end of last year Mr. Shinzo Abe (Liberal Democratic party) has become the prime minister. He adopted the following policies to change deflationary economy. 1.Inflation target 2% per year 2.Dyanamic fiscal policy 3.Groth strategy in order to stimulate the investment by private sectors.
Abenomicus (2) Inflation Target 2% Correction of too strong yen. Supply of the money without limitation Mr. Haruhiko Kuroda is appointed as the governor of bank of Japan to achieve those purposes. This policy changed the mood of the market dramatically. Stock market rallied a lot. Nikkei stock index 10395 at Dec 2012, 13289 on 10th April. Yen has become weak from 79.60 per 1 $ at OCT 2012 to 98.96 per 1$ on 10 th April
Abenomicus (3) Deflation may be finished, although not easy Abe decided to negotiate with USA & other relating countries to participate in TTP(Trans- Pacific Partnership). TTP requires no tariff on all importing goods. Agricultural industry must be modernized. Also various regulations in the industry must be abolished.
Property Market Outlook Abenomicus stimulated real estate market. REIT Price Index has risen from 1000 at July 2012 to 1600 at April 2013 The property market for REIT is becoming hot. Dividend of REIT is getting lower,has decreased from 5% to 3%. Many foreign funds have started to invest in Japanese properties. The price of the property for REIT investments is increasing.
Reit Index
Residential (condo) market by real estate economic research institute Number of Sold Units,08,09,10,11,12 Metropolitan 43,733 36376 44535 44499 45602 Kinnki 22744 19784 21716 20219 23266 others 31560 23435 18450 21864 24993 Total 98047 79596 84701 86582 93861 Increase(%) -26.7-18.8 6.4 2.2 8.4
Residential (condo) market by real estate economic research institute unit :10,000yen Price of Sold Units,08,09,10,11,12 Metropolitan 4775 4535 4716 4578 4540 Kinnki 3513 3411 3452 3490 3438 Average 3901 3802 4022 3896 3824 Unit = 10000yen Increase(%) -1.8-3.1 5.8-2.5 2.3
Investment Parameters Location Expected Cap Rate(%) Marunouchi,Ootemachi 4.5 4.2 Nihonbashi 5.0 4.8 Toranomon 5.0 4.8 Akasaka 5.0 4.8 Roppongi 5.0 4.9 Njshi Shinjyuku 5.3 5.1 Shibuya 5.2 5.0 Nagoya 6.4 6.2 Osaka 6.0 5.9 Market Cap Rate(%)
Cap Rate of Residential Property Location Studio(%) Multifamily(%) Southern Tokyo 5.8 5.9 Eastern Tokyo 6.0 6.2 Sapporo 7.7 7.8 Yokohama 6.6 6.8 Nagoya 7.0 7.0 Osaka 7.0 7.0 Hiroshima 7.7 7.7 Fukuoka 7.1 7.2
Office Vacancy & Rent by CBRE Office Vacancy Rates Up in Tokyo 23 wards, due to big supply. Tokyo 23 wards Asking rent (yen/tsubo) Q4,11 Q1,12 Q2,12 Q3,1 2 Q4,12 13,050 12,800 12,740 12,550 12,440 Vacancy rate 7.3% 7.2% 7.9% 7.5% 7.5% Tokyo 5wards Q4,11 Q1,12 Q2,12 Q3,12 Q4,12 Asking rent (yen/tsubo) 13,470 13,210 13,110 12,900 12,700 Vacancy rate 7.2% 7.1% 7.8% 7.2% 7.0%
Tokyo Grade A office average rent and vacancy rate
Tokyo 23wards Office supply,absorption and vacancy rate
Office Rent & Vacancy (2) Tokyo Class A buildings Vacancy rate Q4,11 Q1,12 Q2,12 Q3,12 Q4,12 Asking rent (yen/tsubo) Vacancy rate Osaka Asking rent (yen/tsubo) 29,050 29,800 29,900 29,900 29,800 5.1% 6.4% 10.3% 9.3% 8.8% Q4,11 Q1,12 Q2,12 Q3,12 Q4,12 8,730 8,750 8,660 8,560 8,500 Nagoya Vacancy rate 10.7% 10.1% 10.0% 9.8% 9.4% Q4,11 Q1,12 Q2,12 Q3,12 Q4,12 Asking rent (yen/tsubo) Vacancy rate 9,870 9.770 9,720 9,530 9,350 12.5% 12.3% 11.8% 11.4% 11.3%
Office Market Recent Movement Tokyo Grade A vacancy rate declined a full percentage point to 7.8%, and rent is rising to 30,100yen/tubo,1%increase Q to Q base. Grade A vacancy rates in Osaka rose to 18.2% as one of the largest redevelopment projects were completed. Vacancy rates on a declining trend nationwide,as relocations increase. Nationwide rents are mostly flat with signs of rent rising in the cities, mostly in class A.
Influence over the property market by Tohoku Earthquake & Nuclear Disaster The office movement to Osaka, Nagoya From Tokyo seems stopped. Tenants prefer new buildings,anti-earthquake, equipped with electric power generating facility& other security equipment. Condos around the bay area recovered the price. Foreign investors are not active now,however the bottom hunter is coming back.. Japanese banks restarted non-recourse lending against properties.
Japanese real estate market outlook A lot of infrastructure and housing will be constructed in Tohoku District. Diversification of offices and factories will be proceeded, Western Japan will be benefited. Tokyo still grows further albeit this move. Foreign investors are a little cautious, however,bottom hunters are quite active. REITS and funds have started buying properties.banks are positive on real estate finance. Bank of Japan has been buying Japanese REIT since last year. The price of REITS has gone up substantially.
Investment to Japanese properties by foreigners Japanese properties have no regulation over foreigners who can buy and hold just as same as Japanese. Rights of properties are quite clear and are protected by law. Return on investment is relatively high compared with the cost of money. In leverage,say,60-70%borrowing,the return on equity will nearly double over the yield of the property.
Real Estate Investment by foreigner Country Type Amount Time Others Singapore( GLP)& Canadian Pension Deutsch Bank German fund Mass Mutual life Aviva UK Fund USA Fortress Logistics Office in Osaka 220 billion yen 7.5billion yen Residential 5.7billion yen Asian Properties Office Debt Mortgage 48billion yen 130billion yen USA REIT Logistics 4.6billion yen 2/2013 12/2012 11/2012 Total 20-30billion 9/2012 1/2013 12/2012 12/2012
Major Developer s foreign project(2012) Mitsui Fudosan : Participation in housing sales in Dailian Software park Two office building development project in London Moorgate development project. Office purchase in Washington,D.C.,New York, Condo project in Guanzou China,in Singapore. Hotels in Hawaii & Singapore. Outlet park in China Mitsubishi Estate: High rise condo project & office project with Capitaland in Singapore Two office,building purchase in Washington DC, 7 office buildings in London Commercial facilities in Shenyang & condo project in Suzhou Daiwa house : Condos development Changzou Indutrial park in Vietnam Sekisui house : Housing development in Singapore with Far East & Frasers Land development in Seattle & Sydney Sumitomo R&D is preparing to develop condos project in Dailian and in Jakarta and is studying to develop residence project in London. NTTUD: Two office buildings in London and recently bought another office building( f Finsbury Circus at 42.9million sterling pound. It is also participating in the hosing project in Melbourne. Daibiru :Saigon tower in Ho Chi Minh
Some of Japanese developers want to go abroad They mostly want to go to developing Asian countries. They, except a few big one, do not know how to proceed and lack staffs for overseas business. They need local partners. They would like to develop by themselves with foreign partners. If we provide a proper project, they will study seriously. It will take time to make decision, because they do not know the market and the detailed research is necessary.
A Japanese developer s overseas policy Diversification of their assets in the world Transparency of the deal,british law Asia Residence project first with the local partner who is multinational. Target Indonesia, Vietnam, Philippines Malaysia Condo project in Johor Bahru Bangkok Office building (buy & Hold) London Office building (even expensive) USA Office buildings in New York Washington Limited number of staff, VPC s assistance