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雷达卡
Real estate sector
SECTOR REVIEW
For a bright future
■ Japan needed the collapse of the real-estate bubble in 2008: Lending
restrictions applied to the real estate industry and funds from 2006 and a
credit crunch triggered by the subsequent subprime loan crisis killed the
mini-bubble in the Japanese real estate market and has forced overseas
investors, who had been aggressively investing in Japanese real estate, to
sell their holdings. However, this situation offers domestic investors an ideal
opportunity to purchase real estate from foreign investors. We believe 2009
will be the final year of clean-up in the aftermath of the collapse of Japan’s
economic bubble in the 1990s.
■ Real estate market has already bottomed out, poised for growth in
2010: Liquidity has already recovered in the Japanese real estate market.
This is because there is demand to purchase real estate provided the price
is appropriate. The reason is that, far from shrinking, leverage is expanding
in Japan at an unparalleled pace, unlike the situation in Europe and America.
The fact that Japan did not expand leverage after 1997 has paid off.
Individuals and companies are in fact acquiring properties from REITs. The
recent recovery in new condominium sales and REINS used property sales
exhibit similar trends.
■ Unprecedented strong official support: Support for the real estate
industry is at unprecedented levels, including the emergency loan guarantee
program, the largest-ever tax breaks on home mortgages, financing by the
Japan Housing Finance Agency and Development Bank of Japan, and
creation of funds utilizing postal savings. The Japan Finance Corporation’s
diffusion index of the funding adequacy of small- and medium-sized
enterprises (SMEs) has already started to improve and if the funding
adequacy of SMEs continues to improve steadily, it will have a positive
impact not only on the real estate sector, but on equity markets as a whole.
■ For a bright future: Japan has a saying that it is best to “borrow in the year
of the dog or boar (Chinese zodiac) (traditionally when the economy is
believed to be not good) and repay during a year of the dragon or snake
(economy believed to be good)”. This expression implies that economic
activity is cyclical, rather than being driven by structural factors, and neither
good times nor bad times last forever. Liquidity has already been recovering
in the Japanese real estate market, and the tipping point is close. We favor
aggressive investment in the real-estate sector at current undervalued levels
and reiterate our OVERWEIGHT sector weighting. The title of this report, For
a bright future, follows up on the theme of our 2009 strategy report (Dance,
dance, dance) issued on 6 January in which we stated our opinion that
Japan is an excellent investment market that should be better regarded by
the world.
Table of contents
Report overview 4
Introduction 4
Report overview 6
Japan needed the real-estate bubble collapse in 2008 6
Time for Japan to dance 6
Real estate prices have already bottomed out 10
Robust government support 12
Stimulus measures already having an impact 13
Nippon, Nippon, Nippon 15
Eight important points for 2009 in the real estate sector 16
1．Money has already returned to the real estate market 17
Balance of lending to real estate industry likely bottomed in March 2009 17
Fluctuating pattern of lending to funds 19
Why did lending for real estate industry start slowing even before the financial crisis? 20
Changes in flow of money to real estate market starting to occur 20
2．Emergency economic stimulus packages and their effects 21
Slew of groundbreaking measures for the housing and real estate sectors 21
Financial support 21
Institutional support 21
Most important among various packages is emergency loan guarantee program 22
From experience 22
Impact on the equity market 23
Steady increase in lending to SMEs 23
Benefits already emerging 24
Largest-ever tax break on home mortgages 25
Capital gains up to ¥10mn to be tax-free 25
Experience shows major tax breaks on home mortgages stimulate housing demand 25
Gift tax exemption up to ¥6.1mn for home purchases 26
Credit creation through increase in bank lending 26
3．Improving condominium market 27
Inventory of condominiums for sale falls by 4,094 units in five months 27
Factors driving improvement are tighter accounting guidelines and an industry shakeout
28
Price recovery also apparent from field surveys 30
Home buyers’ mood changes for the better 31
Time could not be better to acquire residential property 31
Admittedly no prospect of demand recovering to earlier levels 32
4．Tokyo office market is completely stable 36
Expect supply of office floor space in 2009 to be only around half 2003 level 36
Miki Shoji statistical data are not based on same buildings every time 37
Forecast 3.7% real GDP growth in FY3/10 38
Rents not rising, but have no reason to fall 39
5. Sayonara overseas investors 41
Sales properties by overseas investors accelerating 41
Slowdown in speculative funds such as yen-carry trade 45
6. Major misunderstandings 47
Which is bigger, ¥58tn or ¥5tn? 47
US and European CMBS markets have collapsed 47
Japanese CMBS market 48
CMBS do not represent a problem for the Japanese real estate sector as a whole 50
Trouble for SPCs of Tokyo Tatemono and Tokyu Land? 50
Tokyo Tatemono’s SPC 51
Tokyu Land’s SPC 52
7．Revival of J-REIT 54
Establishment of public-private fund offers prospect for revival 54
TSE REIT index trends 54
Expected methods 55
Funding by financial authorities 55
Revisions to system that anticipate M&As 57
Sponsor changes 58
Reducing the risk premium 58
8. Real estate sector has already entered a bull market 61
Share price and land price movements determined by bank lending to the sector 61
Classic bubble and burst cycle 63
Turning point in the market is usually when bank lending restrictions are strengthened
or eased 64
Flow of money into the real estate market has already changed 66
Office rental market 67
Vacancy rates 67
Rents 77
Demand 82
Asian real estate market 89
Can Japan win out over its Asian competitors? 89
High volatility to rents 90
Tokyo an attractive city 91
Land prices 92
Land prices moved lower again 92
Yet land prices have already reached a bottom 93
Japan’s land prices still at 30% of peak levels 97
Background to recent land price fluctuation 99
Stronger land demand and the subsequent downturn 101
Undervalued/overvalued land from profitability perspective 106
Prerequisites for asset inflation 109
The required rate has begun to rise 109
Real estate funds unlikely to fuel asset inflation 112
Current status of urban renewal and areas for redevelopment 113
Special measures for Urban Renewal Law 113
Elimination of laws restricting industrial uses of land 114
Major projects in the Greater Tokyo area 115
1. Tokyo Station and Yurakucho Station area 116
2. Akihabara and Kanda areas 120
3. Tokyo Waterfront Area 121
4. Ring Road No. 2 area, Shinbashi, Toranomon, Akasaka, and Roppongi areas 123
5. Shinjuku Station area 127
6. Tomihisa area along Ring Road No. 4 127
7. Osaki Station area 127
8. Area around Shibuya station 129
Osaka 132
The rise and fall of office areas in terms of passenger throughput at major stations 133
Tokyo Station on the decline, Shinagawa Station rises 133
Redevelopment effect and area competition 135
Repopulation of central Tokyo 136
Central Tokyo population increasing 136
Mostly due to a decline in prices for urban condominiums 136
An end to the return to downtown 140
Real estate taxes 142
No longer the punitive taxes present at time of bubble 142
Problem is low holding costs under real estate tax system in Japan 142
Fundamental reform of real estate taxation system 145
FY3/10 tax reforms 145
Largest-ever tax break on home mortgages 145
Capital gains up to ¥10mn to be tax-free 146
Experience shows major tax breaks on home mortgages stimulate housing demand 146
Gift tax exemption up to ¥6.1mn for home purchases 146
Japan’s secondary housing market 149
Overview 149
Japan’s secondary housing market is small 149
Shortage of attractive home stock 150
Growing stock of better housing 151
Ratings and TPs 152
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