Japan the new “black” in property

THE Tokyo property market is the new "black" when it comes to property, according to property analysts. In fact, Tokyo is not just the new black, it is the new London and New York.

So confident that Japanese commercial property is the way to go, U.S investment group Franklin Templeton, along with a number of other major institutional investors, have turned their attention to the Japanese property market.

Franklin Templeton late last year increased its exposure to the Tokyo office market from 3% to more than 10% through its Global REITS fund, and Irish based banking group AIB earlier this week announced it is focussing some €400 million on gaining a foothold in the Japan property market. The Dublin bank is raising €80 million, which will allow it to borrow a further €320 million.

Analysts and fund managers worldwide are suddenly turning their attention to the Japanese property market after more than a decade of being “undervalued” and ignored by investment groups.

The Japanese property market collapsed dramatically along with most world property markets in the early 1990s, however, unlike other property markets, the Japanese market has never recovered to the lofty heights of the late 1980s.

“The Tokyo office market is severely underprice,” one Melbourne property researcher told Australian Property Journal yesterday. “We will see a number of major property players make their move on the Japanese property market this year. The problem will be finding stock as it is still very tightly held.”

He said current property valuations in Tokyo, in many cases, were still way below the prices paid in the late 80s and early 90s just before the property bubble burst, however, with the growing interest from international property investors prices will begin an upward spiral.

“There is no doubt the supply and demand maxim will force prices up in 2007, but the usual risk factors of investing in Japan, such as the frequency of earthquakes, will tend to temper over enthusiasm.”

The Japanese office market is the tightest office market in the world.

According to Templeton’s Charles McKinley: “Tokyo is where London and New York were three years ago.”

McKinley said told Reuters earlier this week that net asset values being published were way too low because of the fundamentally conservative nature of Japanese culture, maintaining the status quo by not pushing the envelope.

“What compounds that issue was that the real estate bubble in the late 80s left a serious scar on the Japanese psyche.”

Cities targeted by investors will be Tokyo, Osaka, Nagoya, Fukuoka and Sendai.

Australian Property Journal