Sunday, November 10, 2013

Looking to invest in Japan's real estate

There has been much news about the economic reforms that the Japanese government is embarking on to revive its economy. Japanese prime minister Shinzō Abe has launched Abenomics which is a combination of measures such as quantitative easing, increased public infrastructure spending and the devaluation of the Yen. Maybe now its a good time to look into investing into the Japanese market as its economy sets to recover from the lost decade it has experienced.

Why is it worthwhile to look into investing into Japan's real estate? By this, i don't mean that you buy a property directly in Japan. Alternatively, you can invest into a variety of real estate investment trust and business trust which are already listed in the Singapore stock exchange. Let's look briefly into the history of Japan's economy to understand better why they are positioned for growth in the future.

Japan's real estate prices were rising tremendously from 1986 to 1991. This formed an asset price bubble and the bubble burst in 1991 sending real estate prices down into negative territory. Japanese Yen was appreciating a lot due to the Plaza Accord. This was an agreement to depreciate the US dollar in relation to Japanese Yen and German Deutsche Mark. Both these 2 events lead to the Japanese economy suffering and ended up in deflation. I will leave out the finer details of what happened exactly but i hope you got a rough idea.

Japan's government has set an inflation target of 2% to reach by 2015. Prior to that, Japan has been in a deflation state for many years. As prices keep dropping, Japanese people defer their buying in the hopes that they can buy it at a cheaper price later. This is completely opposite from our current state in Singapore where people rush to buy properties because they are afraid that prices will keep going up. It's the thought that if i don't buy it now, it's going to get more expensive.

So with prices set to rise in Japan, it's timely to consider investing into Japan's real estate and ride the growth that is about to happen.

Let's look at some of the companies that we can consider investing into that are listed in Singapore.

Saizen Reit
Saizen Reit has a portfolio of income producing real estate. These properties are mostly residential properties. To date, it has 139 properties spread across 14 cities in Japan. Occupancy rate is at 91.9% on average in FY2013. As home ownership is low at about 60% in Japan, rental properties are still in strong demand there. Rental prices are set to rise as the Japan's economy recover.

One of the residential properties owned by Saizen Reit

Stock price for Saizen reit is currently at 0.93. Net asset value is $1.22 as presented in their recent november 2013 presentation. Thus, it is trading at a discount to NAV of 23.7% . Gearing level is around 34.7% which is quite normal for a Reit. Distribution yield for the whole of 2013 was about 5.2% which is fairly attractive.

For those investors who're interested in having a part in Japan's residential real estate, you can consider Saizen Reit.

Croesus Retail Trust
This is a business trust engaging in retail properties. It currently owns 4 shopping centres in Japan. This company just IPO in Singapore on 10 May 2013 this year. IPO price was 0.93 per unit. On first trading day, the stock opened at 1.12 and was at a high of 1.18 before tumbling down to 0.875 currently. This is already a 22% drop from opening to now. This fall in price presents investors an opportunity to buy the stock at a cheaper price.

One of the malls under the management of the trust, called Luz Shinsaibashi

Fundamental wise, NAV is calculated to be at 0.90 per share. Thus, the current price of 0.875 is trading at a slight discount to NAV. The company has promised to payout 100% of its income to shareholders for the first 2 years. Thereafter, a 90% payout ratio can be expected. The forecast dividend yield will be around 8.5% if you bought at current price. This is quite an attractive yield. However, gearing level is quite high at 43.7%. I guess with high yield comes higher gearing level too. But i think Japan's interest rate will remain low for quite sometime thus it won't affect its loan tenure too much. The weighted average debt maturity for them is around 5 years. The only thing we can hope for is the management use the debt wisely to acquire more assets and enhance shareholder's value.

This is a chance to invest into Japan's retail property market. Investor's who're keen in it can consider Croesus retail trust.

*I do not hold any shares in the above companies as of now. But i'll be looking into accumulating some soon.

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  1. Good write-up. I absolutely love this website. Keep it up!

  2. I need to to thank you for this great read!!

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