PERE Japan: Time to ‘go back to basics’

International capital is getting drawn back into Japan’s property market once again, but sector executives say a lot has changed since previous boom-bust cycles.

The resurgence of interest in Japan’s property sector and high asset prices in the market are making many people wary of another impending bubble, but panellists speaking at the PERE Japan 2015 Forum believe the market has matured with time.

Fred Uruma, president and chief executive officer, Touchstone Capital Management, and the moderator of the opening panel of the forum held in Tokyo today, pointed out, there has been an appreciation in asset values and rents have hit rock bottom in Japan, which is bringing back memories of earlier real estate boom and bust cycles in the country.

There was unanimity amongst the speakers, however, that the country has learnt from the blows of the past.

“The market is disciplined as much as it is booming,” said Hidetoshi Ono, managing director, Japan Manulife Real Estate. “Equity investors have become more discreet. There is no such thing as a crazy bid from institutional investors anymore. The outrageous bids are coming only from people with little experience in the market.”

In another contrast from the previous cycles, the approach of the stakeholders in the industry – lenders, investors, vendors and service providers – has also now changed, according to Toru Bando, Morgan Stanley Real Estate Investing’s recently-promoted head of Asia. “It was a debt-driven market earlier,” he said. “Now 100 percent of the financing comes from Japanese domestic banks.”

Bando spoke about how he thinks about the per tsubo (Japanese unit of measurement) cost before making a deal in Japan instead of focusing only on yields and IRRs. “If you’re thinking about big capital, it is better to go back to basics and back to the roots instead of getting caught up in fancy graphs and macroeconomic fundamentals,” he said.

Panellists also discussed how these differences in fundamentals in an environment of corporate sector reforms and other policy measures being implemented under Abenomics is throwing up several opportunities in the market.

“This [current] cycle is prominent, but one can beat the cycle and take advantage if you buy and sell at the right time. What is also unique is there is a lot more interest by foreign investors in different asset classes such as hospitality and healthcare,” added Ken Chan, representative director, Japan, GIC Real Estate.

Hidetoshi added: “Corporate governance is pushing companies to get rid of real estate on their balance sheet. In the past, the companies were forced to sell in the bad times, which created opportunities. Now even in the good times, companies are serious about getting ROIs (return on investment) and are offloading assets which will provide much-needed supply in the market.”