After being out of favour for almost a decade, the property market should be boosted by the arrival ...
After being out of favour for almost a decade, the property market should be boosted by the arrival of real estate investment trusts on the Tokyo Stock Exchange.
The exchange is eager to have its new venture up and running as quickly as possible and is looking to commence trading as early as January 2000. No trusts are yet in existence and those being formed will be run by existing Japanese property companies.
Scott McGlashan, head of the Japanese equities at Perpetual, says he would be surprised if they are up and running by January or February 2000. However, he thinks the project should be in place next year.
Graeme Sinclair, head of the Japan department at Murray Johnstone, believes the introduction of the market will help increase property prices. He says: "The feeling is that the new listing will attract buyers back to Japanese property investment trusts. The perception is the real estate market will also grow from all the added interest."
McGlashan agrees, saying: "People have been talking about the introduction of this market for some time - they see it as a way of getting Japan out of its hole."
He adds that the new market is highly attractive for a yield-hungry Japan, especially life insurance companies.
McGlashan says: "These firms need to maintain a 2.5% yield on their investments and with government bonds they are getting around 2%. The property market is looking at yields of 5% or more."
Sinclair says investors have been waiting to increase their holding in the Japanese property sector but needed some encouragement.
He judges that overall the market recognises that there are potentially good yields in the property sector.
He adds: "In the past, the weak land prices I have meant investors moved to more positive growth areas like electronics, the service sector and precision instruments. It has kept investors away from the property market but there are signs they are ready to return."
McGlashan says the smart foreign money has been in property for a year and although investors have made losses of around 7% to 8% for 1999, in the long term they are going to make a lot of money.
Perpetual has invested in shipping company Iino Kaiun, trading around ¥175, it has a clean balance sheet and positive cash flow but it also own a large office building, through a company which has an estimated share price of ¥300.
McGlashan adds: "When the property market improves I don't see why the shipping company couldn't double in price."
In the bad times for property during the 1990s, the large companies were among the hardest hit, Graeme Sinclair says things now look much more positive for them.
He says: "Companies like Mitsui Fudosan underperformed by around 50%-55%, but have bounced back on the strength of positive sentiment. We have seen their share price improve from ¥660, to as much as ¥830. It now sits around ¥761."
Banks were also affected by the depressed state of the property market but as the real estate market improves, so should the outlook for financial institutions.
McGlashan says many banks had written off their property investments as bad debt but could now actually see some profits from these sources.
Sinclair adds: "There are more issues than just real estate that affect the banks. The banking stocks haven't performed like real estate, the banking sector has grown in line with the market, outperforming the index by 12% over the last year."
Industry Voice: Scottish Widows pension expert Robert Cochran and economist Andrew Scott discuss the future of employment and income, in episode three of Scottish Widows' podcast series.
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