Japan property market a rare source of stability amid coronavirus

Name: Japan’s economy gets US$1.1 trillion stimulus after coronavirus state of emergency ends
Uploaded: 2020-09-28T08:30:14.000Z
Duration: 1 min 11 s
Description: Japan’s economy gets US$1.1 trillion stimulus after coronavirus state of emergency ends

The pandemic has accentuated the appeal of Japan’s property market and revealed some of the misconceptions about Asia’s largest real estate investment market

While fears of Japan’s economic malaise spreading globally have intensified, the country’s real estate investment market has outperformed its regional peers

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Cranes operate at a construction site in Tokyo on May 13, 2019. Tokyo was the world’s most actively traded real estate investment market in the first six months of this year, ahead of New York and Paris. Photo: Bloomberg

Nicholas Spiro

Published: 4:30pm, 28 Sep 2020Updated: 10:19pm, 28 Sep 2020

Long before the Covid-19 pandemic struck, Japan was engaged in a fierce battle against deflation and anaemic growth. While there were some notable successes under former prime minister Shinzo Abe, whose bold stimulus programme crushed bond yields and drove down the yen, Japan never emerged from stagnation.

The coronavirus has exacerbated the country’s economic malaise, causing a much deeper recession and making it more difficult for Japan to revive growth and undertake the necessary reforms to address a rapidly ageing and shrinking population. The crisis has also fuelled concerns that other parts of the world, notably Europe, are succumbing to “Japanification”.

Investors in Japan’s real estate market see things quite differently, though. While Japanese commercial property transactions fell 22 per cent year on year in the second quarter of this year, foreign investment surged 45 per cent, according to data from CBRE.

In the first half of this year, cross-border investment accounted for 26 per cent of transaction volumes, compared with 17 per cent for the whole of 2019, according to data from Jones Lang LaSalle. Tokyo, moreover, was the world’s most actively traded real estate investment market in the first six months of this year, ahead of New York and Paris.

The sharp increase in foreign investment is all the more noteworthy given that Japan is a market in which cross-border capital has traditionally accounted for a relatively small share of transaction volumes. However, the pandemic has accentuated the appeal of Japan’s property market and, in so doing, revealed some of the misconceptions about Asia’s largest real estate investment market.

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Japan’s economy gets US$1.1 trillion stimulus after coronavirus state of emergency ends

First, while many economists fret about Japan’s high level of public debt and its persistently sluggish growth, property investors take comfort in the stability and predictability of a market that has long been perceived as a relative safe haven. The combination of a mature and liquid investment market, more stable returns, relatively strong occupier fundamentals and a currency that is a haven in itself is a magnet for investors with “core” or “core-plus” strategies that target secure, income-producing assets in the best locations.