| Japanese real estate prices have had a terrible time | | | | than stocks because the companies that operate |
| over the past two decades. In fact, the market | | | | them are entitled to specific tax benefits, and |
| experienced a run where property prices fell for | | | | according to law REITs must give investors their |
| sixteen years in a row despite the government trying | | | | earnings. In fact, Japanese REITs are exempt from |
| desperately to reverse the trend and get people to | | | | corporation taxes as long as they pay out over 90% |
| invest. | | | | of their profits to shareholders in the form of dividends. |
| Now in many countries, real estate booms have | | | | 5. If (as many experts predict) the yen strengthens |
| created millionaires in a very short space of time. | | | | against the US dollar, it could prove useful as a good |
| Some of these local booms have run out of steam - | | | | hedge. |
| others, like Japan, could be on the very verge of | | | | 6. Japanese REITs often payout yields of 3% to 4% - |
| starting a staggering up-trend. | | | | a good return given the potential capital gains |
| The reason that investors are safer to break into the | | | | expected over the next decade. |
| Japanese real estate market via REIT's is that they | | | | 7. According to general statistics, not only has the price |
| are a safer and more convenient form of Japanese | | | | of Japanese real estate started to rise, but it is thought |
| property investment for profits. Non Japanese | | | | that there has been an 80% increase in the number of |
| investors directly looking to invest in Japanese real | | | | investors looking to purchase real estate with the |
| estate would face significant hurdles presented by law, | | | | expectation of future profits. |
| logistical difficulties in viewing properties and linguistic | | | | While Japanese REITs are becoming fairly established, |
| challenges in communication. Instead REITs are fairly | | | | and there has already been some appreciation from |
| liquid investments that enable a non Japanese investor | | | | them it could be just the beginning of a very long story |
| to own a stake in Japanese real estate including | | | | if we really are seeing the beginning of an upturn in the |
| commercial and residential property, industrial | | | | Japanese real estate market. |
| structures, shopping complexes and hotels. | | | | What about the drawbacks of Japanese REITs? Here |
| The argument for stepping into Japanese REITs are | | | | are some of the factors that you should keep in mind |
| as follows: | | | | before stepping in: |
| 1. The Japanese real estate market has performed | | | | 1. While it's generally thought that the incredibly |
| awfully over the past 15 years. This is a classic | | | | depressing bear market in the Japanese real estate |
| example of a market that has fallen to lows and now | | | | market has now turned, there is always a certain |
| reversing as property prices have recently began to | | | | element of risk and unpredictability in any investment. |
| buck this downward trend. | | | | You can never call the top or bottom of any market. |
| 2. Interest rates in Japan are extremely low, and the | | | | 2. As more global investors and funds understand the |
| Japanese public are fairly cash rich compared to their | | | | potential of the Japanese real estate scene there will |
| debt ridden counterparts in UK and USA. Usually, low | | | | be an increase in the number of REITs and foreign |
| interest rates causes an eventual boom in house | | | | investment into Japanese property. This could inflate |
| prices as people generally buy property when they | | | | the price of the REIT market in general and the |
| can afford to service the debt. | | | | investor should keep in mind the amount paid for the |
| 3. The Japanese government has been trying to | | | | REIT share against the net value of cash & properties |
| kick-start Japanese real estate for some time. They | | | | per share. Do not get sucked into paying too high a |
| have kept mortgage rates extremely low. In fact, | | | | premium. |
| longer term mortgages in Japan can be fixed at about | | | | 3. Any future interest rate rises imposed by the |
| 2% to 3%. Astoundingly, Japan real estate prices | | | | Japanese government could have a negative effect |
| continued it's downward spiral even as the | | | | on the value of REITs. |
| government slashed short term interest rates to 0% (a | | | | All in all, the underlying potential of owning Japanese |
| level which it kept for six years). Such was the level of | | | | REITs is exciting because if, as expected, the |
| mistrust by the Japanese towards real estate as an | | | | Japanese real estate market does go on a bull run |
| investment. | | | | over the next decade, holders of these REITs will |
| 4. Real Estate Investment Trusts are potentially better | | | | benefit significantly from their ownership. |