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