J-REIT: Recovery underpinned by accommodative financial conditions
2022-09-08
■Since the beginning of the year, J-REIT has shown relative resilience compared to other asset classes such as domestic stocks and overseas REITs
■The financial environment has a greater contribution than the fundamentals, and the BOJ's policy stance from next spring onwards may influence the trend
This report summarizes trends in Japan's domestic real estate and real estate investment trust (J-REIT) market, which is monitored on a biannual basis. The Tokyo Stock Exchange's REIT index, which reflects the overall trend in the J-REIT market, fell below 1,800 in January for the first time in about a year, and the dividend yield rose to about 4%. Although sluggish until mid-March, the index has gradually recovered and is currently recovering to around 2,000. As of September 6, J-REIT (Tokyo Stock Exchange REIT Dividend Index, up 0.6% since the beginning of the year), Japanese stocks (TOPIX Dividend Index, down 1.9% year-on-year), US REITs (NAREIT Total Return Index, denominated in US dollars, Down 17.6% year-on-year), remaining relatively strong compared to other domestic asset classes and overseas REITs.
The recovery of J-REIT has more to do with financial conditions rather than the fundamentals of the domestic real estate market. While overseas countries turned to monetary tightening to curb inflation, the Bank of Japan continued its loose monetary policy, and in Japan, money was still available at low-interest rates. In the foreign exchange market, the yen has depreciated rapidly since mid-March, increasing opportunities for overseas investors to invest in domestic real estate. Looking at the transactions of J-REIT in terms of investor types, in March, when the yen's depreciation accelerated, foreign investors bought a large number of J-REIT on a net basis, driving the index to rise. In contrast, the fundamentals are sluggish, and the average office rent in Tokyo, compiled by Miki Shoji, peaked in July 2020 and has continued to decline for 24 consecutive months. Apartment rents in Tokyo's 23 wards (July: 3,823 yen/sqm), aggregated by Tokyo Kanatei, were little changed from February 2020 (3,792 yen/sqm) before the Covid-19 crisis, with rents continuing to rise to 2020. Without increasing rents, sales and sales prices have soared, and property prices based on the return on earnings method are overvalued.
*1：In September 2016, the Bank of Japan introduced a “yield curve control” policy that sets short- and long-term interest rate targets.