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Tuesday, June 12, 2012

Japan Real Estate



Japanese Asset Price Bubble

The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated. The bubble's subsequent collapse lasted for more than a decade with stock prices initially bottoming in 2003, although they would descend even further amidst the global crisis in 2008. The Japanese asset price bubble contributed to what some refer to as the Lost Decade. Some economists, such as Paul Krugman, have argued that Japan fell into a liquidity trap during these years.
In the decades following Second World War, Japan implemented stringent tariffs and policies to encourage people to save their income. With more money in banks, loans and credit became easier to obtain, and with Japan running large trade surpluses, the yen appreciated against foreign currencies. This allowed local companies to invest in capital resources much more easily than their competitors overseas, which reduced the price of Japanese-made goods and widened the trade surplus further. And, with the yen appreciating, financial assets became very lucrative. One of the major reasons for the sudden appreciation of the yen was the Plaza Accord.

So much money readily available for investment, combined with financial deregulation, overconfidence and euphoria about the economic prospects, and monetary easing implemented by the Bank of Japan in late 1980s resulted in aggressive speculation. particularly in the Tokyo Stock Exchange and the real estate market. The Nikkei stock index hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. Additionally, banks granted increasingly risky loans.
Prices were highest in Tokyo's Ginza district in 1989, with choice properties fetching over 30 million yen (approximately $215,000 US dollars) per square meter ($20,000 per square foot). Prices were only marginally less in other large business districts of Tokyo. By 2004, prime "A" property in Tokyo's financial districts had slumped to less than 1 percent of its peak, and Tokyo's residential homes were less than a tenth of their peak, but still managed to be listed as the most expensive in the world until being surpassed in the late 2000s by Moscow and other cities. Tens of trillions of dollars worth were wiped out with the combined collapse of the Tokyo stock and real estate markets. Only in 2007 had property prices begun to rise; however, they began to fall in late 2008 due to the financial crisis.
With the economy driven by its high rates of reinvestment, this crash hit particularly hard. Investments were increasingly directed out of the country, and manufacturing firms lost some degree of their technological edge and Japanese products became less competitive overseas. The Japanese Central Bank set interest rates at approximately zero. When that failed to stop deflation some economists, such as Paul Krugman, advocated inflation targeting.

The easily obtainable credit that had helped create and engorge the real estate bubble continued to be a problem for several years to come, and as late as 1997, banks were still making loans that had a low probability of being repaid. Loan Officers and Investment staff had a hard time finding anything to invest in that would return a profit. They would sometimes resort to depositing their block of investment cash, as ordinary deposits, in a competing bank, which would bring howls of complaint from that bank's Loan Officers and Investment staff. Correcting the credit problem became even more difficult as the government began to subsidize failing banks and businesses, creating many so-called "zombie businesses". Eventually a carry trade developed in which money was borrowed from Japan, invested for returns elsewhere and then the Japanese were paid back, with a nice profit for the trader.

The time after the bubble's collapse, which occurred gradually rather than catastrophically, is known as the "lost decade or end of the century" in Japan. On March 10, 2009, the Nikkei 225 stock index reached a 27-year low of 7054.98.

Business Monitor International's Japan Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Japan's Real Estate industry.


Japan Real Estate Report Q1 2012

From BMI's Q311 update, in which the outlook for Japan’s real estate market was bleak immediately following the earthquake and tsunami in March, BMI is now envisaging a return to stability in many areas of the country’s commercial real estate sector. Demand for modern and earthquake-proof housing and logistics facilities is increasing steadily, providing opportunities for developers to begin new projects and complete existing ones. This demand is also likely to be supported by a potential increase in investment from overseas, as ongoing debt concerns in the US and eurozone (that do not see signs of letting up) are pushing investors to the more stable real estate market in Asia Pacific. Similarly, BMI has recorded instances of manufacturers looking to emerging markets for their new locations, which may well increase demand and activity in the industrial sub-sector.

However, there is a downside for Japan that has come out of the US and eurozone crises. Japanese banks are looking to improve their balance sheets by cutting back on real estate loans. This could lead to a number of smaller real estate companies experiencing difficulties as they struggle to gain access to funding for their projects. In light of this, survey firm Tokyo Shoko Research Ltd has predicted that the number of bankruptcies in Japanese real estate will increase in 2012.



Key Opportunities In The Real Estate Market:

- An increase in the activity of local real estate investment trusts (REITs) is likely in light of lower prices and this will be alongside continued improvements in their structure in the country.

- A shortage of available warehouse space will prompt an increase in development in the sector, and in the medium term, demand for new premises will continue to support continued supply.

- Over 2011 so far, real estate prices have remained surprisingly resilient, suggesting that the market is stable enough to weather such natural occurrences as March’s earthquake and tsunami.


Key Risks To The Real Estate Market:


- Existing and well known structural problems in the economy, with the government under pressure to rein in its massive debt.

- The difficulty of smaller firms to refinance their loans or gain access to funding may cause bankruptcies. This will also decrease competition in the market, at least for a time, as the larger companies are likely to soak up this extra market share.

- In the office sub-sector, supply in recent months has surged and is expected to surpass demand, which will result in a decrease in office rental levels and an increase in vacant space, particularly in Tokyo.


Sunday, March 25, 2012

Morgan Stanley Buys U.K. Real Estate Loans From Ireland’s NAMA


Morgan Stanley (MS) bought a portfolio of loans backed by properties and development projects in London and Manchester, England, from Ireland’s National Asset Management Agency for an undisclosed sum.
“We’re pleased to be at the forefront in acquiring loan portfolios from NAMA and we look forward to generating value for our investors,” Brian Niles, European head of Morgan Stanley Real Estate Investing, said in an e-mailed statement.
Morgan Stanley, based in New York, acquired the loans for about 65 million pounds ($103 million), or a 70 percent discount, Property Week reported in November. The trade magazine said that West Properties, the company run by Donal Mulryan, will continue to manage the real estate for Morgan Stanley.
The Saturn portfolio consists of about 220 million pounds of loans to West Properties. The debt was acquired by NAMA, which was established to purge Ireland’s banks of 74.2 billion euros ($98.3 billion) of troubled commercial real-estate loans.
Morgan Stanley spokesman Hugh Fraser declined to comment and Mulryan wasn’t immediately available.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net



 To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net

Why You Might Not Want to Invest in Retail Real Estate


These numbers are for the UK but they illustrate a trend that is going on in all of the advanced countries:
*£6bn – Online spending in the UK in 2004
*£23bn – Online spending in the UK 2010
*£1.3 bn – Level of m-commerce in the UK 2011
*£19bn – predicted level of m-commerce in 2019
*15,000 – reduction in town centre stores between 2000-2009
* 6.5% fall in number of town centre shops by 2014

We’re going through a structural change in the whole retail market, one that should be making retail real estate itself less valuable.
Another set of numbers is that roughly 10% of UK retail sales now take place online: and roughly 10% of UK retail space is now empty. That’s long term empty, not just the short term emptiness caused by the turnover in tenants.
Yes, of course, it’s always going to be true that there will be deals in the market. Certain locations aren’t going to go out of style, there may well be further moves from High Street locations to out of town developments and so on. But we have come to a natural break point in the development of the market.
It’s long been a standard assumption that as incomes rise then we’ll all buy more things. More things being bought means the need for more places where things can be bought. But it’s that connection that is now being broken by the online retailing.
Another way of putting this is that yes, we sure are at the bottom of a real estate cycle (it’s far too depressing to think that we’re not at the bottom, are still on the way down) but we’ve also got this structural change in the specific retail segment. It’s entirely possible that as and when the domestic and commercial real estate markets perk up again that the retail part of it will be left behind. For over and above the cyclical effects we have that structural effect impacting on the retail segment.

Newly Imposed Tax on Home Purchases of $3.2 Million (2 Million Pounds) or More in the United Kingdom has some Questioning the Outcome


RoadFish.com men’s lifestyle and finance magazine today discussed the ups and downs of Great Britain’s newly imposed increase on property tax. RoadFish.com understands the goal behind the decision, but wonders if the increase will serve to deter prospective luxury-home purchases and work in the opposite favor.
RoadFish.com
According to Chris Spillane of Bloomberg Business Week, the United Kingdom’s Chancellor of the Exchequer, George Osborne, recently decided to require an increase in the taxing of home purchases within Great Britain that total $3.2 million (2 million pounds) and above, from 5% to 7%. Spillane suggests that this 2% Stamp Duty Land tax increase may damper the purchases of luxurious abodes in the top London neighborhoods.
For folks looking to buy and sell property within the U.K., regular government taxes will continue to be charged on homes less than $3.2 million. Naturally there are neighborhoods that fall within every price range. On the higher end, properties located within the Royal Borough of Kensington and Chelsea has an average asking price of around $3 million. Purchases made in less luxurious neighborhoods and on less expensive houses will not see any additional increase. Estate agents are available to guide potential homeowners or home sellers within the current U.K. real estate market.
Business Week goes on to report that in addition to the higher tax, which became enforced on March 22nd, the government will also charge a 15% tax on all properties worth over $3.2 million being purchased by a business or company looking for a loophole through the tax system. Property economist at Capital Economics in London, Paul Diggle, is quoted in Business Week’s article as saying, “There’s the potential that it will skew the market more toward those wealthy overseas purchasers. There’s a large share of people who are homegrown, well-off residents who this will affect more.”
RoadFish.com’s Senior staff writer is quoted as saying, “On the one hand, the Chancellor will definitely pull in some more taxes from the wealthy. No doubt about it. And of course the folks who are well off are in a much better position to be hit with a tax increase than the middle or lower classes. However, I do wonder whether this inflated tax on luxury home purchases will sway would-be buyers from actually buying down, to avoid the 2% increase. I suppose only time will tell if this tactic will be advantageous.”
James Chapman, Becky Barrow, and Rob Cooper of the Daily Mail UK referred to the heightened tax as a “tax grab on the wealthy,” and further reported that Osborne stated that the clampdown will help raise “five times more.” The Daily Mail article quoted Chancellor Osborne as saying, “It is fair when money is tight, and so many families could do with help, that those buying the most expensive homes contribute more.” The article reports that in November, 121 homes were bought for more than $3.2 million, and 98 were in London.
The above-mentioned Business Week article reported that according the Land Registry, approximately 1,620 properties worth over $3.2 million were sold last year in England and Wales combined. Business Week states that a report issued by independent global residential and commercial property consulting firm, Knight Frank LLP, revealed that luxury-home prices in central London reached new heights in March 2011. Knight Frank LLP claims that the boost was a result of wealthy overseas buyers seeking safety by investing in property in “one of the world’s most resilient property markets.”
About RoadFish.com
RoadFish.com is an online men's lifestyle and finance magazine targeted toward men in their 30’s and 40’s that have already attained a moderate level of success in life, and are striving toward more. It goes over current events of interest to this group, such things as exciting adventures, making money, consumer interests, hot chicks, andtraveling abroad, as well as ways to make more and save more money. It is a publication owned by Purpose Inc.

Property Specialist Eyes Distressed Opportunities


Co-founded by managing director Russell Platt in 2002, Forum, a London-based real estate specialist, is seeking a new investor base of global pension funds and the global rich, particularly the super-wealthy in Asia.

Forum, with $6bn of assets under management, charges an asset management fee of 1-1.5 per cent plus 20 per cent of profits – a cost structure that is coming under increasing pressure as institutional investors question the value such managers provide.
“There are legitimate grievances that the pension fund industry has about fee structures and we’re attuned to those,” says Mr Platt.

What value does Forum provide? The group is an independent global real estate investment management and corporate finance group with 60 people spread across its offices in London, the US (Santa Fe and Greenwich), Hong Kong, Tokyo, Beijing, Singapore and Mumbai.

Despite being a real estate investor, Forum does not buy property. “What some folks do is buy buildings. What we try to do is buy real estate operating companies,” says Mr Platt.

Forum is used to dealing with very large investors. TIAA-Cref, the US investment fund and annuity operation, agreed to back Forum’s first Asian fund launched in 2004. “We owe our existence to their early sponsorship,” says Mr Platt.
It also counts the large Dutch schemes, ABP and PGGM, among its current clients, and provides “white label” property strategies for a number of large fund managers.

Looking to the future, Forum has no immediate plans to launch any new funds. “A fund comes with a lot of benefits,” says Mr Platt, “but it comes with a lot of restrictions too.” The most onerous, he adds, is the specific time window in which to make investments.


As a way around this, Forum is seeking new investment partners to form investment “clubs”, with a specific focus on European distressed property assets.