Why Japanese Real Estate Will Soar in Value
Japanese real estate prices have had a terrible time over
the past two decades. In fact, the market experienced a run where property
prices fell for sixteen years in a row despite the government trying
desperately to reverse the trend and get people to invest.
Now in many countries, real estate booms have created millionaires in a very
short space of time. Some of these local booms have run out of steam -
others, like Japan, could be on the very verge of starting a staggering
up-trend.
The reason that investors are safer to break into the Japanese real estate
market via REIT's is that they are a safer and more convenient form of
Japanese property investment for profits. Non Japanese investors directly
looking to invest in Japanese real estate would face significant hurdles
presented by law, logistical difficulties in viewing properties and
linguistic challenges in communication. Instead REITs are fairly liquid
investments that enable a non Japanese investor to own a stake in Japanese
real estate including commercial and residential property, industrial
structures, shopping complexes and hotels.
The argument for stepping into Japanese REITs are as follows:
1. The Japanese real estate market has performed awfully over the past 15
years. This is a classic example of a market that has fallen to lows and now
reversing as property prices have recently began to buck this downward
trend.
2. Interest rates in Japan are extremely low, and the Japanese public are
fairly cash rich compared to their debt ridden counterparts in UK and USA.
Usually, low interest rates causes an eventual boom in house prices as
people generally buy property when they can afford to service the debt.
3. The Japanese government has been trying to kick-start Japanese real
estate for some time. They have kept mortgage rates extremely low. In fact,
longer term mortgages in Japan can be fixed at about 2% to 3%. Astoundingly,
Japan real estate prices continued it's downward spiral even as the
government slashed short term interest rates to 0% (a level which it kept
for six years). Such was the level of mistrust by the Japanese towards real
estate as an investment.
4. Real Estate Investment Trusts are potentially better than stocks because
the companies that operate them are entitled to specific tax benefits, and
according to law REITs must give investors their earnings. In fact, Japanese
REITs are exempt from corporation taxes as long as they pay out over 90% of
their profits to shareholders in the form of dividends.
5. If (as many experts predict) the yen strengthens against the US dollar,
it could prove useful as a good hedge.
6. Japanese REITs often payout yields of 3% to 4% - a good return given the
potential capital gains expected over the next decade.
7. According to general statistics, not only has the price of Japanese real
estate started to rise, but it is thought that there has been an 80%
increase in the number of investors looking to purchase real estate with the
expectation of future profits.
While Japanese REITs are becoming fairly established, and there has already
been some appreciation from them it could be just the beginning of a very
long story if we really are seeing the beginning of an upturn in the
Japanese real estate market.
What about the drawbacks of Japanese REITs? Here are some of the factors
that you should keep in mind before stepping in:
1. While it's generally thought that the incredibly depressing bear market
in the Japanese real estate market has now turned, there is always a certain
element of risk and unpredictability in any investment. You can never call
the top or bottom of any market.
2. As more global investors and funds understand the potential of the
Japanese real estate scene there will be an increase in the number of REITs
and foreign investment into Japanese property. This could inflate the price
of the REIT market in general and the investor should keep in mind the
amount paid for the REIT share against the net value of cash & properties
per share. Do not get sucked into paying too high a premium.
3. Any future interest rate rises imposed by the Japanese government could
have a negative effect on the value of REITs.
All in all, the underlying potential of owning Japanese REITs is exciting
because if, as expected, the Japanese real estate market does go on a bull
run over the next decade, holders of these REITs will benefit significantly
from their ownership
About the Author
Why Japanese Real Estate Could Be The Best Investment Around Over The Next Decade (Plus Six Other Little Known Investments That Are About To Take Off): Discover The Best Performing Investments Over The Next One To Ten Years 9Free).
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