Securitized real estate market dives

Investment in products based on property deals plunged 65% in '08 amid global crisis

Kyodo News

Investment in securitized products based on property deals plunged 65.4 percent in fiscal 2008 as the real estate market got crunched by the global financial crisis, the government said Tuesday.

Investment came to about ¥3.08 trillion in the fiscal year ended in March, down sharply from the record ¥8.88 trillion logged the previous year, the Land, Infrastructure, Transport and Tourism Ministry said in its latest white paper on land and property.

The market is formed by securitized products linked to income produced by leasing office buildings and condominiums, selling land and property, and other real estate deals.

Several real estate investment trusts, or REITs, are traded on the Tokyo Stock Exchange. There are also investments made through special purpose companies.

Before fiscal 2008, the market was showing notable growth and drawing constant fund inflows from domestic and overseas investors, helping to jack up land prices, particularly in large cities.

In the new white paper, however, the ministry said “the shrinkage (in fiscal 2008) of investments in properties could cause a slowdown in activity, such as urban redevelopment.”

There were only 470 investments, down from 1,523 cases the previous year, it says.

Investment in property outside Tokyo fell to 49.5 percent of total deals from 58.1 percent the year before, suggesting fund inflows slowed in local property markets.

The report notes that the three largest urban areas centering on Tokyo, Nagoya and Osaka saw land prices fall for the first time in three years in residential areas and for first time in four years in commercial areas.

Prices in provincial areas also saw larger declines, suggesting the real estate trade has become inactive, it says.

Estimating the total value of Japanese land and property at around ¥1.254 quadrillion — making it one of the world’s most valuable markets — the paper says there is room to invigorate the market through more information disclosure and increasing transparency in trading.

External assets fall

The balance of Japan’s net external assets amounted to ¥225.51 trillion at the end of 2008, down 9.9 percent from a year earlier due largely to the strengthening yen, the Finance Ministry said Tuesday.

It is the first time in three years the balance has shrunk, but the level was still the second highest on record, following an all-time high of ¥250.22 trillion at the end of 2007, the ministry said.

Although the decline was the largest since 1999, Japan has kept its position as the No. 1 holder of net external assets for the 18th straight year when the balance is compared with the latest figures from other countries provided by the International Monetary Fund, according to ministry officials.

After Japan, China ranked second with ¥137.85 trillion worth of net external assets as of Dec. 31, followed by Germany and Switzerland, according to IMF financial statistics, which do not include data from Taiwan and several Middle Eastern countries.

The balance of net external assets is measured by subtracting the total amount of loans and various forms of investment in Japan made by nonresident investors from those made abroad by Japan’s public and private sectors and by Japanese individuals.

At the end of 2008, the balance of Japan’s external assets fell for the first time in six years, down 15 percent from the previous year to ¥519.18 trillion, the ministry said.