Abe property boom spurs REITs to favor stock sales

Real estate investment trusts are raising more funds from shares and avoiding a volatile bond market, as investors bet “Abenomics” will boost property prices.

REITs offered ¥222 billion of equity this year, already the busiest quarter since the final three months of 2013. Note sales have dropped 39 percent to ¥23 billion from a year ago, after ¥149.6 billion of issuance last year that was the most since 2010.

Tokyo office prices have risen to the highest since the third quarter of 2008 and Mizuho Securities Co. expects a further increase as Prime Minister Shinzo Abe deepens economic stimulus. While 10-year government bonds yielded 0.345 percent on Monday, near the record low 0.195 percent reached in January, price swings have jumped to the highest since May 2013.

“There are still lots of expectations that investment-grade real estate prices will continue to rise and that REITs will have difficulty acquiring properties,” said Takashi Ishizawa, a senior researcher at Mizuho in Tokyo. “Instability in the JGB market is affecting REIT corporate bonds.” JGB is a reference to Japanese government bonds.

Land values rose in 125 out of 150 sites monitored by the government in the three months ended Jan. 1, the most on record going back to 2007, a survey by the Ministry of Land, Infrastructure, Transport and Tourism showed Feb. 27. The floor price of Tokyo offices rose about 12 percent from a year earlier in the October-December period last year, to the highest since 2008, data from Daiwa Real Estate Appraisal Co. show.

Nippon REIT Investment Corp., which has offered the second-most shares in Japan so far this year, said in January that it will pay ¥76.9 billion to acquire 31 properties, mainly office buildings in the nation’s capital. Its assets have more than doubled since it was listed in April 2014 to about ¥150 billion, according to a statement from the company.

Real estate purchases by REITs increased 72 percent from a year earlier in the first two months of 2015, according to data from IBRC Inc., a Tokyo-based research firm.

The boom in buying is driven by “strong REIT shares and the fact that companies can sell properties more easily at the end of business years in December and March,” said Yoko Fujinami, a researcher at IBRC.

The Tokyo Stock Exchange REIT Index has risen 28 percent in the past year.

“Strong buying demand from J-REITs is a factor for pushing up real estate and land prices,” said Masahiro Mochizuki, an analyst at Credit Suisse Group AG in Tokyo. “This is going to continue for a while.”

Bank of Japan Gov. Haruhiko Kuroda’s board expanded already-unprecedented bond buying in October as consumer-price increases slowed. The BOJ now buys as much as ¥12 trillion of government bonds a month in an effort to accelerate inflation to 2 percent. The gain in the cost of living excluding fresh food eased to 0.2 percent in January from 0.5 percent in December when the effects of an April sales-tax bump are stripped out.

Government data on Feb. 27 showed strength in the nation’s export industries and weak domestic demand. Industrial production jumped 4 percent in January from the previous month, exceeding forecasts with the biggest gain since June 2011, according to trade ministry data. Retail sales fell 1.3 percent and household spending also dropped.

The yield on 10-year bonds has fallen 20.5 basis points since Kuroda began his first installment of monetary stimulus in April 2013. Volatility on the nation’s sovereign notes rose to 4.6 percent last week, the most in 21 months, according to data compiled by Bloomberg.

“There’s nervousness about the outlook” of the property market, said Mizuho’s Ishizawa. “Mr. Kuroda is working hard, but we don’t know what will happen when he quits. But for now, people think with interest rates low and a good fundraising environment, real estate prices will be fine.”