Property investment in Japan grew 16 per cent to a record US$30 billion in the first half of 2007, reflecting the country’s solid real estate market

Property investment in Japan grew 16 per cent to a record US$30 billion in the first half of 2007, reflecting the country’s solid real estate market, consultancy firm Jones Lang LaSalle Inc said yesterday.

The Asia-Pacific region has largely escaped the sub-prime mortgage crisis and will likely see more money flowing in during the coming months while other regions may retreat, it said.

Japan accounted for nearly 55 per cent of total transaction volume in Asia-Pacific for the January-June period. Cross-border transaction volume in Japan’s property market also grew three times to US$15 billion, compared with US$28.2 billion of overall cross-border investments in the Asia-Pacific, region Jones Lang LaSalle said.

‘(Japan’s) office sector remains attractive but other sectors are also targeted such as industrial and hotel assets,’ Jane Murray, head of research for Jones Lang LaSalle, told a news conference.

Land prices in Japan started to pick up last year for the first time in 16 years against the backdrop of an economic recovery, and the property market has drawn money from domestic as well as foreign investors looking for higher returns.

With interest rates in Japan at rock bottom, the low cost of funding has made Japanese assets attractive. In the April-June quarter, the spread between the cap rate - a yield on property investments - and the five-year swop rate stood at 1.56 per cent for Tokyo, while the spread was negative for London, Paris, Frankfurt and New York, Jones Lang LaSalle said.

Still, competition is heating up in Japan.

‘We will see further increased competition from local investors, which means that cross-border investors are going to have to be more creative in their strategies and consider value-added and opportunistic plays,’ Ms Murray said.

Global direct commercial real estate investment leapt 25 per cent to a record US$385 billion in the first half, although Jones Lang LaSalle sees a slowdown in Europe and the United States as some property players which are highly leveraged and now face difficulties in funding amid the credit market woes are staying on the sidelines.

‘We do believe the second half this year will be somewhat lower for the other two regions but the Asia-Pacific region could even be stronger than the first half,’ said Ms Murray.

Cross-border investors purchased US$19.9 billion of assets in the US property market while they sold US$22.7 billion in the first half of this year. In Japan, on the other hand, US$9.6 billion of inter-regional purchases were made while only US$3.8 billion were sold.

Ms Murray said Asian countries had learnt a lesson from the Asian financial crisis of the 1990s and had been prudent in borrowing and had also limited their exposure to sub-prime loans.

China and India will continue to draw investors attracted by their robust economic growth.India, where more than a half of the population is under 25 years old, could offer huge potential, especially if the Indian government takes more deregulatory steps to allow more foreign capital to enter, she said.

India currently restricts foreign investments and activity is limited to property developments.

In Singapore, another hot market, office rents jumped 250 per cent in the last three years, compared with an 80 per cent rise in Japan, Ms Murray said. — Reuters

Source : Business Times - 25 Oct 2007