25 Sep 2020
Japanese real estate funds and developers focusing on the retail industry are at the top of a stock market rally, as investors bet the cheap sector will perform better amid a recovery in consumer spending.
Ever since the Japanese economy bounced back from coronavirus-led lockdowns, the stock market has risen by almost 9% since August.
Purchases of properties such as shopping complexes and mixed developments including both shopping and restaurants has also increased, fuelling the recovery.
MSCI’s index of Japanese Real Estate Investment Trusts (REITs) has climbed 11.6% since May.
"If you look at the properties in our portfolio that rely on Japanese customers, retail sales have bounced back by 90% to 120% year-on-year from June," said Keita Araki, head of the retail division at Mitsubishi Corp-UBS Realty Inc, which manages the Japan Retail Fund Investment Corp.
Last month, Araki’s REIT purchased a four-floor high property in a known shopping district in the southern Japanese city of Fukuoka for 5 billion yen.
The price of his retail REIT has surged 65% above the lows seen in March, but is still 32% below pre-coronavirus levels.
Another advantage pertinent to Japanese REITs and property shares is the fact that they are so cheap. Investors tend to trade at an average of 0.87 price-to-book value, which calculates the share price in relation to the firm’s net assets, according to data from Refinitiv.