The Japan Times
2005/3/29
By Max Sato TOKYO, AFP
(by courtesy of the Japan Times)

Sleek metallic towers are shooting up into the cramped Tokyo skyline as a real estate boom is engulfing the capital just over a decade after Japan's asset bubble burst.
Driven by rising demand for American-style real estate investment trusts and funds and an influx of people back into the cities, developers are vying over premium land to build on or buying up office towers, condominiums, shopping malls and hotels.
This was reflected in the latest annual government survey, which showed that residential land prices in central Tokyo had risen for the first time in 17 years and commercial land prices had posted their first gain in 14 years.
Since the towering 54-story Roppongi Hills office and residential complex gave a glitzy facelift to an old bar district a few years ago, the development zeal has spread to the Tokyo Bay area.
The Shiodome towers on former rail yards along the bay are now home to the electronics giant Matsushita, Japan's top advertising agency Dentsu and other big names.
Masato Kawamura, a television advert writer at Dentsu, is typical of the young executives working in Shiodome and living in a condo in a neighboring town like Shinagawa, another hot spot for bay-area development.
"The rush of development in our neighborhood has completely changed our view. We cannot see the horizon from our 13th floor balcony any longer," Kawamura said.
A few blocks away from Shiodome, developers are building yet another 58-story complex called the Tokyo Towers on a landfill site under the media campaign "I Love New Tokyo" launched with the face of American actor Richard Gere.
The current boom has some rationale as it is based on an expected steady flow of rents in central Tokyo rather than on the wildly speculative real estate buying that triggered the asset inflation of the 1980s.
But some analysts warned the optimism might be on shaky ground.
"Ten years ago everybody had had enough with real estate investments," said analyst Yasuo Ide, referring to the sudden collapse of land prices that plunged Japan's economy into a deflationary spiral.
"Now foreign investors and newcomers to the real estate market who have not had their fingers burnt are rushing in without thinking of potential risks," said Ide, who heads his own real estate investment research company.
Nevertheless he predicted continued growth in fairly new Japanese real estate investment trusts, called J-REITs, for the next three years to five trillion yen (US$48 billion), more than double the current value.
The REITS were introduced as part of financial deregulation and were eyed as a stimulant for a stagnant real estate market, helping banks slash the cost of bad loans made with land as collateral.
Developers unload risk and recoup their original investment in land and buildings by listing them as a trust on the open market, which investors buy into on the prospect of regular rental returns and potential profits from property resale
Although the average return has fallen to 3.7 percent from four to five percent, the J-REIT market still yields much higher returns than 1.5 percent on 10-year Japanese government bonds and near zero percent in term deposits.
The number of trusts has grown to 16 since the first two were listed on the Tokyo Stock Exchange in 2001 while the value has surged to two trillion yen, although it is still only 0.5 percent of domestic market capitalization.
An additional two trillion yen has been channeled in through private funds.
By contrast, the US REIT market launched in 1960 is the world's largest, with US$307.9 billion in outstanding issues, or 2.1 percent of US stock market capitalization.
But analysts warned that Japan's current boom could get out of hand.
"I think there is a relatively high risk of investing in J-REITs because they are not very liquid," said Eric Perraudin, managing partner of Japan Management Consulting Partners.
Perraudin predicted the J-REIT market might run into trouble in two to three years when all planned high-rises come on stream and demand for office space in central Tokyo stops growing, putting downward pressure on rents.
"The J-REITs have lived only in the zero interest rate environment, so it is still unknown how they will survive when interest rates shoot up in the future," said Tomoyoshi Omuro, director of structured finance ratings at Standard and Poor's.
While mild inflation is welcome in a country where deflation has choked corporate profit margins and delayed a recovery in job creation, analysts said trust and fund sellers were bidding up land prices too fast.
Sachiko Ikeda, a former land developer and now a real estate consultant, said developers catering to real residential demand were reporting that land in central Tokyo was fast disappearing into the trust and fund market.
The investment trust boom will push up the prices of new downtown apartments and the higher concentration of residents in the city could lower the value of existing real estate in the suburbs, she said.
"This is bad news for the average consumer," she said