The future of Japan is looking brighter, and equity positions on real estate appear as a viable route to play the expected economic turnaround in Japan. Bullish sentiments can be felt from the reported growing number of foreign investors keen on residential and commercial property acquisitions in the country.
Drawn by favorable factors, like attractive property valuations, these investors are also convinced that the recent economic policies of Prime Minister Shinzo Abe could revive the Japanese economy from years of hibernation.
Helping boost such sentiments are influential local and overseas policy makers who favor the Japanese prime minister's policies. Touted as "Abenomics," these growth-drivers essentially call for structural reforms, free trade, easy monetary policy, and relaxed labor policies.
Tailwinds for the Japanese property market have also been fostered lately by the International Olympic Committee's awarding of the 2020 Summer Olympics hosting to Tokyo. Observers view Tokyo's winning bid as yet another affirmation of the soundness of Japan's Abenomics road map.
Go big or small
Large caps in the OTC market provide picks for stocks likely to draw strong gains from the rising fortunes in the Japanese property sector. A probable choice is Mitsubishi Estate (MITEY +1.96%), one of the largest and most diversified real estate business in Japan. Founded in 1890, this company covers both commercial and residential properties, including the operations of a hotel network. It also has real estate development and leasing operations in the U.S., U.K., and Asia.
Small-cap Jones Lang LaSalle (JLL 1.88%) is another potential investment opportunity. This Chicago, IL-based broker has established a significant presence in Japan, enabling it to tap immediate opportunities from both local and foreign buyers. It has two offices in Tokyo, and one each in Osaka and Fukuoka.
Significantly, the company has also entered into a marketing tie-up with Mitsubishi Estate to promote Japanese properties among Singapore investors. Besides the Asia-Pacific, this company also has operations in the Americas, Europe, the Middle East, and Africa.
Investor attention can also focus on global real estate brokerage RE/MAX Holdings (RMAX 1.91%). This small-cap company successfully weathered its IPO this October amid the 16-day U.S. government shutdown that sent negative vibes on real estate-related equities.
Denver, CO-based RE/MAX also announced this month its entry into Japan through the sale of its master franchise rights in the country to Generation Group. Set up in 1973, RE/MAX runs one of the largest global real estate network franchises. It has a total of over 90,000 sales associates worldwide.
Strong domestic demand
RE/MAX's foray into Japan appears well-timed. Besides increasing foreign demand, the Japanese property market is also reaping growth from the renewed confidence of domestic businesses and consumers.
The Japanese commercial real estate market provides some clear indications. For the 2013 first half, Jones Lang LaSalle estimated that sales of offices, retail space, and warehouses leaped 50% to nearly $21 billion. The broker forecast that deals will reach $35 billion this year, the highest in five years.
The Japanese housing market should be upbeat, too, moving forward to the 2014 first quarter. Effective April next year, the sales tax on home purchases in the country will rise to 8% from the current 5%. Residential sales should zip higher as prospective home buyers are likely to push their purchases ahead to beat the looming tax hike. Any long-term negative impact of the tax spike has been discounted as the Abe administration also instituted substantial tax breaks on home purchases.
Looking ahead
As better times loom for the Japanese economy, Mitsubishi Estate merits inclusion in a stock watch list. Earnings catalysts, for one, can be expected as Japan allocates the estimated $5 billion to be spent for the 2020 Olympics facilities' construction alone. The company's track record of over a hundred years in the real estate business should put it in a position to capture a significant slice of the businesses to be generated by the Tokyo Summer Games.
Count in on the radar screen Jones Lang LaSalle and RE/MAX, too. Their established networks and cost-efficient business models are well-positioned to tap opportunities in Japan's property sector, whether generated by domestic or foreign interest.
