Prime time for change
As the yen hovers at a 20 year high, domestic GDP growth is forecast at 2.1% (Bank of Japan) and reports emerge (such as PWC’s influential “The World in 2050”) stating the that GDP of the E7 (China, India, Brazil, Russia, Indonesia, Mexico and Turkey) will overtake that of the G7 in the next 10 – 20 years, one would think that Japanese real estate investors would be on an overseas buying spree reminiscent of the 1980’s, except this time not just to park cash but to seek stable income and potential capital gains. Surprisingly, this is not the case… yet.
Some corporates and financial institutions have started to peer out of their non-real estate domestic-only asset shells, to which they retreated following the global financial crisis, and slowly purchase global real estate hard assets and funds. However, relative to their local troubles and the emerging market growth story, they remain domestically focused. Moreover, the one investor base that needs growth the most; Japan’s pension funds (due to the economics of an aging population), continue to be very conservative.
A June 2010 study by STB Research Institute highlights this fact: only 1% of all Japanese corporate pension fund money is invested in real estate assets vs. 5% for the largest (by AUM) 200 global pension funds. The 140 trillion yen (USD 1.7 trillion) Government Pension Investment Fund does not allow alterative investment, drawing the attention of the OECD (Organization for Economic Cooperation and Development), which called for the fund to revamp its investment strategy as the strategic asset allocation of the fund “does not seem to have been set with any consideration for the liabilities of the public pension system.”
On the other hand, Sekisui House, Japan’s largest house builder and diversified developer, is one group that has successfully begun to diversify into international markets. Sekisui House commenced its international expansion in Australia in 2008/09, and has recently entered into a 50/50 Joint Venture (JV) with Australian group, Lend Lease for projects in Victoria and Queensland. Following its initial investment into Australia, Sekisui House has entered into two JVs in the United States relating to residential projects in Washington and Houston. This is a good example of a major Japanese group recognising the future growth constraints of the Japanese domestic economy and expanding into specific international markets.
As Japan’s public debt will exceed 200% of the 2011 GDP, hopefully investors will realize that drastic times require drastic actions, and that the status quo must change. Japan must invest abroad not only for growth, but for survival.
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