J-REIT: A Necessary Condition for a Reversal of the Interest Rate Hike Phase


■ J-REIT along with BOJ's policy revision observations destroy numbers
■ In the domestic real estate market, the deterioration of fundamentals after the epidemic crisis has stagnated
    Summarizes trends in the domestic real estate and real estate investment trust (J-REIT) market monitored on a semi-annual basis. The Tokyo Stock Exchange REIT Index, which reflects the trend of the entire J-REIT market, fell sharply at the end of last year and has shown a clear downward trend since then. It fell below 1,800 for the first time in about a year in January, and the dividend yield rose above 4%. Behind the accelerated decline is the adjustment of the Bank of Japan's loose monetary policy. On December 20, 2018, the Bank of Japan expanded the fluctuation range of long-term interest rates to 0% and 0.50%, effectively allowing market interest rates to rise. Until last summer, J-REITs were relatively vulnerable compared to overseas REITs as the Bank of Japan continued to implement loose monetary policy, financed at low-interest rates, and domestic real estate became cheaper for overseas investors due to the rapid depreciation of the yuan. The yen rebounded at the bottom. While remaining firm, the financial environment surrounding the housing market has been shifting over the past six months. The fact that foreign investors have continued to sell J-REITs in large numbers since last December indicates a change in investment stance.

    However, the fundamentals of the domestic real estate market showed signs of recovery. Office vacancy rates in major cities across the country, compiled by Mitsui Corp., have started to stop rising, as they have since the crisis. At present, the average rent in many cities continues to fall, but it is expected that the rising trend of the vacancy rate, which is a leading indicator, will tend to stagnate, and the average rent will gradually stop falling. Apartment rents in Japan's major cities, compiled by the Tokyo official residence, have been rising since late last year in several major cities, especially Tokyo. If the move to increase wages by Shuntou and others expands, the rent movement will also be a tailwind. In addition, the room occupancy rate of accommodation facilities has returned to pre-epidemic levels due to the complete lifting of new coronavirus infection suppression policies such as entry restrictions for foreigners visiting Japan, and nationwide travel support policies. Business service price index since last fall, commercial shop rents will also rise.

    At the hearing of the House of Representatives held on the 24th, the candidates for the Bank of Japan's governor and deputy governor showed caution about early policy revisions, but the need for normalization of monetary policy at the stage of approaching the 2% inflation target is not yet clear. Acknowledging the need to normalize monetary policy, the possibility that easing policies will be reviewed in the future is increasing. Under the leadership of Bank of Japan Governor Kuroda Bank of Japan, long-term interest rates, which have been suppressed by policy, are expected to rise on a slow upward tone as the policy is normalized, and real estate rents, which are fundamentals, will outpace interest rates in the future The rate of rise increases, which will be a necessary condition for the J-REIT market to turn around.