* NISA helps power listed REIT index to 13-month highs
* Demand for private REITs also growing-Goldman
By Lisa Twaronite and Ayai Tomisawa
TOKYO, June 12 Yield-hungry investors have been
betting that Japanese real estate investment trusts will pay off
as asset prices rise and interest rates remain stable, with the
instruments growing in popularity among both retail and
The Tokyo Stock Exchange REIT Index pushed to
13-month highs this month, and has risen around 3 percent so far
this year, helped by the introduction in January of the Nippon
Individual Savings Account (NISA).
The tax-break facility was set up to give Japanese retail
investors incentive to move their funds to other assets from
historically low-earning saving accounts, whose cash value
erodes as the Bank of Japan slowly moves closer to meeting its 2
percent inflation target.
"People have started realizing inflation is really coming,"
said Kyoya Okazawa, head of global equities and commodity
derivatives at BNP Paribas in Tokyo, to explain REITs' appeal.
"I think it's an inflation hedge," he said. "This kind of
fear is pushing some money into higher-yielding assets instead
of just bank deposits."
Listed REITs are similar to stock mutual funds in that they
are shares of a portfolio of properties and trade on exchanges,
with dividend yields derived from the rental income. REITs are
somewhere between stocks and bonds in terms of risk/reward
The REIT index's return of 3.8 percent based on forward
dividend projections dwarfs the 10-year Japanese government bond
(JGB) yield, which trades around 0.60 percent. It
is also solidly above the U.S. benchmark 10-year yield
, which closed at 2.64 percent in U.S. trading on
Strategists at Nomura put their upside target for TSE REIT
Index at of 1,750, compared to its current level around 1,550.
The target is approximately a 200 basis point yield spread over
a cautious assumption of a 10-year JGB yield of 1 percent.
"When you compare REITs yields with long-term government
bond yields, it is obvious which is more attractive," Takatoshi
Itoshima, chief portfolio manager at Commons Asset Management.
"So if long-term yields start rising, REITs will become less
Higher interest rates could also raise borrowing costs for
REIT managers, making it harder for them to maintain their
For now, though, rates in Japan are still low compared to
the rest of the world, and are effectively moored to ranges by
the BOJ's massive asset-buying scheme, under which it buys the
equivalent of 70 percent of new JGB issuance each month.
"There are a lot of optimistic views that [interest rates]
won't change so drastically," said Hiroyasu Kaizuka, who manages
Goldman Sachs Asset Management's private $600 million Japan
Japanese institutions comprise most of its investors, he
said, but inquiries from overseas institutions began rising last
Traditionally, Japanese investors have also used REITs to
hedge against not inflation but deflation, expecting their
dividends to exceed potential gains from stocks as asset values
"We see an inverse correlation between the performances of
the stock market and REITs," Yoji Otani, a real estate analyst
at Deutsche Securities. "When the market is weak, we see more
investors making defensive investments by expecting steady
dividend yields than chasing the market higher for capital
REITs whose portfolios include top-notch buildings in
Tokyo's Marunouchi area like Nippon Building Fund Inc
are less attractive because their popularity has cut into their
upside potential. Toru Ibayashi, executive director at UBS
Wealth Management, sees more value in second-tier REITs which
own office buildings in other Tokyo neighborhoods, or even
outside the capitol.
These include Orix Jreit Inc, which invests in
buildings in Tokyo areas such as Shinagawa and Shinjuku, and Mid
Reit Inc, which invests in office buildings in Osaka.
Ibayashi also says GLP J-REIT, which operates
logistics facilities, has growth potential as e-commerce
transactions rise in Japan.
(Editing by Kim Coghill)