On March 22nd, The Association for Real Estate Securitization (ARES) held a press briefing at The Capitol Hotel Tokyu, where Chairman Masanobu Komada amongst others outlined the associations business plan for 2024.
ARES Chairman Masanobu Komada, courtesy of R.E. Port News
The business plan, approved at a board meeting on March 18th, focuses on four key areas:
Extension of expired tax measures
Response to ESG (Environmental, Social, and Governance) and SDGs (Sustainable Development Goals)
Promotion of JREITs (Japan Real Estate Investment Trusts) to individual investors
Expansion of the ARES-certified Master qualification.
The third point stands out as with the heightened interest in asset formation through investment following the launch of the new NISA (Nippon Individual Savings Account) in January, ARES efforts in 2024 will focus on further appealing the tax benefits of JREITs to individual investors.
What is a NISA account?
According to the Nikkei Asia, NISA accounts were introduced in 2014 with the aim of fostering greater participation in investment among Japanese households.
The recently revised scheme comprises two main elements: “growth” accounts designed for investing in individual stocks, and “tsumitate” accounts tailored for making monthly investments in mutual funds.
As part of an overhaul implemented earlier in January of 2024, the annual investment cap for growth accounts was increased twofold to 2.4 million yen.
Additionally, these accounts were made permanently tax-exempt. Formerly, growth accounts enjoyed tax exemption for five years, while tsumitate accounts had a 20-year tax-free period.
Through initiatives such as wide-reaching web advertisements targeting various age groups, the unique characteristics of JREITs will be promoted. Mr. Komada remarked, "With the start of the new NISA, individual investors' net purchases of JREITs in January and February amounted to approximately 37 billion yen, indicating an immediate impact [from retail investors into JREITS]."
What could sustained further inflows mean for Japan investment real estate?
Given initial demand in January and February of this year, there seems to be a clear appetite for JREIT purchases from individual investors.
If, for example, a JREIT offers an annual dividend of 4% and average net cap rates for outright owned investment property are less than 3%, then investors will buy the more liquid JREIT instead of locking that same capital into an investment property.
This dynamic could sap individual property buyers from the market, forcing property prices to lower to the point where yields need to be well above what JREITS offer investors through the NISA program.
ARES thoughts on the Bank of Japan moving away from negative interest rates
When asked about the impact of changes in the Bank of Japan's monetary policy, including the removal of negative interest rates, Mr. Komada commented, "Before the announcement by the Bank of Japan, there was excessive caution in the market. However, the announcement fell within expectations, leading to market stabilization."
When asked about the anticipated impact of future interest rate increases, he stated, "Regarding distributions, the risks are limited as each security aims for long-term borrowing and diversification. As for real estate prices, while theoretically prices may decline due to the increase in institutional investors' expected yields, considering the current supply-demand balance and strong buying interest coupled with limited supply, significant downward pressure may not materialize."
Sources:
R.E. Port News (Japanese only)
Japan's revamped NISA investment program set for record month (January 27th, Nikkei Asia; paywalled)
