Friday, October 4, 2013
ANALYSIS: Retail Money Regains Momentum On REIT Market
TOKYO (Nikkei)--The REIT market is recovering thanks to a drop in long-term interest rates and increasing expectations of higher land prices. More money is flowing in from individuals, who invest in real estate investment trusts through other investment trusts and companies.
The Tokyo Stock Exchange REIT Index, which shows overall price movements on the REIT market, rose to the 1,500 line in late September for the first time in about four months. The index rose 16% in September -- double the 8% rise in the Nikkei Stock Average -- marking its second largest monthly growth. In March, it rose 24%.
The selection of Tokyo as the host of the 2020 Summer Olympics is seen as the key factor in sending the REIT market upward. Infrastructure improvements and redevelopment related to the Games has caused speculation that real estate values will rise.
Also, the average land price of Japan's three major metropolitan areas as of July 1 rose for the first time in five years, which has helped bullish investor sentiment.
Retail investors are most likely behind most of this REIT market momentum. According to SMBC Nikko Securities Inc., the balance of net assets at investment trusts investing exclusively in REITs at the end of September was 1.9 trillion yen, up 27% from the previous month and at its highest level ever. In September, the balance of exchange-traded funds, which is linked with the REIT index, rose slightly more than 20%.
The difference between the yield of market average dividend forecast and long-term interest rates fell to 2.9% at the end of September. This was the first time it has been below 3%, an average targeted by many investors, in about two months. The difference rose to the mid-3% level over the summer. The recent drop is a sign that investors are becoming more willing to take risks.
Mikio Namiki, senior real estate analyst at Mizuho Securities Co., says he has been flooded with calls from investors asking him which issues will likely benefit the most from the Olympics.
In the week from Sept. 30 to Oct. 4, shares in banks and other financial firms fell as investors locked in gains, putting the brakes on the stock market's rise. Uncertainty over U.S. fiscal issues made investors risk-averse. However, this uncertainty could also lower interest rates. With active inflow of money through investment trusts, there appears to be limited room for declines in the REIT index, according to Hiroshi Torii, a senior analyst at SMBC Nikko Securities Inc.
(The Nikkei, Oct. 4 evening edition)