Friday 17 November 2017

Japan starts buying real estate again

Anbang Insurance Group agreed to buy the Waldorf earlier this year
Anbang Insurance Group agreed to buy the Waldorf earlier this year

Finbarr Flynn

Tokio Marine Holdings, one of Japan's oldest insurers, is joining its Chinese peers in investing in property overseas - but with a twist.

Unlike counterparts like China Life Insurance. and Anbang Insurance Group, which have been buying trophy properties in the US and Europe, Tokio Marine is putting its money into funds that invest in real estate, said Shinji Kawano, head of Tokio Marine's property asset management unit.

Tokio Marine, which traces its roots back 136 years to the Meiji era, is eager to avoid the missteps of the 1980s, when Japanese investors buoyed by bubble-era valuations snapped up landmark buildings that later came back to haunt them.

The nation's insurance companies and pension funds are boosting purchases of overseas assets, such as real estate, as they chase higher returns and cut local bond holdings that yield close to zero.

"Japanese investors bought property directly and had quite a bit of trouble because of it," Kawano said in an interview in Tokyo.

"We had that experience ourselves, so it's a bit like lesson learned. That's why we decided on investing in funds," he added.

Outbound property investments by Japanese investors surged 89pc in 2014 from the previous year to $3.6bn, according to Deutsche Bank. Chinese investment in overseas property rose 9.7pc to $16.9bn last year, according to Knight Frank, as billionaire Wang Jianlin's Dalian Wanda Group and others boosted investments from London to Sydney.

From the late 1980s Japanese investors, led by developers, bought iconic properties in the US such New York's Rockefeller Centre and Pebble Beach golf resort in California as a domestic bubble left them flush with cash.

Mitsubishi exited its 80pc stake in the Rockefeller Centre in 1995, six years after buying in, with a loss of about $2bn as prices in the US and at home nosedived.

Tokio Marine has achieved returns in excess of 10pc over the past two years by investing via real estate funds of funds, Kawano said. Investment adviser Townsend Group helps select the funds under a 2013 agreement between the two companies.

Tokio Marine Property Investment Management raises funds from domestic pension funds and institutions, and invests that along with some of its own money in real estate assets at home and abroad. The company is also currently raising funds for a domestic private real estate trust.

The Japanese insurer wants to increase overseas property assets by about 10 billion yen (€78m) this year, and raise that amount to 100 billion yen "in several years," Kawano said.

He declined to say how much in offshore real estate assets Tokio Marine Property holds. It has invested in funds in the UK, Europe, the US and Australia.

By contrast, Chinese insurers have been snapping up some of the most famous properties in the world after being given more freedom to deploy their $1.6 trillion of assets.

In a throwback to Japanese investments in the 1980s, New York's Waldorf Astoria hotel, the Lloyd's of London building and the headquarters of the UK's top law firm are now all owned by Chinese investors, and more deals are expected.

"The Chinese aren't going in blindly; they are generally picking up prime assets in key global cities," said Nicholas Holt, Asia-Pacific head of research at Knight Frank in Singapore. "These big players they want to go direct, they want to control it."

Chinese investors "still see value," Holt said.

Japanese pension funds are tipped to lead the charge in terms of overseas real estate investment as they seek to boost returns to meet payouts in one of the fastest aging nations.

The Government Pension Investment Fund Japan, which overses $1.15 trillion, making it the world's largest pension fund investor, said last year that it will allocate as much as 5pc of its portfolio to alternative investments including private equity and real estate.

With yield-generating investments at home drying up, funds from Japanese investors have no choice but to go abroad and outflows into overseas real estate may rise to as much as 15 trillion yen, the size of the nation's private real estate trust market, Kawano said.

"Three or four years ago, there was very little Chinese capital coming out, but we've just seen it explode," said Holt at Knight Frank. Now, "China is dwarfing Japan" in overseas property investment. (Bloomberg)

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