Japanese real estate companies have been in the news lately, thanks to a surge in Japanese investment levels in American real estate. In fact, Japanese investors bought about $7.5 billion in U.S. real estate last year, nearly triple the amount invested just a year earlier. It’s not just American real estate. Japanese companies are also making big bets in other markets such as London and Toronto.
So what’s driving these bets? For a variety of reasons, including sluggish consumer spending and a declining population, Japan hasn’t experienced the high inflation rates of other developed countries around the world in recent years. . This allowed them to keep interest rates near zero, even as the Federal Reserve raised interest rates in the United States above 5%. Low interest rates have given Japanese real estate companies access to cheap capital, and investors have sought more attractive yields than domestically. After Japanese real estate company Mori Trust bought half of the Manhattan skyscraper 245 Park Avenue last June, its CEO explained: Even an investment of 100 billion yen can be carried out quickly by raising funds on your own without having to gather investors. ”
However, Japan’s era of low interest rates is now coming to an end. Last October, the Bank of Japan abolished the 1% cap on interest rates on government bonds, effectively lifting interest rate fixes. Thanks to Japan’s fiscal situation, interest rates are unlikely to skyrocket anytime soon, but Japanese investors may not want to wait to find out.
This is not the first time that Japanese people have invested heavily in American real estate. In the 1990s, Japanese companies were buying up trophy real estate assets in the United States, even though interest rates were lower than in other countries. Many of those investments lost money when the savings and loan crash occurred, partially contributing to the downturn in Japan’s economy known as the “lost decade.”
Culturally, Japanese investors and U.S. commercial real estate are a good fit in terms of stable, solid, long-term investments. But that’s not all. Differences between the US and Japanese economies are helping to create arbitrage opportunities where Japanese investors can be among the first to enter during good buying times. But this could also be another case where the cheap money needs to go somewhere, and if the real estate market crashes like it did the last time Japanese investments were high, it would have a similar impact on the Japanese economy. there is a possibility.
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