Nowadays, even though COVID pandemic has been influencing the market, real estate investments has remained strong and bullish. Investors have been hard to acquire good properties suitable to their investment criteria.
Looking at past a couple of years, especially since the COVID pandemic started, some sectors of investors have been very aggressive and got into real estate investment market.
Q: Who are they, those who have been aggressively acquiring properties?
A: Family offices and family business companies.
Q :Why are they so aggressive?
A: Mainly due to the benefit to the inheritance tax. In Japan, almost 50 % has been charged as the inheritance tax when the parent’s hand over their assets to children. Family businesses, the main assets are corporate shares. So before the actual inheritance occurs, they have to take some actions to decrease the value of corporate shares.
Q: How can we decrease the corporate share value?
A: Mainly two approaches: 1 creating losses, 2 creating potential losses. For the latter purpose, family offices have been acquiring real estate.
Q: Why now they have got active in terms of real estate investment?
A:
1 expectation of property downturn,
2 potential and accumulated losses to their main businesses,
3 the increasing pressure of handover not only the business but also assets, due to the underperformance of main business under COVID new economy,
4 Especially offices and retails are two major asset classes, for which we can expect property divestment.
Q: Are there any examples?
A: A family owned company with 100 yrs of history, whose main business is cosmetics manufacture, has acquired an office building located in the centre of Chiyoda ward, the grade A office location. The seller was also the family business, a Swiss family, whose main business has been a nation wide glass production. They had had an iconic building in central Tokyo, Chiyoda ward, and sold that asset at around 5 bil JPY.
Q: What would be the future prospects of property investment by family offices?
A: Now in Europe or America, many of family firms have diversified their asset portfolio. Real estate has been one of them. However, taking into account the stability, size, manageable risks for future events, more and more family offices will look at real estate in Japan as their hedging purpose.
Therefore, personally, I feel that those family offices got more aggressive, this would positively affect push up the demand of real estate. Even though we have carefully assessed the economic sentiment for future in Japan, our views are not so positive. Such new demand would work to delay that downturn trend or bolster the market value, even when the market direction changes and the whole economy goes into another recession mood.
Further queries or doubts, please email to ytomizuka@abrilsjp.com
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