• Investing in Japan REITs: The Ultimate Guide

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    Japan introduced its REIT market in 2001 which is now the second-biggest in the world, worth around USD 120 billion.

    In 2019, Japan’s REIT market reached a 12-year high but was hit hard by the COVID-19 pandemic in 2020. The Tokyo Stock Exchange (TSE) REIT Index saw a decline of almost 50% as investors pulled out.

    With that said, many trusts have performed well in the past years and until the beginning of 2020. As the Japan REIT market has gained increasingly more interest in previous years, I decided to write this article.

    Topics covered:

    • Can foreigners buy REITs in Japan?
    • How can I invest in REITs in Japan?
    • Trading Japanese REITs Through an International Broker
    • What are the benefits of buying Japan REITs?
    • List of REITs in Japan

    Can foreigners buy REITs in Japan?

    Foreigners have no particular issues to invest in REITs or stocks and participate in the Japanese stock market.

    Having the third-biggest stock market in the world, the Japanese stock market is highly developed and transparent and attracts many foreign investors.

    Investing in REITs in developing countries like Thailand and Vietnam is more difficult. Here, your best option is to set up a local brokerage account, even if it’s easier said than done for someone who is just starting out.

    Japan has some of the most open markets to foreigners, something that applies to real estate as well. Despite its small land area, you can even own land here as a foreigner, something that’s rare in Asia.

    How can I invest in REITs in Japan?

    Even if it’s easy to start trading stocks in Japan, you should consider your options carefully. You can trade Japanese stocks and REITs in two different ways:

    • Open a local brokerage account
    • Buy REIT units through an international broker

    Opening a local brokerage account is not recommended among traders, even for foreigners who currently live in Japan.

    Investing in REITs on the Tokyo Stock Exchange (TSE) is outspoken to be impractical and sometimes difficult unless you have good knowledge about local brokers, speak Japanese, and the Japanese tax system.

    Japan has high taxes by comparison and buying and selling REITs directly domestically can result in high tax burdens and fees.

    Withholding Tax for Foreign REIT Buyers

    According to Clearstream.com, the withholding tax is as follows for residents in Japan who buy REITs:

    • Individuals: 20.315% (15.315% national tax + 5% local tax)
    • Corporations: 15.315%

    The same article mentions that tax exemptions or reductions might not apply to Japanese REITs. Thus, it’s important that you seek independent tax advice and/or keep yourself updated with the latest information.

    Worth having in mind is also that you can only open a local brokerage account if you’re a Japanese citizen or can prove your official residential status as a foreigner.

    Examples of Japanese brokers include SBI Shoken (SBI証券) and Rakuten Shoken (楽天証券).

    Trading Japanese REITs Through an International Broker

    Many Japanese REITs are listed on US stock exchanges or available with the help of US brokerages. Both Nippon Prologis REIT Inc (stock code: NPONF: US) and TOKYU REIT are available on NASDAQ, for example.

    There are plenty of credible international brokers that can help you get access to the Japanese markets. Examples are Interactive Brokers and IG.

    Keep in mind that brokerage fees can be high if you trade REITs with the help of international brokers.

    The cost can be three-fold and reach up to around USD 50 per transaction. For institutional investors, this is often not a problem. For private investors, it can be unbearable if you trade frequently and with smaller orders.

    What are the benefits of buying REITs in Japan?

    REITs bring plenty of benefits to investors in developing and emerging markets alike.

    While the benefit of investing in Singapore REITs is that you can own a small piece of a large-sized income-generating shopping mall, Vietnam REITs allow fractionalized ownership of commercial real estate.

    The outspoken benefits of investing in Japanese REITs are listed below.

    1. Market Access

    Sitting on the other side of the globe put restrictions on foreigners who wish to invest in foreign markets. Not to mention the real estate types as commercial property is often beyond the reach of foreign buyers.

    Even if the real estate market is open to foreign ownership in Japan, commercial properties are in the upper price segment.

    You probably understand that buying office space or a shopping mall in Shibuya is a big no for individual investors with limited capital.

    Yet, by investing in REITs, you have access to all kinds of properties, including warehouses, industrial real estate, hotels, and more.

    Besides, the REIT is managed by experts with long experience in the market. If you make money, they do. The performance of the REIT is mutually important.

    2. Liquidity

    Investing in immovable properties can be a lengthy process and requires much documentation and payments of various taxes. The most infamous is the stamp duty which has reached double digits in Singapore and Hong Kong.

    Even if you’re subject to taxes when buying REITs, the process to buy, hold, and sell the assets is comparatively easy. While a commercial unit might take months to sell, you can simply sell your units in REIT with a click.

    Saying that REITs are more liquid than buying and owning physical real estate is an understatement.

    3. Substitute for Owning Real Estate

    Owning real estate is an obligation and you have to manage everything from contractual setups, tenant management, maintenance, and the payment of bills.

    Buying REITs is generally less time-consuming and you don’t even have to visit the country where you plan to invest.

    Also, while investing in REITs require dedication and time for analysis, you won’t come across legal issues that might arise through nominee structures or if you don’t do a thorough title-check, for example.

    4. Generally High Dividend Yields

    REITs are well-known for offering high dividend yields. In Australia, for example, many REITs have generated dividend yields of 4% – 5%, or more, twice a year.

    For more information about how you can invest in Australia REITs, I recommend you to check my separate article.

    5. Low Minimum Capital Required

    You can invest in REITs with a capital of a few hundreds of US dollars. As such, anything from large institutions to smaller individual investors has access to REITs.

    List of REITs in Japan

    Japan has one of the most developed REIT-markets in the world and was established a couple of decades ago. At the moment, there are around 50 REITs available in Japan. Below I have listed the biggest ones.

    Nippon Building Fund (NBF) REIT Inc.

    Nippon Building Fund REIT Inc. primarily targets investments in office space and is sponsored by the large-sized developer Mitsui Fudosan Co., Ltd.

    The REIT has 76 properties under its portfolio with a total asset size of JPY 1,385 billion (around USD 12.59 billion).

    Impressively, the properties have a total occupancy rate of 98.9%. The REIT has units in sought-after areas like Shinjuku and Minato.

    The REIT has distributed dividend yields of around 3.5% – 4% in the past months.

    Japan Real Estate Investment Trust (JRE)

    JRE is one of the biggest REITs in Japan and was established as early as 2001.

    The REIT has 76 properties under its portfolio where 71.8% are located in the central wards of Tokyo, namely Chiyoda, Chuo, Minato, Shinjuku, and Shibuya.

    It has an impressive average occupancy rate that was more than 99% throughout 2020 and the COVID-19 pandemic.

    In the past six months, the REIT has distributed dividend yields of around 3.7% to 4.3%.

    Nippon Prologis REIT Inc.

    Nippon Prologis REIT was listed on the Tokyo Stock Exchange (TSE) in 2013 and is currently one of the biggest REITs in Japan. On the contrary to the above-listed REITs, it primarily invests in logistics facilities.

    Their properties are currently distributed and located in the following areas:

    • Kanto Area (Tokyo): 59.7%
    • Kansai Area(Osaka): 34.6%
    • Chubu Area(Nagoya): 2.7%
    • Tohoku Area(Sendai): 2.0%
    • Kyushu Area(Fukuoka): 1.0%

    The REIT has provided yields of around 2.7% to 3% in the past 6 months.

    Nomura Real Estate Master Fund REIT

    Nomura Real Estate Master Fund REIT was listed on the Tokyo Stock Exchange (TSE) in 2015 and currently has almost 300 properties with a total asset value of JPY 1,066 billion.

    The REIT has an impressive occupancy rate that averages above 99%.

    Interestingly, Nomura is one of the most diversified REITs, owning properties in the following industries:

    • Office: 68 units
    • Retail: 51 units
    • Logistics: 22 units
    • Residential: 155 units
    • Hotels: 2 units
    • Others: 1 unit

    The total building area has an impressive size of almost 2.6 million square meters. The REIT had an impressive average dividend yield of around 5% during the second half of 2020.

    Other Japan REITs

    As there are dozens of REITs available in Japan, it would be impossible for me to list all of them in this article.

    If you want to review the complete list of REITs in Japan, I recommend you to check the Japan Exchange Group’s website.

    Disclosure: This information is intended for educational purposes. It does not constitute investment advice and should not be considered as a recommendation for investment. The writer of the article and the owners of the website don’t own any of the securities/REITs mentioned in the article. Note that the value and income of investments can go up, as well as down (resulting in a loss).

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