After the Shinzo Abe’s original victory in 2013, Japanese real estate became a destination for overseas cash. Real estate, even in Tokyo, was cheaper than real estate in mainland China or Hong Kong or Taiwan or Seoul or Singapore. And with interest rates near zero, returns on Japanese properties were extremely attractive.
This month’s Abe victory in a snap election that caught opposition parties in disarray has the same positive implications. With the Prime Minister riding a self-declared mandate—even through his party actually lost a few seats in this go round—interest rates will stay low, the yen will get weaker and overseas currencies stronger, and higher inflation, always good for real estate prices, remains a policy goal.
Even after big investments by overseas groups including Blackstone Group and Singapore’s sovereign wealth fund in 2014, projections are that the volume of property transactions will rise at least another 20% in 2015.
Fundamentals remain broadly positive with prices for prime office buildings in Tokyo up 20% in 2014 and likely to increase another 10% in 2015, according to real estate broker Jones Lang LaSalle. Rents continue to climb since vacancy rates continue to fall. The current vacancy rate of 5.55% is the lowest since January 2009.
My puzzle has been how to invest in the sector. Information in English for U.S. based investors is scanty. Trading volumes for individual stocks in the sector in New York are low. It’s hard to get a good handle on the risks of individual real estate companies—and that’s even though Mitsui Fudosan, Japan’s biggest real estate developer by sales sold new shares in 20014 for the first time in 32 years. And that combination of low volume and tough to quantify company-specific risks has kept me from recommending anything in the sector.
So I’m going to recommend buying the sector itself. The whole thing. Through an ETF. One that hedges currency risk for dollar-based investors.
The WisdomTree Japan Hedged Real Estate ETF (DXJR) will give you broad exposure to the sector—including stocks such as Mitsubishi Estate, Mitsui Fudosan, and Sumitomo Realty and Development—for an expense ratio of just 0.43%. The fund is hedged—if that works correctly dollar-based investors won’t take a hit if (as I expect it will) the yen resumes its decline against the dollar in 2015 once the Federal Reserve starts raising interest rates.
The ETF, which opened for business earlier this year, closed at $28.27 on December 18. The range this year has been $30.25 to $23.84. The ETF has about $30 million in assets.
I will be adding this ETF to my Jubak’s Picks portfolio tomorrow, December 19.