2024 has come to an end and 2025 started. Congratulations on the new year, everyone. 2024 began with the Nikkei Stock Average of 33,193.05 yen. It exceeded the highest price of 38,915 yen 87 yen in February and continued to maintain a high price range with the 42,000 yen range in July. The depreciation of the yen has been established at around 157 yen per dollar. Regarding interest rates, which have a major impact on real estate transactions, a “world with interest rates” has finally arrived due to a series of monetary policy changes by the Bank of Japan, but real estate prices continue to rise mainly in metropolitan areas. According to the Japan Real Estate Research Institute's real estate investor survey, investors who say, “no visible impact of rising long-term interest rates on the real estate market.” account for 64%, and it can be said that investors' expectations for real estate have further increased. What is the root of investors' expectations for real estate? If you break it down, you will find many reasons, such as the stability, growth potential, and institutional robustness of Japanese real estate. If you are an overseas investor, you will consider the depreciation of the yen, low interest rates compared to overseas. On the other hand, if you look at individual properties, you can also see the harsh conditions.
It is said that investment property in Japan is about 270 trillion yen, but most of them are buildings that was constructed between the late 1980’s and 2000’s, which is called the bubble period, and most of these properties are not considered for investment targets for financial commercialization of real estate, and even properties that cannot be handled Environmental performance considerations such as CASBEE, etc., and energy saving performance requirements required due to building standards law revisions. Current real estate prices have been estimated due to limited property transactions where institutional investors and overseas investors show motivation. Since the majority of the stock made up of older properties are difficult to be repaired or refurbished, rent are not being maintained and profitability is gradually declining. It’s just real. Normally real estate prices should rise as the profit of real estate increases, but in recent years, real estate prices have been rising as investor’s expected returns have fallen. Expected returns will be one day reversed due to rising interest rates, so it is likely to increase the profitability of real estate through continuous improvement until then. The source of profit is raising rents and reducing costs. Rent increases are due to improved quality of real estate and increased tenant satisfaction, cost reduction are due to efficient management through DX, which is truly an area of property management. I think 2025 will be the beginning of an era where on site capabilities of property management are being questioned.
Reprinted from Real Estate Management Journal Co., Ltd. “Weekly Real Estate Management” (with permission)
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