Investors poured a net $330.8 million into the Nomura NF REIT exchange-traded fund from May to August, $165.7 million into Sumitomo Mitsui Trust’s J-REIT Monthly Settlement Fund and a net $103.2 million into the Nikko Listed IDX Fund J-REIT, Refinitiv data shows.
An added factor supporting Japanese REITs and property shares is their cheapness. Major developers trade at an average 0.87 price-to-book-value, which measures the share price relative to the firms’ net assets, Refinitiv data shows.
The TOPIX real estate sub-index is up 13% since August, outperforming the broader market.
Such low valuations and the possibility of a swift rebound in travel as Japan reopens — boosting spending in shops and restaurants — suggest property developers are poised to gain, said Ken Peng, head of Asia investment Strategy at Citi Private Bank in Hong Kong.
Growth in earnings-per-share for Japanese developers could double in the second or third quarter of next year as global travel resumes, which is not currently reflected in their share prices, Peng said.
Japan’s real estate sector currently trades at 13.1 times forward earnings, which is more expensive than Hong Kong but cheaper than Australia and Singapore, according to Refinitiv.
A fully-fledged resumption of international travel will take some time, but many analysts and investors say tourists will return eventually as the world progresses toward a vaccine.
Japan’s property sector is cyclical and tends to outperform in the latter stages of a global recovery, said Shern-Ling Koh, portfolio manager at Principal Real Estate Investors in Singapore, while warning the companies’ over-exposure to the office space is a risk.
($1 = 104.7600 yen)
(Reporting by Stanley White, with additional reporting by Tom Westbrook in Singapore; editing by Richard Pullin)