, Japan
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Stuart Porter, Private Equity, Financial Services & Real Assets Tax Partner and Asia Real Estate Tax Leader, at PwC Tax Japan

Japanese businesses rely on properties to mitigate financial woes

They are selling their realties or converting their real estate into business assets.

Whilst Japanese businesses are grappling with the pandemic and had their employees working from home or under a hybrid set-up, an opportunity came knocking at their doors to secure their financial standing. Corporates are selling or using their real estate assets in their businesses to get the support they need.

In the past 12 to 18 months, real estate industry leaders are busy catering to firms that have a lot of properties in their books, which they can outsource or sell, Stuart Porter, Private Equity, Financial Services & Real Assets Tax Partner and Asia Real Estate Tax Leader, at PwC Tax Japan told Real Estate Asia.

“There was more of a market demand from Japanese corporates who [want] to enter in discussions about what to do with their real estate, which may include selling it or using parts of it in their business, or parts of it with other affiliates that they hadn't thought of before,” he said.

This move allowed owners to focus on more important business matters, Porter claimed, adding, in the last three to four years, there has also been a big uptake in private equity transactions in Japan, where the underlying real assets held by the acquired company are then sold and the proceeds used to refinance the acquired business.

 

What happens to the sold property?

Investors, both local and foreign, “remain very hungry” for affordable real estate assets (being assets that generate good stable yields with low funding costs), Porter said. This is especially so now that Japan’s Ministry of Foreign Affairs is opening up to foreigners for employment and business purposes since 1 March, so investors are now gradually able to visit Japan and assess their existing investment and / or source for new ones.

The majority of the global investors eyeing to own lands in Japan include Europeans, large foreign pension funds, and to an extent, governments with sovereign wealth funds in Asia—they usually partner with asset managers in a single asset or single-managed funds, typically through Singapore or Luxembourg (where there may already be people on the ground).

Porter said the weighting of Japanese assets is considered “pretty heavy” because they are more expensive and generate stable yields, compared to most Asian assets.

Due to this, there are some foreign asset managers who do not have a presence in Japan, investing in the country, not to buy assets, but to buy asset management firms along with their employees because of their experience.

“[They are] using that to raise funds to support investments and investors in a market that usually has a reasonably good weighting for any Asian fund. That's for the inbound business,” he said.

  

Other trends

Another trend PwC expects in Japan is the change from decentralisation in both the commercial and residential real estate markets because of the work from home environment. Porter also noticed that Japanese corporates have become more flexible in their work arrangements. In particular, the government has also become more flexible in terms of accepting data or submissions electronically, in light of the remote working environment.

Several service providers and other foreign-owned groups, meanwhile, continue to work from home because of the pandemic, he said.

Since business travellers and business investors are starting to come back to Japan to look at their assets and look at the opportunities, Porter said: “That would necessitate all of us going out to meet them and have meetings that we were used to all the time. So I think then we're going to move more to hybrid working.”

Porter also said that complying with green mandates is also gaining traction, especially amongst real estate developers. There also remains continued interest in warehousing and data centres investments in Japan.

“It’s actually been quite a busy time for the real estate industry in Japan. Initially, obviously, they were affected by everything in the earliest early months of COVID. But since then, it's actually been a very buoyant market even though a lot of it's been done from home like everywhere else,” he said.

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