Apartments Lead Japan REITs

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Japanese REITs focusing on apartments performed better than other property sectors over the last five years, new data shows.

Apartment REITs in Japan produced a risk-adjusted 3.2 percent in the five-year period, followed by offices at 0.9 percent and retail REITs at 2.3 percent, according to the Bloomberg Riskless Return Rankings.

Daiwahouse Residential Investment Corp. was the top-performing REIT in the study with a 5.5 percent risk-adjusted return, followed by Advance Residence Investment which produced a 5.4 percent gain.

"The supply of rental apartments is extremely low at the moment," Tokyo-based Tomoyuki Kimura, general manager of the corporate management department at Advance Residence, Japan's biggest residential REIT by market value, told Bloomberg. "A lack of supply in Tokyo has boosted our occupancy rate."

Overall, residential REITs were the best play in Japan over the last five years, producing an average yield of 4.6 percent, compared with 3.4 percent for office REITs and 4.4 percent for retail REITs that hold shopping malls and retail stores, according to data from Nomura Securities Co. Six of the top 10 performers of the REITs tracked by Bloomberg invest in invest in residential real estate.

In contrast, 10-year government bonds declined 1.7 percent and the Topix (TPX) index, a benchmark for domestic stocks, slipped 0.2 percent in the same period.

REITs are an increasingly popular investment vehicle in Japan. In recent years the government has announced plans to increase the volume of assets owned by REITs by 40 percent.

"It's all about stability," fund manager Hideyuki Shinkai told Bloomberg. "If you are looking for mid- to long-term investments, residential REITs are your best bet because they provide a stable yield."

Apartments are particularly appealing as an investment. Less than half of Japanese under the age of 40 own their own home, Bloomberg reports. At the same time, the supply of new apartments has been constrained by the lack of building during the financial crisis.

But that may be changing. The supply of new apartments in Tokyo will rise 9.6 percent in 2013 to about 50,000 units, according to data compiled by the Real Estate Economic Institute Co.  The available supply will reach the highest level since 2007, the firm says.