Cheap loans spark sky­scraper boom for Tokyo sky­line

Irish Independent - Business Week - - COMMERCIAL PROPERTY - Fin­barr Flynn and Kat­suyo Kuwako

JA­PAN’S big­gest real estate com­pa­nies are bor­row­ing record amounts of cheap cash to pay for the na­tion’s tallest sky­scrapers yet.

Mit­subishi Estate Co plans to build a 390 me­tre tower with 61 floors above ground in front of Tokyo Sta­tion, mak­ing it the na­tion’s big­gest build­ing. That and 27 other ur­ban re­newal projects in Ja­pan’s cap­i­tal will gen­er­ate 10 tril­lion yen (€81bn) for the econ­omy, ac­cord­ing to a govern­ment state­ment this month.

Mit­subishi Estate, Mit­sui Fu­dosan, and Su­mit­omo Realty & De­vel­op­ment, the na­tion’s three big­gest pub­licly-traded de­vel­op­ers, re­ported prof­its this month and dis­closed that they had record debt piles that are cost­ing them less to ser­vice. The Bank of Ja­pan’s adop­tion of a neg­a­tive-rate pol­icy in Jan­uary will help boost in­vest­ment in do­mes­tic com­mer­cial prop­erty by 5pc this year to 4.3 tril­lion yen, ac­cord­ing to bro­ker JLL.

“Many de­vel­op­ers are ex­pand­ing oper­a­tions as fund­ing re­mains easy and prop­erty prices are set to climb fur­ther,” said Takashi Ishizawa, a se­nior re­searcher in Tokyo at Mizuho Se­cu­ri­ties. Still, uncer­tain­ties in the prop­erty mar­ket have in­creased as the econ­omy shows weak­ness, he said.

Mit­subishi Estate plans to fin­ish con­struc­tion of its 61floor tower, with five floors un­der­ground, by about 2027. It would be Ja­pan’s tallest sky­scraper, ac­cord­ing to the de­vel­oper.

Su­mit­omo Realty forecast this month op­er­at­ing prof­its will grow at a slower rate in the next three years than over the past three. Credit Suisse prop­erty an­a­lysts Masahiro Mochizuki and Ya­suko Fukuda said in a re­port that the de­vel­oper’s “lack of op­ti­mism about com­ing macroe­co­nomic con­di­tions left a neg­a­tive im­pres­sion.”

Abe’s govern­ment in 2014 named Tokyo as a spe­cial strate­gic zone for in­ter­na­tional busi­ness, of­fer­ing in­cen­tives to de­vel­op­ers to build larger sky­scrapers. Gains in of­fice and res­i­den­tial prop­erty prices in Tokyo have ex­ceeded in­creases in rents, prompt­ing an­a­lysts at Mizuho and Deutsche Bank AG to warn of risks of over­heat­ing in the mar­ket.

Mit­sui Fu­dosan, Mit­subishi Estate and Su­mit­omo Realty boosted com­bined in­ter­est-pay­ing debt to 7.7 tril­lion yen at the end of March.

Mit­sui Fu­dosan is fore­cast­ing a fifth year of record sales and a third year of record prof­its in the pe­riod end­ing March 2017. Mit­subishi Estate’s av­er­age in­ter­est rate fell to the low­est in 30 years as of the end of March to 0.96pc, ac­cord­ing to avail­able data stretch­ing back to 1986, com­pany spokes­woman Ayaka Na­gashima said.

Su­mit­omo Realty sold a 10year bond Fri­day at a coupon of 0.4pc, down from 0.992pc paid on a bond of the same ma­tu­rity is­sued in June. The Bank of Ja­pan re­leased data Fri­day that showed that bank lend­ing to the real estate sec­tor rose to a record 67.7 tril­lion yen at the end of March, up 6.3pc from a year ear­lier.

“The big de­vel­op­ers’ bal­ance sheets are ex­pand­ing but from a credit per­spec­tive there isn’t a big prob­lem,” said Kenji Ser­izawa, a credit an­a­lyst in Tokyo at Daiwa Se­cu­ri­ties Group Inc., cit­ing higher prop­erty price val­ues and prof­itabil­ity at the com­pa­nies. (Bloomberg)

Ja­pan prime min­is­ter Shinzo Abe’s govern­ment des­ig­nated Tokyo as a strate­gic zone in 2014, en­cour­ag­ing a rash of new of­fice con­struc­tion

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