Japanese investors may reduce their assets in the UK property market, especially in real estate investment trusts (REITs), as they focus on rebuilding their country after recent devastation.
“There must be the risk of a general repatriation of overseas assets by Japanese investors as they focus inwards after the earthquake,” said Mike Prew, an analyst at Nomura International. “There may be some selling pressure on stocks if that happens.”
Japanese retail funds accounted for an 11 percent stake at the Land Securities Group, the biggest REIT in the UK, as well as between six and eight percent at other listed property companies, said Mr. Prew.
According to New York-based Real Capital Analytics Inc, Japanese investors have acquired £976 million (S$2 billion) worth of properties in London since 2000.
Mohamed El-Erian, Chief Executive at Pacific Investment Management Co, also predicts that most of the Japanese investors will move their funds back to Japan.
Low prices in the UK property market have been attracting Japanese investors to UK REITs since 2009, said Mr. Prew.
“With a zero interest-rate policy and low-yielding assets in Japan, they liked the higher dividend yields and focused on the most liquid FTSE 100 stocks.”
Matthew Richardson, Head of European property research at Fidelity International Ltd, also said that money would flow back to Japan if insurers sell investments to raise cash for claims.
“Liquidating property investments can be expensive and takes time, so you can’t have a knee-jerk reaction,” said Mr. Richardson.
Japan ranked in 19th spot among countries investing in London over the last decade, while Japanese investors make up US$11.8 billion in real estate investment outside their country since 2007.
“In the short term, those types of investment will pause as Japanese investors focus on the domestic market,” said Hans Vrensen, Global Head of Research at DTZ Holdings Inc. “People are still assessing the longer-term damage and its impact on insurance companies.”