Japanese institutional investors might choose the US and Australia for their first overseas real estate investments, as a result of Brexit uncertainty.
The UK is expected to figure in the long-term plans of Japanese pension funds as they embark on debut global real estate programmes. But the fallout of last week’s EU referendum could steer them to other developed markets in the near-term, according to local commentators.
Yukihiko Ito, managing director at Japanese consultancy Asterisk, said most Japanese institututions prior to the Brexit result were assuming they would allocate up to one-third of their real estate exposure to the UK.
“In [the] short term, we expect Japanese capital will rush to US and Australian markets – where markets are matured enough,” he said.
But as they build up diversified portfolios, UK and continental European markets will inevitably feature, he added.
“It is essential for Japanese investors to diversify their investment overseas based on market share and index investing,” Yukihiko Ito said.
All four of Japan’s big public pension funds are expected to move into international real estate in the coming months, led by the world’s largest pension fund, the US$1.15trn (€1.03trn) Government Pension Investment Fund.
Ironically for the UK, Brexit could accelerate Japanese investors’ plans to invest in global real estate.
The Japanese Yen has strengthened since the vote. Combined with Japan’s negative interest-rate policy and an expected increase in capital flowing into domestic property, Japanese pension funds could be under more pressure to start real estate programmes.
“The consequences of Brexit to Japanese investors may differ from other international investors,” Yukihiko Ito said.
“We expect that Brexit may accelerate Japanese investors’ overseas real estate investment rather than slowing down.
“Japanese investors need to invest in overseas real estate right now and cannot stay conservative for a long time.”