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Foreign funds enlarge footprint in Japan property market

LaSalle and ESR seek to tap the country's high prices and low interest rates

Japan's real estate market is attracting more investment from abroad.   © Reuters

TOKYO -- Overseas real estate investment funds are pouring even more money into a Japanese market where low interest rates are expected to lift returns as the world's biggest property markets reach or pass their peak.

LaSalle Investment Management plans to put another 220 billion yen ($2 billion) into Japan by 2020. The U.S.-based company manages around $60 billion in assets worldwide, with Japan believed to account for roughly $3.5 billion to $4.5 billion.

LaSalle plans to expand its Japanese portfolio by another 40% to 50% over the next two years, mainly in big-city rental housing as well as commercial spaces and logistics facilities.

The real estate market has long remained strong, but there is still significant room to invest in Japan based on its economic and employment outlook, reports LaSalle's Japan chief, Keith Fujii.

Rental rates in most property markets are now at their peak or starting to decline, according to real estate company Jones Lang LaSalle. But investors can still make money as long as their borrowing rate remains lower than their investment yields. The gap is less than 1 percentage point in New York and Hong Kong but comes to 2.9 points in Japan, JLL said.

e-Shang Redwood, or ESR, launched its second Japan-specific fund this spring. The Hong Kong-based logistics real estate developer has raised up to $3 billion, including through co-investment, to develop more than 10 logistics facilities in Japan. The fund's investors include the State Oil Fund of the Republic of Azerbaijan and a German pension fund.

Others are working with Japanese partners. The Teachers Insurance and Annuity Association of America set up a fund investing in rental housing in Tokyo in cooperation with Japanese real estate asset management company Kenedix. The joint fund has purchased six properties for around 20 billion yen, aiming to eventually expand its portfolio to 100 billion yen.

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