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Is Japan's REIT boom for real?

Real estate investment trusts have taken off dramatically in Japan, providing a new way to invest in the property market and an attractive rate of return compared to other investment products. Can the boom last? Andy Wright reports.

By Andy Wright

The Japanese real estate investment trust (J-REIT) market is a huge success, having outperformed the Topix and Topix Real Estate Index since 2002 by almost 20%.

Since the first two Japanese REITS were launched in September 2001, the market has rapidly grown to 15 J-REITS, created and listed on the Tokyo Stock Exchange and with a total market capitalization of $19 billion today.

And the pace is picking up.

According to Keiko Otsuki, executive director at Morgan Stanley in Tokyo, six funds have already gained approval for listing and there are rumours that another four may gain approval by the end of 2005. In the US it took over 30 years for the market to reach a comparable size.

Before the introduction of J-REITS, investors were hesitant to enter the Japanese property market because of concerns about a suitable exit strategy, despite the sharp fall in property prices following the property crash of the late 1980s.

J-REITS are held by individual and institutional investors, who collect dividends from rental incomes while also benefiting from capital appreciation. They are all externally managed and are solely engaged in the property rental business.

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