Australian property is back on Japan's radar

Japanese corporates have repaired their balance sheets, and the country's investors are now rekindling their love affair with Australian real estate.

More than two decades on, the Japanese are returning.

Back in the 1980s and early 1990s, Japanese investment dollars flowed into Australia at a furious pace. Then came the collapse of the Japanese economy, ending a period of extravagant global buying by Japanese corporates and sparking a rash of fire sales.

Time has healed the national pain and repaired corporate balance sheets. Now, the Japanese are re-kindling their love affair with Australian real estate. 

This time around, investment will be equity-funded, not fuelled by bank lending, according to consultants close to the Japanese market.

Potential investors include Japan’s largest conglomerates Mitsui Fudosan, Sumitomo Corporation, Mitsubishi Estate and Daiwa House.

A source close to these Japanese companies told Business Spectator: “I know that Mitsui Fudosan (Japan’s largest real estate group) was interested in 52 Martin Place (a central Sydney office tower) when it came to the market this year.”

But Mitsui Fudosan did not bid for the coveted asset, owned by QIC RE, the real estate arm of the Queensland state fund manager, which sold the building to the Melbourne-based industry super fund, REST, for $555 million in July.

While the source did not explain why Mitsui Fudosan opted out of the final bidding process, he says the company is still looking for buildings to buy in Sydney. 

Property consultants say they are fielding far more inquiries from potential Japanese investors today than they were a couple of years ago.

Atsuhide Seguchi, the general manager of development and communities with Sekisui House Australia, says his group has been contacted by other Japanese developers interested in Australia.

Adam Geha, chief executive of EG Funds Management, says the Japanese are being cautious and are taking time to assess projects. In his case, it took a year before he was able to finalise a joint venture with Japan’s largest residential developer, Daiwa House.

Daiwa House and its Australian subsidiary Cosmos, along with Sumitomo Forestry, bought a 75 per cent stake in a $300m residential project in Summer Hill, in Sydney’s inner west.

Having bedded down that first deal, Mr Geha is hopeful of forming a second venture with Daiwa for a 164-apartment project in a nearby suburb.

The Summer Hill venture marks the return of Daiwa House to Australia.

Daiwa House first entered the Australian market in 1987 to develop a high-rise tower with 94 apartments on the Gold Coast. Unlike its peers at the time, its exposure was limited to that project, which was sold in 1989 -- before the Australian property market headed into a downturn in the early 1990s. 

At the time, the most aggressive investor was EIE, headed by Harunori Takahashi. In 1990, it became the biggest single individual overseas investor in Australia with about $2 billion worth of assets. Contractor Kumagai Gumi chalked up a total of $2.5bn in Australian holdings.

Both EIE and Kumagai Gumi were burned in Australia and around the world.

For the next two decades, Australia fell off the Japanese radar, until Sekisui House, ranked as Japan’s second largest home builder, set up an operation here in 2009.

Today, Australia is one of its fastest growing markets, with an annual turnover of $1bn.

Mr Seguchi says Australia presents growth potential, compared with Japan’s demographics and decreasing population.

Masaomi Yamadaira, Daiwa House managing director in Australia, told Business Spectator that Daiwa House Australia was established in 2011 to conduct market surveys with a view to finding business opportunities that would enable the company to once more make inroads into the Australian market.

Mr Yamadaira says Daiwa House has operations in 30 cities in 12 countries, including the United States, China and Southeast Asia.

A leading specialist on the Japanese market, Reid MacKay, executive director Asia with CBRE, based in Singapore, says: “Unlike the Chinese and other Asians, who are trophy hunters, the Japanese today are almost the opposite.

“This crop of investors is low key and selective, prepared to buy quality B-grade office and retail properties in fringe locations, in areas like Parramatta (in Sydney’s West) and Chatswood (on Sydney’s North Shore).  

“Mostly, they are looking to spend between $100 million and $200 million,” says Mr MacKay, but they have the cash capacity to spend more if they find the right asset. They look for yields of 8 per cent plus, and buildings with long leases.”

He adds: “But I don’t believe you are going to see huge transactions like you do with other Asians. Japanese banks are still not lending much for offshore purchases.”

James Quigley, national director capital markets with Colliers International, says the focus is mainly in residential projects from Japanese house builders.

Japanese-speaking William Young, director of the Hong Kong-based Copia Investment, is consulting for a well-known Japanese company which is planning a high-density project in Melbourne in joint venture with an Australian company.

Young says the Japanese companies believe they have building technology which will help cut the high cost of construction in Australia - allowing them to offer their products at a competitive price.

Like other Asian developers, he says the Japanese are attracted to immigration growth and Australia’s long-term economic potential.

Yamadaira says Sydney’s population is forecast to grow to 4.46 million by 2015, from 3.90 million in 2000.  

“We assume that a downturn in the housing market is unlikely until the shortfall in residential housing supply, especially in Sydney, is solved,” he says.

Sekisui House, which is a joint venture partner of Fraser Property Australia in the $2-billion Central Park development in Chippendale, on the fringe of central Sydney, is actively seeking more joint ventures with Australian companies to build up a pipeline of work.

Daiwa House is also looking for new projects in Australia. “We have an intention to expand from residential development to other type of properties, such as logistics, commercial and retails which we have been dealing with in Japan,” Yamadaira says.

Daiwa House is also looking to expand into the environmental energy business and property management in Australia.

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