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November 13, 2017

Prime Minister Shinzo Abe’s landslide victory in the snap election called late last month not only bodes well for Japan’s economy, but also the country’s real estate investment market.

The three arrows of Abenomics – quantitative easing, government spending and structural reforms – have proved successful in boosting the economy, with Japan’s GDP growth being forecast to be better than expected this year at 1.5 percent

“For the first time in the past 11 years, Japan’s GDP has shown continuous growth for six consecutive quarters,” says Takeshi Akagi, Head of Research for JLL Japan. “The election results will serve to mitigate political uncertainty and underscore the government’s future stability which will, in turn, positively impact the Japanese economy.”

Akagi adds that Abe’s victory ensures that the economic policies are kept on track, and might even spur more momentum for the government to push further expansionary efforts.

“The fundamentals – like ultra-low interest rates – which have shown to work will not change. If anything, more effort will be made to ensure that business sentiment remains high and inflation targets can be met.”

It is also likely that the current governor of Bank of Japan, Haruhiko Kuroda, will stay on after his term ends next April for continuity.

Impact on investors
The policies, and subsequent bullish market, have had a positive impact on the country’s real estate industry. Property transaction volumes in Japan soared from US$19 billion in 2011 to more than US$34 billion in 2015, while the proportion of foreign buyers climbed from four percent to 22 percent over the same period, according to data from JLL. Real estate investment also rose 10 percent in the first half of 2017 compared to the same period the year before, while the pre-commitment rate of office space future supply increased this year, with 75 percent of the office space coming in 2018 already secured by tenants.

“The loosening of monetary policy has already lifted the real estate industry with more buildings being constructed while the depreciation of the yen has resulted in a record number of visitors to Japan, benefitting the hotel and short term stay sector in various regional cities like Osaka,” says Akagi.

The logistics market is also doing well – the second largest asset class in terms of the investment volume after office space – due to a rise in e-commerce and a pick-up in consumer spending.

The government does, still, have work to do if it’s to keep the country’s economy growing; inflation is low this year, at 0.8 percent, and wages are lagging behind expectations as firms are reluctant to increase salaries.

According to Akagi, there’s a need to improve business productivity and tackle labour shortages in order to address Japan’s ageing population. “While the election win was a start, the new government must now undertake reforms to make sure they deliver on their promises.”

Click here to read more about real estate investment in Japan.

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Akagi Takeshi

Head of Research, Japan

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