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Japan Real Estate Borrowings Stay Strong On Loose Monetary Policies

Office occupancy shows signs of picking up

Oct 15 – Loans granted by domestic financial institutions to Japan’s real estate industry have increased with the government maintaining its loose monetary policy. The trend looks set to continue for the rest of the year.

The loan balance as of June 2022 is approximately 115,830.4 billion yen ($780 billion), an increase of about 830 billion yen ($5.6 billion) from three months ago, according to data cited by the Nikkei Real Estate Report. This is a year-on-year increase of 4,300 billion yen ($29 billion), it said.

Since 2013, when an unprecedented monetary easing started under the Bank of Japan’s Governor Haruhiko Kuroda, the balance has continued to rise almost every quarter, the report said.

In a CBRE questionnaire conducted earlier this year, lenders were confident that loans will continue to rise for the rest of the year. The survey was conducted from April to May 2022, targeting 26 lenders that pro­vide non-recourse loans in Japan. The percentage of respondents who said the amount of new loans in fiscal 2022 will “increase” from that in fiscal 2021 far exceeded that of respondents who said it will “decrease” for both senior and mezzanine loans, according to the CBRE report.

While most developed economies have raised interest rates, Japan has kept its short-term interest rate target at -0.1%. The government has maintained its pledge to guide 10-year government bond yields around 0% despite broadening price pressures, bucking a global trend of aggressive policy tightening.

While Governor Kuroda’s term will end in April 2023, there is a strong view that there will be no dramatic changes in Japan’s monetary policy, the report said.

Meanwhile, a Nikkei Real Estate Report survey from mid-August to early September 2022 on offices with gross floor areas of 10,000 m² or more showed that the weighted occupancy rate for 28 newly completed office buildings was 56%. This is a four-percentage point decrease from a similar survey conducted about half a year ago.

The 28 newly con­structed buildings were or will be completed between October 2020 and October 2023. However, the report said that occupancy might pick up for the rest of the year. The Nikkei Real Estate Report noted that some large-scale buildings had been contacted by potential tenants seeking office space as large as all the advertised floor space.