July 12, 2019 / 9:43 AM / in 9 days

Japan's REIT prices hit 12-year high amid global scramble for yield

* TSE’s REIT index hit highest level since October 2007

* Japan regional banks among main REIT buyers

* Attracts int’l institutional investors in search of yield

* Market not overheated; large corrections unlikely -fund manager

By Tomo Uetake

TOKYO, July 12 (Reuters) - Japanese real estate investment trust (REIT) prices hit a near 12-year high this week after institutional investors piled into the asset class as an alternatives to plunging yields on global bonds.

Tokyo-listed REIT index rose convincingly above its 2014 peak on Thursday, briefly piercing the 2,000-mark, a level not struck since October 2007 and long considered a major level of technical resistance.

It has surged 12.5% so far this year, more than double the 5.5% gains in the Topix stock index.

Etsuro Akiyama, senior REIT fund manager at Sumitomo Mitsui DS Asset Management, says the market has found support from so-called “generalist” investors, who pursue opportunistic investments across all asset classes and sectors.

REITs tend to act as a “bond proxy” because they are considered to be less volatile than stocks while they have relatively high dividend yield.

J-REITs currently yield 3.8%, compared with minus 0.12% on the benchmark 10-year government bonds.

Global bond yields have plunged, with European yields hitting record lows and U.S and Japanese yields falling to multi-year troughs earlier this month, as investors bet the world’s major central banks would ease policy to fend off threats from trade tensions.

While buyers include both domestic and foreign investors, Japanese regional banks — one of the hardest-hit by the central bank’s negative interest rate policy — are among the main buyers, investors say.

“I received inquiries from investors, asking if the REIT market has peaked and whether it’s too late to invest. Although the chart may imply the market is overheated, I think the current price is not too high. There are no major sellers,” said Sumitomo Mitsui’s Akiyama.

He also manages private investment funds, whose clients include domestic regional banks.

Akiyama expects the TSE REIT index could continue to advance to as high as 2,200, or about 10% higher from the current levels.

Many investors also think the market will find support from the Bank of Japan, which has pledged to buy 90 billion yen ($831 million) worth J-REITs a year under its stimulus programme.

The central bank bought 24 billion yen in the first half of this year, which leaves them with plenty of ammunition in case the REIT market sells off.

($1 = 108.30 yen)

Reporting By Tomo Uetake; Editing by Sam Holmes

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