Saizen REIT: AK71 responds to a forum.

This is almost all of my very long comment in Wealth Buch in response to certain things said in a forum on Saizen REIT:

I have talked about the Japanese debt situation and how this has no impact on Saizen REIT before:

Japan's debt issue and Saizen REIT

As for the S$/JPY exchange rate and how the strong JPY is likely to weaken in time, we have to remember that exchange rate is bilateral in nature. The JPY could also weaken if the S$ strengthens.

MAS is allowing the S$ to strengthen in order to contain inflationary pressures. Will it allow the S$ to strengthen much more? If it does, would it not impact our exporters negatively? MAS is likely to be very cautious.

The residential real estate which Saizen REIT is vested in is below replacement cost. This means that no one in his right mind would construct new buildings. The supply side has stalled. The demand for inexpensive accommodation is strong and I have a blog post on this recently.

Asterisk Realty: Advisory for Japanese real estate

Saizen REIT owns freehold properties. Income distribution is therefore perpetual, ceteris paribus.

As for rental rates lowering 4% in Saizen REIT's latest tenancy renewals, how much of its total tenancy were so affected? Would such a trend continue?

The assumption that rental rates would continue to lower in Japan is just an assumption and is something waved around by people who think that Japan is going to the Land of the Dodos.

Jim Rogers is long JPY and believes that it will remain strong.  Marc Faber believes that people are so bearish on Japan and have written it off that it is a strong contrarian play. The JPY is still viewed as a safe haven.

In recent months, China's purchase of JGBs caused the Japanese government some concerns. The Chinese recognise the safety of JGBs compared to US Treasuries and have been diversifying away from the latter. As long as there remains a strong demand for the JPY for various reasons, the JPY is likely to stay strong. It's simple economics of supply and demand.

The recent revival of interest in Japanese real estate because of the sector's amazing yield is likely to increase demand for the JPY too. People who want to invest in Japanese real estate must pay in JPY.

It is not wrong to say that the high yield is normal for real estate in Japan but such high yield is not normal for real estate in some other countries, countries in which investors would like to get better returns for their money.

Related posts:

Saizen REIT: AGM on 19 Oct 10.
Japanese real estate: Has it bottomed?

REITs lower portfolio risk.

Apart from the attractive combination of income and capital return, REITs also offer diversification advantages. Real estate securities have a low correlation to general equities. This creates significant benefits when it comes to improving the efficiency of investors’ portfolios. It means the increasing of potential returns while at the same time lowering the level of risk, which is the underlying aim of every investor.

Unlike other sectors like tech or commodities, there is also a low correlation between the real estate markets across different countries. While global stock and bond markets tend to move together, real estate is basically determined by local factors and what affects the real estate market in one country will not necessarily affect the markets in other countries.

What is likely to have an impact on all REITs is the interest rate environment. As bond yields rise, the relative attractiveness of REITs tends to fall. This is because many investors, especially institutional ones, value REITs by comparing them with long term interest rates.


Source: UOB Asset Management.

Related post:
High yielding REITs.
Increasing demand for S-REITs.