The significance of residential REITs in Japan as an institutionalised property sector

Pages363-379
DOIhttps://doi.org/10.1108/JPIF-03-2019-0036
Published date02 May 2019
Date02 May 2019
AuthorYu Cheng Lin,Chyi Lin Lee,Graeme Newell
Subject MatterReal estate & property,Property management & built environment
The significance of residential
REITs in Japan as an
institutionalised property sector
Yu Cheng Lin, Chyi Lin Lee and Graeme Newell
Department of Economic, Finance and Property,
Western Sydney University, Penrith, Australia
Abstract
Purpose Residential Real Estate Investment Trusts in Japan (residential J-REITs) have become an
increasingly significant listed property sector recently. The purpose of this paper is to assess the effectiveness
of residential J-REITs in a mixed-asset portfolio context in Japan by assessing the significance, risk-adjusted
performance and portfolio diversification benefits of residential J-REITs over July 2006August 2018.
The ongoing property investment implications for residential J-REITs are also identified.
Design/methodology/approach Using monthlytotal returns, the risk-adjusted performanceand portfolio
diversification benefits for residential J-REITs over July 2006August2018 are assessed. An asset allocation
diagram is employed to assess the role of residentialJ-REITs in a mixed-asset portfolio context in Japan.
Findings Residential J-REITs generally delivered superior risk-adjusted returns compared with the other
sub-sector J-REITs, stocks and bonds in Japan over July 2006August 2018, with desirable portfolio
diversification benefits in the full mixed-asset portfolio context. Importantly,residential J-REITs are observed
as strongly contributing to the mixed-asset portfolio context in Japan across the portfolio risk spectrum,
particularly in a post-GFC context. This also reflects that residential J-REITs provide high portfolio returns
and strong portfolio diversification benefits in a mixed-asset portfolio context in Japan.
Practical implications Residential J-REITs are effective and liquid residential property investment
exposure in Japan. The results highlight the strong risk-adjusted performance of residential J-REITs in
Japans mixed-asset portfolio context. This suggests institutional investors, particularly Japan institutional
investors, should consider including residential J-REITs in their mixed-asset portfolios, as residential J-REITs
are seen as a compelling investment product co-existing alongside the other sub-sector REITs and major asset
classes in institutional investor portfolios in the context of Japan. This also confirms the effectiveness of
institutionalised residential J-REITs. Given the solid residential property market fundamentals in Japan, an
increased level of the institutionalisation of residential J-REITs can be expected.
Originality/value The study is the first study to assess the effectiveness of residential J-REITs, via
assessing the significance, risk-adjusted performance and portfolio diversification benefits of residential
J-REITs and their role in a mixed-asset portfolio context in Japan. This research enables more informed and
practical property investment decision making regarding the value-added and strategic role of residential
J-REITs as effective and liquid residential property investment exposure in Japan, as well as an increasingly
institutionalised property sector going forward.
Keywords Japan, Institutional investors
Paper type Research paper
Introduction
Residential Real Estate Investment Trusts in Japan (residential J-REITs) have become an
increasingly significant listed property sector globally and in Japan. Figure 1 shows the
significance of residential J-REITs globally. Japan has the highest ratio of residential REITs to
the composite REITs by market capitalisation (18 per cent) and the number of funds
(15 per cent) globally. It exceeds the other global leading REIT markets, including the USA
(14 per cent; 12 per cent), Australia (2 per cent; 4 per cent) and the UK (9 per cent; 13 per cent).
Thus, residential J-REITs are observed to have a greater role compared globally and to the USA.
Figure 2 depicts that residential J-REITs have grown from US$302.3m in July 2006 to US
$21,087.8m in August 2018, an increase by 69.8timessinceJuly2006.WithnineREITsandthe
total assets of US$21.1bn, residential J-REITs are the third largest sector in J-REITs, followed by
industrial (No. 4; US$13.2bn), retail (No. 5; US$9.8bn) and specialty J-REITs (No. 6; US$6.1bn),
Journal of Property Investment &
Finance
Vol. 37 No. 4, 2019
pp. 363-379
© Emerald PublishingLimited
1463-578X
DOI 10.1108/JPIF-03-2019-0036
Received 19 March 2019
Accepted 27 March 2019
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
363
Residential
REITs in Japan
and only exceeded by office (No. 1; US$36.9bn) and diversified J-REITs (No. 2; US$30.7bn)
(see Table I), owing to the significance and stature of residential J-REITs globally and in Japan.
However, amongst the J-REIT research, residential J-REITs have received little attention
from practitioners and researchers. Some research has focussed on the investment
performance (Newell and Peng, 2012; Cho, 2017), initial public offerings (Kutsuna et al., 2008;
Ma and Michayluk, 2015), the debt raising and refinancing strategies (Tang et al., 2016) and
the capability to track direct property prices (Shimizu et al., 2015) of the composite J-REITs,
as well as the hedging effectiveness of J-REIT futures (Lee and Lee, 2012). The role of
J-REITs has also been widely discussed in an Asian REIT context (Chang et al., 2012;
Loo et al., 2016; Tang and Mori, 2017; Ooi et al., 2018; Liow et al., 2019). Nevertheless, no
comparable study has yet been devoted to residential J-REITs.
Residential REITs in the USA (residential US-REITs), Australia, the UK and the other
European countries (e.g., German, Belgium, the Netherlands, Sweden, Swi tzerland) have
received increasing attention in recent years (Montezuma, 2006; Ball, 2010). Extensive studies
14%
2%
18%
9%
12%
4%
15% 13%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
USA Australia Japan UK
Market cap No. of REITs
Sources: Authors’ compilation/analysis from ASX (2018); JPX (2018);
LSE (2018); NAREIT (2018b); Thomson Reuters Eikon
Figure 1.
Residential REITs as
% of the composite
REITs by leading
global REIT markets
25,000
20,000
15,000
10,000
5,000
US$ million
Residential J-REITs Number of funds 14
12
10
6
4
2
Number of funds
0
8
Note: aCalculated in US$
Source: Authors’ compilation/analysis from Thomson Reuters Eikon
1 July 2006
1 December 2006
1 May 2007
1 October 2007
1 March 2008
1 August 2008
1 January 2009
1 June 2009
1 November 2009
1 April 2010
1 September 2010
1 February 2011
1 July 2011
1 December 2011
1 May 2012
1 October 2012
1 March 2013
1 August 2013
1January 2014
1June 2014
1 November 2014
1 April 2015
1 September 2015
1 February 2016
1 July 2016
1 December 2016
1 October 2017
1 May 2017
1 March 2018
1 August 2018
Figure 2.
Growth in market
capitalisation for
residential
J-REITs
a
: July
2006August 2018
364
JPIF
37,4

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