Japanese real estate investment is back after three decades

Even as Chinese investment declines, major Japanese companies are looking for new markets to compensate for shrinking opportunities at home due to a shrinking and aging population. Australia, with a pre-COVID-19 population driven by immigration, offers a source of growth.

“The withdrawal of Chinese investment over the past two years has significantly reduced competition for assets and projects and geopolitical considerations have brought Japan and Australia closer than ever diplomatically, economically and politically,” he said. Mr. Williams.

Australia’s small population and vast territory also provide oligopolistic market opportunities that reduce risk for foreign investors, according to HSF.

This is a different style of inbound investing than the bubble-era boom of inflated asset prices that collapsed in 1991. Japanese companies are now cash-strapped and able to borrow at low rates and with flexibility.

This gives them an advantage in fragmented real estate sectors, often operated by family businesses and cash-strapped.

This is already clear in the homebuilding sector, where four of the country’s largest homebuilders have already invested in Australia.

Sekisui House and Sumitomo Forestry were the pioneers, with full or partial acquisitions of local home builders. Daiwa House and Asahi Kasei Homes – the majority owner of NXT Building (formerly MJH Group) – followed.

The country’s fifth-largest homebuilder, Iida Group, is known to assess opportunities to enter the market. Even car giant Toyota is involved in building Australian homes, through its ownership of Misawa Homes, which in 2018 acquired Gold Coast-based Homecorp Constructions.

“Residentially, the United States is the number one target, but Australia would be the second biggest beneficiary of acquisitions and investment,” says Williams, a former Wallaby rugby union player who also spent six years in Japan playing for the top team. Kobe Steel.

The building supply chain is another target. In 2018 Bunka Shutter bought ArcPac Garage Doors for $65 million and the following year Nippon Pain acquired paint maker Dulux for $3.8 billion.

Further acquisitions are likely of Australian building products and logistics companies as suppliers to Japanese companies set up shop here, according to HSF.

The latest report from the law firm in Japanese M&A into Australia – published in March last year – reported a drop in the number of deals to 28 in 2020 from 41 in 2019, as the onset of the pandemic prevented many would-be investors from getting boots on the ground. to exercise due diligence.

The company’s 2021 report, to be released next month, shows a rebound in deal volumes to 47, of which 29 were mergers, acquisitions or divestitures across a range of industries and the rest were collaborations related to ammonia or hydrogen new energy projects .

Investors with an established interest in Australia were able to continue to engage, but it was more difficult for those not already there to make commitments, Williams says.

“Without the COVID intervention, this likely would have happened by now, but with severe travel restrictions, asset due diligence was not possible,” he says.

It’s a far cry from the era of the debt-fueled bubble, when capital flowed into real estate, hotels and resorts, continuing what Williams says was spurred by the road expansion of Japan Airlines.

“The 1980s were largely driven by Japan Airlines adopting Australia as its preferred destination,” he says.

“Cairns was created because JAL decided to make it a hub.”

Firms such as Daikyo, which in 1992 had invested over a billion dollars in Queensland alone, and EIE were household names.

It wasn’t just Australia, though – it was a time of global excess. In 1989, Mitsubishi Estate paid $1.4 billion for an 80% stake in New York’s famed Rockefeller Center, an investment that lost $600 million over the next five years before selling the asset to its lenders.

In September 1990, Japanese real estate tycoon Minoru Isutani bought the famed Pebble Beach golf course in California for $841 million and sold it 18 months later at a loss of $340 million.

But in Australia, as in the United States, much of the social infrastructure created remained, even after the developers withdrew.

“They came, they went bankrupt, and the quality products stayed,” Williams says.

“Unfortunately, these companies all went bankrupt and the Japanese banks that lent them the money had to be bailed out by the Japanese government. We should thank the Japanese taxpayers for all the wonderful golf resorts that still exist between Cairns and the Gold Coast.