Bond wipeout threatens Japan property fundraising as Reits slump

[TOKYO] Japan’s bond meltdown last Tuesday (Jan 20) is threatening to further curb fundraising by real estate investment trusts (Reits), which has already slowed to a crawl because of rising financing costs.

In 2025, listed Reits raised 74 billion yen (S$606.9 million), the least since 2009, based on data compiled by Bloomberg.

While property investment trusts kicked off this year with 31 billion yen of follow-ons, the momentum is unlikely to last, with concerns reflected in the sector underperforming the overall market as the Bank of Japan continued to raise borrowing costs.

“It’s tricky to raise cash by new issuance when there are uncertainties over financing costs amid higher interest rates,” said Noaki Fujiwara, a senior fund manager at Shinkin Asset Management.

Fresh fundraising may be difficult in the first half of the year, before the Reits announce earnings results that will show investors the actual impact, he added.

While not all Reits are directly vulnerable to a jump in the longer-end of the curve, a quick spike in bond yields raises the risk of potential increases in borrowing and refinancing costs across the industry, said Fujiwara, who initially expected more offerings to come.

Last week, fears of fiscal excess by Prime Minister Sanae Takaichi’s administration wiped out US$41 billion from the bond market, and triggered a sell-off elsewhere.

The debt market volatility has erased this year’s gains in the Tokyo Stock Exchange Reit Index, which has dropped 2.5 per cent since Jan 20, against a 2 per cent decline in the Tokyo Stock Price Index after the bond’s meltdown.

The real estate trusts’ index has recently rallied to a four-year high, after it plunged to its lowest since 2020.

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Kohei Omura, director at the real estate investment unit of private equity firm Integral Corporation, said that accelerating inflation is also increasing costs for real estate managers, with construction and maintenance becoming more expensive.

He added that this may spur Reits to cash out of some holdings, further decreasing the incentive to raise funds through the stock market. “Asset managers would look to offset deterioration risks by selling some properties,” he noted. “Fundraising by issuing new shares may not significantly increase as they could secure cash from portfolio rebalancing.” BLOOMBERG