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European property latest lure for Japan funds: Tokio Marine

Tokyo

JAPANESE institutional investors' appetite for European real-estate funds is rising as attractive yields and lower hedging costs lure them away from a potentially peaking US market, the Tokio Marine Asset Management Co has said.

The US$57 billion money manager saw inflows to its overseas real-estate equity funds soared "multi-fold" to around 200 billion yen (S$2.4 billion) at the end of March from a year ago, as demand from Japanese pensions and other institutions surged, said Shinji Kawano, head of its overseas property investment department. Total assets under management were little changed over the same period, he said.

"Japanese investors want to take risks on real estate but not on currency," he said in an interview in Tokyo last week. "The appeal of the US is decreasing while Europe is gaining more and more attention now, given its big market size and attraction in light of lower hedge costs. There is also a wariness about the US property market peaking out."

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Home price growth in the US has outpaced wage growth and inflation. A survey has found that more than half of homeowners expect home prices to decline in the not-too-distant future.

Of 1,079 adults surveyed by ValueInsured, a provider of down payment protection, 58 per cent agreed with the notion there will be a "housing bubble and price correction" in the next two years.

Client inquiries, which were focused on the US three years ago, are now neck-and-neck for Europe, Mr Kawano said. Assets in overseas real-estate equity funds suddenly spiked last year, after years of marginal growth, he added.

For investors from Japan seeking higher returns from overseas assets, the rise in benchmark US borrowing costs has made it more expensive to hedge dollar-denominated investments back into yen. Conversely, still subdued euro zone interest rates have kept hedging costs for the common currency low, increasing demand for European assets.

"I think this trend will continue for some time as many people don't expect interest rates in Europe to rise so easily," said Mr Kawano. "In addition, further increases in US interest rates threaten to undermine yields on American real estate." BLOOMBERG