REIT of rising interest rates risk

REIT (Real Estate ETF) is, from the fact that you can invest in real estate, such as easy to prime office buildings from small, is a very good financial instruments. In Abenomics rate of 2013, stock prices of the REIT has also been rising, individual investors who have won a big profit would also be many.

Also as leverage destination of NISA account that began in 2014, dividends lot of (dividend) REIT has been attracting attention. Towards the Tokyo Olympics in 2020, there is also predicted that land prices in Tokyo enters the bubble again, we can seriously consider age to invest in REIT.

However, considering the course of the future of the Japanese economy, there is one big risk you should be careful in investing in REIT. It is a management worsening of REIT due to the rise of interest rates.

REIT from that it is in law not to apply corporate tax to be turned more than 90% of the profits in dividends, is not nearly be retained profits. For this reason, when the REIT to acquire a new property will need to be either "capital increase" or "borrowing from the bank". And many of the listing to REIT is, we are a lot of borrowing from the bank. Therefore REIT, when interest rates rise the burden of debt increases, has become a mechanism for risk management tilts increases.

Is to measure the interest rate risk of the REIT are valid indication that "LTV". LTV is the abbreviation of (Loan to Value), an index that represents the ratio of debt to the real estate value, is a risk that this value is worse is management at the time of higher interest rates rise high. J-REIT overall average of LTV has remained at 40 percent, and I would say that it is careful when it exceeds 60%.

Is the source of Abenomics, by the Bank of Japan Kuroda "2% inflation target policy", is likely to continue over the medium to long term market interest rates will rise in Japan. First place of zero interest rate policy, in unprecedented policy in the world of financial markets (after the Lehman shock, but the United States and Europe has followed suit), on the mechanism of capitalism, more than 2% of inflation if the original is the obvious level .

The first place in order to Japan is not financial collapse, it is necessary to more than 4% of the inflation target, is the current Bank of Japan also considerably lower number target value of 2%. Thus the future, interest rates of Japan is extremely likely to continue to rise, interest burden of the REIT will continue to increase. Although the economy is different if we greatly increased the rent is to bubble, and in spite of the deceleration economy by consumption tax hike of 2014, further tax increases since '15 by the Ministry of Finance of interest also planned it is we, the rise in rents is not much can be expected. Let alone Abenomics market is too strong expectations majors, stock prices of the REIT has excessive rise to positions that already can be called "bubble". It is evidence, the average distribution yield of the 2014 current J-REIT is and about 3%, has remained historically low levels. Currently, dividends of only commensurate with the interest rate rise risk investment to the manifestation of the REIT is obtained and not situation.

Is not limited to the REIT, most Japanese have accustomed to the "deflation", "zero interest rate", it is a situation that has forgotten the risk of inflation and rising interest rates. I do not intend that Tomero to invest in REIT, but future interest rates in Japan continue to surely rise, J-REIT that low interest rates have been run in the premise, there is a risk that come out also where to bankruptcy.

REIT will or is said to be such as middle risk, middle return, but the reality is not so sweet, came out also REIT that was bankrupt as New City Residence at the time of the Lehman shock. Economy will increase the risk also increased interest rates and overheated, the financial crisis will increase is still bankruptcy risk also happening. Investors REIT should be aware of and he is stock and risk of the same level.