Nikkei: Western firms buying overpriced property in Japan

July 13, 2010
By Ken Worsley

On Monday, the Nikkei published an article asserting that Western firms “are returning to the Japanese real estate market, taking proactive steps in the hope of big gains once the market improves.”

This, of course, means that they are paying too much for real estate investments that will turn sour. The Nikkei article has a picture of an office building that Deutsche Bank Group recently overpaid about 4.1 billion yen for. The building itself is aggressively unimpressive, not to mention that it’s located in Shibuya ward.

The Nikkei holds that western firms believe that these properties will generate cash flow, because rents in downtown Tokyo are supposedly bottoming out. Really? I’ve yet to see slam-dunk proof of a bottom in rents, but it is bound to come at some point in the future.

This part of the article was telling:

According to Deutsche Securities Inc., the yield spread between returns on real estate investment and long-term interest rates (indicating fundraising costs), which shows actual returns, was 4.4% in Japan in the January-March quarter, higher than the 3-4% in the U.S., U.K. or Germany.

So things are temporarily (or longer) bad in the home markets and mark-to-market looks better on the balance sheet with properties in Japan?

The the Nikkei plays Capitan Obvious: