REIT ASIAPAC
OUTLOOK
Outlook
TOURIST INFLOWS TO HELP COUNTER
I M PAC T AT F U K U O K A R E I T
IMPACT OF JAPAN’S
POTENTIAL CONSUMPTION
TAX HIKE IS SEEN TO BE
LIMITED, SAY J - REITS
“Based on the experience from the last consumption tax hike from 5% to 8% in 2014,
there was definitely a last-minute demand rush prior to the increase; sales will drop-off
immediately after the hike before stabilising,” says Hideya Kanno, General Manager of
Property Management at Fukuoka REIT.
Logicity Minato Kashii (Fukuoka)
However, the REIT also expects to be able to weather the increase. “Where our retail
assets are located, we are seeing population growth and strong inflows of inbound
tourists. Our large-size retail assets present new experiences to capture demand,
and we are confident that they will be able to offset any negative impacts from the
consumption tax hike and achieve even stronger sales,” says Kanno.
A potential rise in Japan’s consumption tax to 10% from 8% may put some
pressure on REITs’ distributions and will cause near-term volatility in retail
Hideya Kanno,
sales, but any impact will be softer compared with the 2014 tax hike.
General Manager of Property
Management at Fukuoka REIT
RISING EMPLOYMENT
AND INCOME LEVELS
However,
AEON
REIT
Investment
Corporation, whose portfolio consists
mainly of shopping centres in major cities
and suburban Japan, is confident that the
impact will be minimal. “We believe overall
retail sales will remain little-changed
because of two reasons: firstly, the rate of
the consumption tax increase this time is
less than 2014’s; secondly, we have seen
improvements in the employment rate and
the income level,” says Akifumi Togawa,
Director and General Manager of the
Finance and Planning Department at the
asset manager of AEON REIT.
Kamigofuku-Machi Building, Fukuoka City
Akifumi Togawa,
AEON Lake Town Mori
Japan looks set to go ahead with a controversial rise in consumption tax in October
after its economy unexpectedly grew by an annualised 2.1% in the first quarter of 2019.
Although speculation remains that Prime Minister Shinzo Abe could postpone the hike,
which is aimed at reducing the national debt, for a third time, as economic conditions
deteriorate due to the U.S.-China trade war. The Japanese central bank will release the
quarterly business confidence survey on July 1. The report, among other indicators, will
shed light on market conditions, which will help the central bank decide if it should go
ahead with the hike.
A potential rise in consumption tax may impact REIT’s return as costs rise. “Landowners
of rental housing will have to defray additional expenses associated with maintenance
costs and property management fees which are taxable. Therefore, residential REIT’s
DPU (distribution per unit) could be affected by additional costs,” says UOB-Sumitomo
Mitsui Asset Management’s fund manager Junnosuke Shinkawa.
“However, the impact on the DPU is expected to be limited to around 1-1.5%. I believe
22
Director and General Manager of the
Finance and Planning Department at the
asset manager of AEON REIT
that this impact can be offset by organic
and inorganic growth,” he says.
Abe’s government has planned for a series
of measures to mitigate the economic
impact, such as keeping the tax rate for
food and non-alcoholic drinks unchanged
at 8%. “The GDP impact from the tax
change is expected to be minimal,” projects
Shinkawa, adding that the retail sector
will likely see some “downside risks” from
dampened consumer sentiment from the
tax hike.
“We expect profitability and the rent
burden to be stable on an annual basis,
although monthly retail sales will fluctuate
because of last-minute demand and a
reactionary drop-off in consumption
before and after the tax increase,” he says.
Even if sales were to decrease due to the
tax, AEON REIT’s fixed-rent master lease
agreements with its tenants would ensure
that dividends and rental income will not
be impacted adversely, Togawa explains.
AEON REIT’s Kaze Mall
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