Commercial Lending Attitudes Improving in Japan
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Still, Japanese lenders remain risk averse in 2021
According to new survey data from CBRE, the new loan volume is expected to increase in FY 2021 despite concerns about economic stagnation.
CBRE further reports that the total volume of new loans to the real estate industry in 2020 was JPY 10.9 trillion, 5.2% less than the previous year. Concerned about a further deterioration in the rental market as a result of the measures taken to contain the COVID-19 pandemic, lenders appear to have taken a cautious approach.
The total real estate investment volume in 2020 reached JPY 3.98 trillion, up 9% over the previous year. 44% of stock investors who responded to CBRE’s Japan Investor Intentions Survey 2021 said they plan to increase their real estate investment volume by one point this year compared to 2020.
CBRE’s survey found a significant year-over-year decline in lenders who responded, “House prices will fall,” “LTV ratios will rise,” and “Spreads will widen” in the coming year.
With regard to house prices, a slightly higher percentage of lenders responded that they expected prices to rise (17%) than those who expected prices to decline (13%). In addition, lenders expect NOI returns on some prime Tokyo assets to be either equal to or lower than those before the pandemic hit.
CBRE reports that the biggest threat to the real estate financial market remains “a national or international economic shock,” with that response being given by 50% of lenders, two points more than last year. Lenders can exercise some degree of caution.
Japan’s funding strategies for 2021 include:
- The total value of non-recourse real estate loans is expected to increase in 2021.
- The highest priority categories in the funding decision are “LTV” and “stable profitability”, the same results as in the two previous surveys.
- For the second year in a row, the most popular type of financing was “logistics facilities”. In contrast, the number of lenders choosing “offices” fell 12 points year-over-year, reflecting the increasing opacity of future office demand.
- LTV and spreads for prime assets
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