Тема 22. Управление имуществом.

Text A. Space race

The difficulty of regulating Japan’s booming property funds

This week an unwelcome record was set by Otrix Asset Management, part of Otrix, a Japanese financial services company. In starting a three-month ban on signing new property deals, it became the first-asset management company specializing in real-estate investment trusts (REITS) to be punished by the Financial services Agency (FSA), Japan’s financial regulator. The firm’s offences included overpricing properties, by taking a seller’s valuation at face value, and failing to check whether the buildings that it bought had been constructed legally.

The FSA may be cracking down, but Japan’s booming REIT market still has plenty of room for funny business – in particular, insider dealing. There are now 50 trusts, of which 33 are listed, plus 500 or so private-equity companies specializing in property. The total value of all these funds’ portfolio is thought to exceed ¥10 trillion ($87 billion) and is growing apace. The listed REIT market has grown 17-fold since January 2002, according to STB Research Institute.

The most curious episode so far has concerned the share price of Tokyo REIT, a listed trust. In March its share price leapt by almost ¥50,000 in two days, to ¥906,000, just before it announced the sale of a building in Yokohama for around ¥6 billion. Both the authorities and the media wondered whether insider dealing had been going on. Yet neither the FSA nor the Securities and Exchange surveillance Commission (SESC), the part of agency that oversees securities markets, would have been able to punish offenders, had they found any, because the law empowers neither to do so.

This is unlikely to change for a while. Hiroshi Okada, deputy director for market regulations at the FSA, says that the agency is busy implementing a new law that gives it more power to deal with jiggery-pokery in other corners of financial services. a law to punish insider trading exists for equities, but is not even planned for REITS. Still, the authorities can at least penalize REITS for other offences, as Otrix Asset Management has found. And by next July, the private-equity property funds will come under the aegis of the SESC, lightening the FSA’s load. For the moment, they are overseen by the FSA’s banking division, which has already punished two trust banks for dodgy property deals.

Investors are attracted to property by the gap between rental yields, around 3-5% and long-term bond yields, now around 1.8%. Specialist private-equity funds, which lace investors’ money with far more borrowing than the average REIT, offer even higher returns. REITs have helped raise prices in sought-after areas in big cities, although property prices nationwide are still falling.

In these hot spots, new construction is largely speculative, rather than to meet certain demand. That parts of the property market are becoming bubbly was underlined earlier this month when Morgan Stanley Real Estate Funds sold what is known as “the warship building” in central Tokyo to DaVinci Advisors, another property-management group, for ¥143 billion, the highest price ever paid for a single property in Japan.

These days most deals are struck between REITS and their private counterparts, as the supply of new property is failing to keep up with investment demand. In a whirl of transactions, the risk of sharp practice, including insider dealing well grow. What a pity that the FSA and the SESC lack the resources and the powers to combat it.

(The Economist July 2006)