Commercial Lending in Japan Upticks 6 Percent Annually in Q1

Commercial Lending in Japan Upticks 6 Percent Annually in Q1

Commercial News » Tokyo Edition | By Michael Gerrity | July 10, 2024 9:39 AM ET

Japan's financing environment remains generally accommodative in 2024

Contrary to the conditions in Europe, the U.S., and many other Asian countries, the real estate financing environment in Japan remains favorable. Data from the Bank of Japan (BoJ) indicates that outstanding loans to the real estate sector by Japanese financial institutions, including domestic banks and Shinkin banks, reached JPY 129 trillion at the end of March 2024.

This represents a 6% increase from the previous year. Of this amount, JPY 13 trillion was allocated to special purpose companies (SPCs) for real estate securitization, marking an 18% year-over-year growth. Since 2019, lending to SPCs has been on the rise, with an average annual growth rate of 20% during the pandemic years from 2020 to 2022. Although the growth rate slowed slightly in the latter half of last year, potentially due to heightened expectations of a policy rate hike by the BoJ, the overall expansion rate remains robust.

CBRE recently conducted its annual Lender Survey, which surveys companies providing real estate loans. The 2024 Japan Lender Survey, carried out in April and May of this year, gathered responses about loans extended during the 2023 financial year (FY 2023, which runs from April 2023 to March 2024 in Japan) and expectations for FY 2024. The findings highlight that the lending environment remains favorable.

In FY 2023, 25% of senior lenders and 43% of mezzanine lenders reported that all their loan volume was for new acquisitions, both figures increasing from the previous year. Lenders were evidently committed to funding new real estate acquisitions in 2023. Lending conditions, such as loan-to-value (LTV) ratios and spreads, remained stable or slightly eased, especially for the hotel sector, which saw a significant increase in accommodative lending.

Looking ahead, around 60% of senior and mezzanine lenders expect their new loan volumes in FY 2024 to surpass those of FY 2023. Lenders' attitudes toward lending conditions and real estate pricing remain largely positive, continuing to support the real estate investment market.

When asked about the interest rate outlook for the coming year, 80% of respondents anticipated additional rate hikes of up to 50 basis points, with none expecting increases beyond this level. This suggests that lenders are planning their lending strategies based on an expected moderate rise in interest rates. However, if interest rates were to increase more significantly, lenders might need to reassess their lending criteria.

Japan Lending Chart by CBRE (June 2024).jpg

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