Commercial Lending Attitudes Improving in Japan

Commercial Lending Attitudes Improving in Japan

Commercial News » Tokyo Edition | By Michael Gerrity | June 24, 2021 8:19 AM ET

Yet Japanese lenders remain risk averse in 2021

According to new survey data by CBRE, new loan volume is set to increase in FY 2021, despite concerns over economic stagnation.

CBRE further reports total volume of new loans to the real estate industry was JPY 10.9 trillion in 2020, down 5.2% y-o-y. Lenders appear to have adopted a cautious approach out of concern regarding the further worsening of the rental market as a result of measures to contain the COVID-19 pandemic.

Total real estate investment volume in 2020 reached JPY 3.98 trillion, up 9% y-o-y. 44% of equity investors who replied to CBRE's 2021 Japan Investor Intentions Survey indicated that they planned to increase their real estate investment volume this year, up one point from 2020.

CBRE's survey recorded a significant y-o-y decrease among those lenders who answered, "real estate prices will fall", "LTV ratios will increase" and "spreads will widen" over the upcoming year.

In terms of real estate prices, a slightly higher percentage of lenders responded that they expected prices to increase (17%) than those who anticipated a decrease (13%). Furthermore, lenders are anticipating NOI yields to be either equivalent to or lower than those seen before the advent of the pandemic for some prime Tokyo assets.

CBRE reports the greatest threat to the real estate financial market remains "a domestic or international economic shock", with this answer given by 50% of lenders, up two points from the previous year. Lenders may maintain some level of caution.

Japan's 2021 Financing Strategies Include:

  • The total value of real estate non-recourse loans is projected to increase in 2021.
  • The most prioritized categories when deciding on financing are "LTV" and "stable profitability", the same results as seen in the previous two surveys.
  • The most popular asset type for which to provide financing was "logistics facilities" for the second consecutive year. In contrast, the number of lenders who selected "offices" fell by 12 points y-o-y, reflecting the increasing opacity surrounding the future of office demand.
  • LTV and spreads for prime assets

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