And the stock market winners on Tokyo's winning the bidding for the 2020 summer Olympics are -- Tokyo's big real estate developers.
Sumitomo Realty and Development (8830.JP), which has the biggest land bank in Tokyo with the potential for 30,000 new apartments, was up 4.7% overnight on the Tokyo market. Mitsui Fudosan (8801.JP in Tokyo) and Mitsubishi Estate (8802.JP in Tokyo and MITEY in New York), with land capacity to build 15,000 apartments, were up 6.4% and 4.7%, respectively, overnight in Tokyo.
The stocks may have gotten an extra push from the Olympic announcement but they had already climbed strongly -- Sumitomo Realty, for example, is up 42.4% from June 26 through Sept. 9, on big inflows of cash from real estate investors across Asia. After huge increases in apartment prices in cities from Taipei to Hong Kong to Singapore, Tokyo real estate has become a bargain. A 1,000 square foot apartment in Taipei costs, on average $648,250, in Singapore $784,000, and in Hong Kong $2.5 million. The average three-bedroom apartment in Tokyo in June cost just $490,000.
The lure for Asian investors is that with money so cheap, and prices so low, rental income in Japan is high enough to give an investor a 6% to 8% return, Bloomberg calculates, plus the possibility of capital gains from rising prices. That combination has created a Tokyo apartment gold rush for Asian investors looking to diversify.
For example, Sinyi Realty (9940.TT), Taiwan's biggest listed real estate broker, sold 11.3 billion yen in Japanese properties in the first half of 2013 compared to 8.6 billion yen worth in all of 2012. It hasn't hurt, of course, that a weak yen, has made Tokyo apartments cheaper this year to buyers in Asian currencies such as the Korean won.
The Japanese developers have been reporting huge increases in revenue and operating profits in recent quarters. Sumitomo Realty, for example, reported that operating profits for the June quarter almost tripled to 16.8 billion yen from 6.6 billion yen in the same quarter of 2012. At Mitsubishi Estate operating profit climbed 44%.
The one thing that could slow the boom is a plan to double Japan's sales tax in two stages from the current 5% to 8% in April 2014, and then to 10% in 2015. But with the cost of borrowing money still very low, with the yen still likely to fall, and with the inventory of completed condominiums in Tokyo running at the lowest level since 2000, according to the Real Estate Economic Institute, I don't think the boom in Tokyo real estate stocks has run its course, quite yet.