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Japan's fundraising environment will remain largely accommodative in 2024
In contrast to the situation in Europe, the US and many Asian countries, Japan's real estate lending environment remains favorable. According to data from the Bank of Japan (BoJ), the total outstanding loans to the real estate sector by Japanese financial institutions, including domestic banks and shinkin banks, reached JPY 129 trillion as of the end of March 2024.
This is a 6% increase from the previous year. Of this, 13 trillion yen was allocated to special purpose companies (SPCs) for real estate securitization, up 18% from the previous year. Since 2019, lending to SPCs has been on the rise, with an average annual growth rate of 20% from 2020 to 2022. Although the growth rate slowed slightly in the second half of last year due to rising expectations of an interest rate hike by the Bank of Japan, the overall expansion rate remains strong.
CBRE recently conducted its annual lender survey of companies that provide real estate loans. The 2024 Japan Lender Survey, conducted in April and May this year, collected responses about lending performance for fiscal year 2023 (FY2023, April 2023 to March 2024 in Japan) and outlook for FY2024, highlighting that the lending environment remains favorable.
In FY23, 25% of senior lenders and 43% of mezzanine lenders reported that all of their loan volume was for new acquisitions, both figures up from the prior year. Lenders are clearly focused on funding new real estate acquisitions in 2023. Lending terms, such as loan-to-value ratios (LTVs) and spreads, have stabilized or eased slightly, with a significant increase in eased lending, particularly in the hotel sector.
Looking ahead, approximately 60% of senior and mezzanine lenders expect new lending volume in 2024 to exceed that of 2023. Lenders' generally positive attitude toward lending terms and property prices continues to support the real estate investment market.
When asked about their interest rate outlook for next year, 80% of respondents expected an additional rate increase of up to 50 basis points, and no one expected a greater increase than that. This suggests that lenders are planning their lending strategies based on expected moderate rate increases. However, if interest rates rise more significantly, lenders may need to reevaluate their lending criteria.
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