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Recent development of investment into the Japanese real estate market

By Yuichiro Nukada
Posted: 20th March 2012 10:13

Recent Japanese Real Estate Market

To promote the real estate investment market in Japan, a statutory Special Purpose Vehicle scheme (tokutei mokuteki kaisha) for asset securitization was introduced in 1998 (TMK scheme).  This mainly addressed the liquidity of bad debt.  The Japanese REIT scheme (J-REIT scheme) was introduced in 2001 beginning with two J-REITs listed on the Tokyo Stock Market.  Both schemes have been steadily developed as a method of real estate securitization through several amendments.  Since 1998, over 2,300 TMKs have been incorporated with almost 1,000 existing at present.  34 J-REIT entities are currently listed on the Tokyo Stock Exchange.  Anderson Mori & Tomotsune has provided forward-thinking and sophisticated legal advice for a number of TMK and J-REIT schemes for both domestic and cross-border transactions.

J-REIT-related laws are expected to be amended within a few years.  If they are significantly amended, it will be the first large amendment in more than 10 years.  Also, the Act Concerning Designated Real Estate Joint Enterprises is expected to be amended in 2012, subject to further debate at The Diet.  TMK-related laws were broadly revised in 2011 to address the aftermath of the recent financial crisis and amendments to Japan's urban redevelopment policies, as well as encourage greater liquidity in Japanese real estate industry.

Expected Amendments to the J-REIT-related Laws

Until around 2013, the relevant authorities will continue to examine and review J-REIT-related laws to clarify problems with J-REIT regulation, including challenges concerning fund procurement capacity, governance, volatility and institutional stability.  In light of the recent public report by the Ministry of Land, Infrastructure, Transport and Tourism of Japan, it is expected that the Japanese version of Umbrella Partnership REITs will be reviewed to address issues relating to urban redevelopment.

With a view to amending the J-REIT-related laws, the Financial Services Agency of Japan officially started discussions in January 2012.  The amendments aim to enhance (i) the financial stability of J-REITs by introducing various methods of obtaining finance and (ii) the transparency of the management and transactions of J-REITs so as to obtain the confidence of investors.

2012 Expected Amendments to the Act Concerning Designated Real Estate Joint Enterprises

In February 2012, the Ministry of Land, Infrastructure, Transport and Tourism of Japan proposed to amend the Act Concerning Designated Real Estate Joint Enterprises, which mainly regulates investments in fee simple through partnership agreements, e.g., tokumei kumiai, or other similar contractual arrangements.

The expected amendments enable investments in fee simple via a special purpose vehicle (SPC), as an acquisition vehicle, with simplified filing requirements, subject to the SPC outsourcing its business regarding real estate transactions to a licensed designated real estate joint enterprise.  The simplified filing requirements replace the license for designated real estate joint enterprises, which was a requirement for an acquiring entity and has been considered impractical to obtain for an investment in fee simple.  Further requirements for new schemes using an SPC, including whether new schemes are available for foreign investors, are currently being discussed; therefore it is important to carefully monitor further progress.

2011 TMK-related Law Amendments

In 2011, TMK-related laws were revised to simplify the amendment of asset liquidation plans (ALPs) and to make the acquisition of assets and financing more flexible.  The new simplified procedure for amending ALPs will reduce the cost of filing an ALP with the relevant authority and address the changing environment of real estate development.

Although the acquisition of additional assets by a TMK after its initial asset acquisition has been considered to be outside the scope of TMK-related laws in the past, a TMK may now acquire additional assets cumulatively.  This may be an effective "cost-cutter" and "life-prolonger" for TMKs experiencing credit difficulties.

To address credit difficulties which a TMK may experience and provide more flexible financing for TMKs, the amended TMK-related laws abolish the requirements regarding Japanese qualified investment institutions (QII) granting certain short-term loans to TMKs.  Subject to the Money Lending Act, as applicable, any entity, including non-QII-sponsors or asset managers of a TMK, may now offer a short-term loan to a TMK to address its fund shortages; provided the situation is one that is prescribed under the TMK-related laws.  This is an alternative to funding through equity interests.

A TMK may also acquire, as its securitized assets, certain equity interests in a voluntary partnership (nin-i kumiai) or a silent partnership (tokumei kumiai) engaging in real estate development in an orderly manner.  A TMK may alternatively engage in real estate development transactions through investment in a partnership instead of acquiring ownership of real estate.

As part of establishing Japan as a major financial market in Asia, in conjunction with the necessary taxation arrangements, "quasi-bond beneficiary interests" have been newly created by the TMK-related laws to allow investors to access Islamic bonds (sukuk).  A holder of quasi-bond beneficiary interests may receive a predetermined fixed-income distribution.


Anderson Mori & Tomotsune is one of the largest full service law firms in Japan with over 50 years of experience advising international clients.  Through specialized teams of Japanese and foreign attorneys equipped to meet the needs of international real estate investors, Anderson Mori & Tomotsune is proud to offer a full-range of real estate advice, including deal structuring advice, legal due diligence, contract negotiation and closings, to sellers, purchasers, trustees, asset managers, financiers and arrangers.

Yuichiro Nukada, a partner at Anderson Mori & Tomotsune, practices in the fields of real estate (J-REIT, TMK), financing, international transactions, M&A (takeover bids, share acquisitions, business transfers, statutory corporate reorganizations, JVs, general corporate), sport (professional football clubs) and entertainment.  In addition to his professional experience at AM&T, he worked for the Financial Services Agency of Japan where he was in charge of maintaining laws and regulations for modernizing the Companies Act, the Securitization Law (TMK Law), the REIT Law and other financial areas.  He was also engaged in the preparation, revision and formulation of the Financial Instruments and Exchange Act (June 2004 - June 2005).  He has also worked for Slaughter and May in London as a foreign visiting associate (September 2006 - March 2007).  Yuichiro can be contacted on +81-3-6888-1110 or by email at

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