By Allen Kenney

Reports out of Tokyo have the country’s government mulling lifting the ban on Japanese REITs (J-REITs) investing in foreign assets.

According to multiple media outlets, the government was looking into allowing J-REITs to begin investing overseas as early as April 2008. The Association for Real Estate Securitization (ARES), a real estate trade association and investment group in Japan, praised the government’s step towards deregulation as a move that “will trigger new growth of the J-REIT market and will be welcomed by many investors.”

“We believe the deregulation generates further growth of J-REITs, enabling them to enjoy the benefits of diversified investment by acquiring stabilized properties in the U.S. and other countries with well-developed real estate markets, while maintaining the characteristic of stable income returns,’’ says Ichiro Makijima, senior managing director of ARES. Makijima noted that the current credit market situation would likely push J-REITs toward “speculative development projects” if the foreign investment ban were to remain in place.

“Some J-REITs have already altered their investment policies to allow for overseas properties in their portfolios after gaining approval at their general meetings of investors,” Makijima says. “These J-REITs are aiming to invest in countries with established real estate investment markets such as the U.S., UK and Australia, and they intend to invest in stabilized properties that can provide stable income returns.”

Historically, Japan’s government has prohibited foreign investment by J-REITs as a measure to ensure investor protection from inadequate asset appraisals. Consequently, Japan’s Ministry of Land decided to draft appraisal guidelines, Japanese newspaper Nikkei reported.

Nikkei also reported that, under the new guidelines, Japanese appraisers would have ultimate responsibility for valuations of foreign assets, but they would work with experts from the target markets to arrive at their appraisals.