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This covers Real Estate Investment Trusts in Japan ("J-REIT" or "REIT"). They offer a simple way for an investor with smaller amounts of capital to gain exposure to the property market in Japan and the dividend yield is quite high, appealling for an investor looking for a return in yen.

Background

Historically it has been difficult to invest in property without actually buying a building, and even if you have the capital, it can then be difficult to sell a property when money is needed. REITs were introduced into Japan to allow greater investment in property to take place, by making it easier for smaller investors to participate in the market and giving tax benefits to companies or funds which get classed as REITs.

REITs are funds or companies set up to invest in a series of real estate properties. Some are listed on the Stock Exchanges in Japan and their shares or investment certificates can be bought and sold similarly to listed companies` shares, through a securities broker.

REITs payout to their investors the rents and other property proceeds less their costs of management, administration and financing, in the form of dividends, usually twice a year.

Unlike other companies though REITs have to pay little or no corporate tax provided they pay out almost all their surplus income in this way to investors each year.

Investment Attractions and Costs

One attraction is a comparatively high dividend which should be relatively stable over the years as it is coming from property rents. If you assume that if there is a return to inflation and that rents over the long term will match that, then the income may well also be a hedge against inflation. The current (based on mid May 2005 share prices) dividend yield before tax ranges from about 3.5 to nearly 5 percent as an indication.

The costs of purchasing are also reasonable. As REITs are bought and sold on a Stock Exchange there is no buying and selling fund commission, as in the case of mutual funds, and if you use an internet broker, as highlighted previously, you can expect to pay as little commission as 1,000 yen on making an 800,000 yen investment.

You will need a securities brokerage account if you do not already have one. Although we are describing the appeal to the smaller investor you will have to buy at least one share, which looking at most of the listed REITs prices means typically Yen 800,000.

Taxation

The taxation treatment is similar to that of listed equities. The current special 10 percent tax on dividends is of particular benefit here.

Risks

It is important to understand that your investment is not secured or guaranteed and there is a risk that rents generally could go down or that the property values in the fund could fall, pulling down the value of the investment. Similarly the price of the share when you ultimatley sell is determined by the market, like any other listed company share, and is subject to variation based on market conditions.