A lack of resilience in the stock prices of major real estate companies is hinting how likely inauspicious shadows are to loom ahead over the Japanese property market now blessed with international investors. Oversupply of commercial and residential real estate is more likely to dampen the enthusiasm of investors expecting better returns on their investment in 2023. And with rising interest rates oversees to tamp down the high inflation, more and more international investors are cautious about acquiring or keeping the Japanese properties as their financial assets.

The bottom line of each major real estate company has been underestimated by stock traders even though the net profits of major brokerage firms are expected to reach a record high in the January- to-March quarter 2023. The Nikkei Stock Average ended on Friday with a closing price of 27,901 yen, up 326 yen, an increase of 1.2 % while an only 0.6 % went up in the stock price of Mitsui Estate, a 0.7 % increase in Mitsubishi Estate. Compared with the stock prices in the end of June, a 10 % drop was marked in the stock price of Mitsui Estate, a 5.9 % decline in Mitsubishi Estate when the Nikkei Stock Average was up by 5.7 %.

Behind the prevailing gloomy sentiment among stock traders for the shares of the real estate firms is the challenge major real estate companies are likely to be faced with in the upcoming year. Supply and demand are going to be put out of balance in the property market by many office buildings scheduled to be under construction around  next summer in the center of Tokyo where the pandemic-induced teleworking trend is keeping tipping the balance in favor of property hunters, with 6.38 % as the average vacancy rate in office buildings in November, recording more than 5 % as the threshold for supply outpacing demand for 22 months in a row. Many IT-related companies’ unwillingness to expand their office spaces are putting downward pressure on the property market. Stock investors’ minds are being swayed by  speculation that a drop in the earnings of a big tech company in the US brought the relocation of its Japanese arm back to square one.

A cautious stance for investment in the stocks of major real estate companies also comes from overreliance on international investors in transaction of Japanese properties. With an increasing proportion of international investors as Japanese property hunters reaching 30 %, the money they are investing or will invest into Japanese properties decides how the Japanese property market goes. Chances are high that they find it less likely to realize the true profit potential of what they are investing in as rising interest rates in their countries and a big jump in the cost of living are making their sentiment bearish, giving them a second thought about whether the cost of investing in real estate in Japan is worth keeping their financial well-being or not. The possibility of raising the interest rates in Japan to fight the inflation also is making stock traders and international property hunters cautious about buying the stocks of major real estate companies or the properties developed by those companies.