With the announcements of the March settlements over, the settlements for each real estate company in the financial year ending March 2017 are now available. Today we will be summarising the accounts of major real estate companies.
First of all, we will start with the accounts for the three largest companies; Mitsui Fudosan, Mitsubishi Estate, and Sumitomo Real Estate. All three companies achieved higher sales and profits in the fiscal year ending March 2017. Office building business performed well with the backdrop of decreasing vacancy rates. Mitsui Fudosan saw operating profits in the condominium business increase 28% from the previous term for individuals, and 68.8% for investors.
It seems that the construction rush for logistics facilities concentrated in the metropolitan area also boosted results for all three companies. Further, they all predict increase revenue and profits for the current financial year. Mitsui Fudosan and Mitsubishi Estate are in the middle of working on redevelopment of areas around Tokyo station such as Marunouchi and Nihonbashi, and plan to begin new operations for large scale office buildings one after the other from this term onwards. As long as there is no major issue with vacancy rates, it should be safe to say that the next two or three years should be secure for them.
While on one hand Mitsui Fudosan plan to majorly decrease the number of condominiums sold from 5,200 in the fiscal year ending in March 2017, to 3,900, they still predict an operating profit increase of over 20%. In recent years, people have pointed to the difficulty in selling condominiums due to rising prices, but by shifting to high profit margin properties, Mitsui Fudosan have been able to accelerate the increase of their profits. Further, Mitsubishi and Sumitomo expect to increase the number of condominiums sold (Mitsubishi in particular with a prediction of an increase from 3,713 to 4,200). Incidentally, including predictions for the fiscal year ending in March 2018, Mitsui Fudosan will see their fourth consecutive term of record high profits, Mitsubishi Estate their second, and Sumitomo Real Estate their fifth.
Iida Group Holdings, the second largest in terms of sales in the industry, is a holding company that contains six companies including Iida Sangyo, Hajime Construction, and Arnest One. Detached housing sales account for 90% of their business, so we can safely assume their performance is strongly influenced by the trends of the detached housing market. In the fiscal year ending in March 2017, they saw a revenue increase of 8.5% with a background of increased sales, and secured a 20% operating profit. If this pattern continues into the fiscal year ending in 2018, this will be their third term of record high profits.
Among the large players in the real estate industry, Nomura Real Estate is ranked 6th and seems to be struggling somewhat. Despite a rise in the average unit price, they saw a 4.5% decrease in profits compared to the previous term due to a falling sales numbers. As for the fiscal year ending in March 2018, while they predict roughly the same level of sales as the 2017 term, deterioration in profit margins leads to lower predicted profits. Moreover, in late May it was reported by some that Japan Post is planning to acquire Nomura Real Estate by TOB (Takeover bid). Currently they are said to be privately negotiating, but if realised the acquisition will be in the hundreds of billions of yen.
For the fiscal year ending in March 2017, the financials of major real estate companies basically saw increases in profits and sales. With a backdrop of healthy office building and residential markets, growth has continued. Looking at forecasts for each company, there doesn't seem to be any decline in this trend. At the moment, the major players are largely acting optimistically this term. Japanese companies tend to be conservative in their estimates at the start of the fiscal year, and the real estate market is no exception. For example, looking at the past three years (2015 to March 2017) for Mitsui Fudosan, Mitsubishi Estate and Sumitomo Real Estate, the actual results vs their predicted results for end of year profits were higher by 8.9%, 20.3% and 3.7% respectively. Barring any large changes in the economic environment, it is likely the current forecasts will also rise.
This summary doesn't include financial companies such as ORIX Real Estate, or others who make large contributions to real estate results such as the electric rail giants, real estate funds, or house makers such as Daiwa House. Due to this, while we cannot say it covers 100% of real estate related companies, as for the metropolitan area (Particularly central Tokyo) it is certain that the influence of the companies covered here is exceptionally large. Considering this, the metropolitan real estate market seems likely to continue to maintain its favourable situation this term.
If there are signs of change in the September interim settlement stage, we plan to cover them in this column.
June 13, 2017