Japan’s Property Market Heats Up Amid Political Changes

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Political shifts in Japan are opening fresh avenues for corporate value creation. With expectations that the new Liberal Democratic Party leader Sanae Takaichi will keep loose monetary policy in place while inflation accelerates, analysts see corporate real estate becoming a bigger driver of valuations and deal activity, Bloomberg reports.

The combined real estate holdings of roughly 330 major Japanese companies are valued at ¥31 trillion ($203 billion)—up 26% over five years, thanks to rising land prices and development pipelines. Experts expect further upside if fiscal spending increases and the Bank of Japan refrains from rate hikes.

Hidden reserves are most evident among large developers and industrial groups. At least seven companies, including Mitsubishi Estate and Katakura Industries, own land portfolios whose market value exceeds their market capitalization. Such mismatches make them prime targets for activist funds seeking to unlock returns and reallocate underused assets.

Activist interest is already building. In September, Elliott Investment Management disclosed a stake in Kansai Electric Power and urged divestment of non-core assets; its real estate alone may hold about ¥220 billion in unrealized gains. City Index Eleventh—linked to veteran investor Yoshiaki Murakami—boosted its position in Takashimaya, which carries an estimated ¥130 billion in unrecognized property profits.

According to Reuters, the first half of 2025 saw 52 companies receive activist proposals, up from 46 a year earlier, as shareholders pressed for governance reforms, capital redistribution, and buybacks—and, in some cases, board overhauls. New Tokyo Stock Exchange-listed ETFs now track firms targeted by activists and engaged in reorganizations, focusing on banks and conglomerates with large land banks. Shareholders filed a record 137 proposals at 52 companies in 2025, underscoring broader investor engagement.

Corporate governance reforms are intensifying pressure on firms with significant land assets. Alongside cash and cross-shareholdings, real estate remains a latent liquidity source. Companies that fail to monetize it are increasingly visible to active managers. Masayuki Kubota, chief strategist at Rakuten Securities, expects this interest to keep rising.

Revaluing property at market prices can materially change a company’s optics. If real estate is included when calculating price-to-book (PBR), multiples compress, revealing undervaluation. The gap is most pronounced in real estate, logistics, transport, retail, textiles, and communications, where market caps often understate asset values.

For example, Mitsubishi Estate’s adjusted PBR falls from 1.7 to 0.7 when factoring in roughly ¥5 trillion in hidden property gains (vs. current market cap of ¥4.24 trillion). Similar disparities appear at Sotetsu Holdings, Toho, and Marui Group, where real assets far exceed book values. Companies have largely declined comment on activist contacts, and outright asset sales remain rare.

Institutional investors argue that portfolio realignment could boost balance-sheet efficiency and support re-rating. Bruce Kirk, chief strategist at Goldman Sachs Japan, notes that backing activist initiatives may have a material market impact. Shares of firms with large property portfolios and activist involvement—including Sumitomo Realty & Development, Tokyo Gas, and Mitsui-Soko Holdings—are outperforming Topix subsectors.

The new political setup under Sanae Takaichi creates expectations of pressure on the BoJ to maintain ultra-easy policy and low rates, supporting asset prices. At the same time, the central bank has signaled a gradual withdrawal of stimulus, including potential ETF sales—highlighting the tension between political goals and the need to contain inflation.