by Noriyuki Morimoto
Investing in real estate is to invest in the income generated from renting out the property. Therefore, real estate that does not generate rent income is not an object of investment. Then, how should we think about the gain in value of real estate? Gains on price increases are not rents, but they certainly seem to be one of the objectives of real estate investment.
However, if the purpose of real estate investment is rental income, we should consider that real estate prices rise because rents rise, and since the price increase is merely a result, it cannot be the purpose of investment. The acquisition of real estate for the purpose of price appreciation is often for the purpose of short-term resale, which is speculation, not investment.
By definition, real estate investments generate income even if there is no increase in real estate prices or rents, because real estate acquisitions are only made at prices that make the investment profitable even without the prospect of an increase in rents. However, since real estate price fluctuations vary by each property, favorable replacement opportunities arise. Changes in real estate prices are meaningful only to present such opportunities.
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.