TWSE Market Insights

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Since the first J-REIT was listed in 2001, Japan’s REIT market has developed over the past 25 years into the largest REIT market in Asia, with total market capitalization ranking behind only the United States and Australia. As of April 2026, 58 J-REITs were listed, with an aggregate market capitalization of approximately JPY 16 trillion, equivalent to about 1.5% of the total market capitalization of stocks listed on Japan Exchange Group, and an average market capitalization of roughly JPY 280 billion per J-REIT. J-REITs have become not only an important vehicle for long-term household asset allocation in Japan, but also a key avenue through which global institutional investors gain exposure to Asian real estate. The success of J-REITs is not simply the result of favorable real estate market conditions. Rather, it rests on a combination of institutional strengths, including a sound legal framework, robust governance, diversified asset classes, flexible asset management strategies, and long-term capital support. More importantly, market practice in Japan has established a virtuous cycle in which sponsors develop properties, stabilized assets are securitized through J-REITs, asset management companies implement strategies such as portfolio rotation, unit buybacks, and rent adjustments, and aging assets are divested with proceeds reinvested in new properties. This model provides investors with stable income while simultaneously invigorating the capital market and supporting ongoing urban renewal. In recent years, amid shifts in the global interest rate environment and the Bank of Japan’s gradual adjustment of its market support for J-REITs, the J-REIT market has faced new challenges, including higher funding costs and valuation adjustments. Nevertheless, supported by the continued evolution of its regulatory framework, governance practices, and asset management strategies, the market has demonstrated considerable resilience.

Taiwan’s first REIT was listed in 2005, only four years after Japan’s. Yet, over the past two decades, the market has remained relatively limited in scale, with considerable room for improvement in trading liquidity and market depth. As a result, Taiwan’s capital market has yet to fully realize the potential of REITs to revitalize the real estate market and provide investors with products offering stable income. Taiwan’s REIT market, however, is now approaching its most significant regulatory reform in nearly two decades. The government is advancing amendments to introduce fund-structured REITs alongside the existing trust structure, creating a dual-track framework. Together with the policy initiative to develop Taiwan into an Asian asset management center, these reforms could inject new momentum into the REIT market. As Taiwan’s REIT market enters a period of significant regulatory reform, the successful development of Japan’s J-REIT market offers valuable experience for Taiwan. Drawing on our recent exchanges with the Japan Exchange Group (JPX), asset management firms, and other market participants, we have compiled the relevant information for further study and reference.

Taiwan’s existing REIT framework is trust-based, with trustee banks responsible for management. Because banks are generally not specialists in real estate management, they often engage professional property managers to operate the assets and provide management recommendations in practice; however, ultimate decision-making authority remains with the trustee bank.

Japan, by contrast, has adopted a governance model that more closely resembles that of a listed company. A J-REIT investment corporation is an independent legal entity with an independent board and supervisory directors, and its governance also involves the asset management company and independent committees. The management framework gives the management team greater discretion in decision-making, enabling more timely asset acquisitions, disposals, renovations, and strategic adjustments and thereby facilitating growth in scale. Japan also applies a multi-stage review process for J-REIT listings. The Financial Services Agency (FSA) and the Ministry of Land, Infrastructure, Transport and Tourism first review the asset management company’s professional capabilities and operating qualifications. The investment corporation’s governance, internal controls, and conflict-of-interest management mechanisms are then assessed, followed by the Tokyo Stock Exchange’s review of asset scale, the legal eligibility of the underlying assets, appraisal reports, and listing suitability. The overall process takes approximately one year. Japan’s practice of reviewing asset quality and governance arrangements before listing helps build investor confidence in the market.

A J-REIT investment corporation has a board comprising executive directors and supervisory directors. Executive directors are responsible for conducting the investment corporation’s business and representing it externally, while supervisory directors oversee the performance of the executive directors’ duties. Japan places particular emphasis on conflict-of-interest management. Because a sponsor is typically the parent company of the asset management company—and many sponsors are themselves listed companies—regulations require the number of supervisory directors on a J-REIT investment corporation’s board to exceed the number of executive directors, together with multiple layers of safeguards. Where an asset manager manages multiple REITs or also manages private REITs, internal mechanisms such as asset categorization and rotational allocation must be used to prevent conflicts of interest. It is precisely because of transparent disclosure and rigorous governance that the Japanese market can accommodate a substantial volume of related-party transactions without undermining investor confidence. Sponsor-related transactions are also subject to multiple safeguards, including board and external-director review, ownership rules, and independent third-party appraisals, balancing the benefits of sponsor resource integration with investor protection.

Under Japan’s Act on Investment Trusts and Investment Corporations, J-REITs themselves are not permitted to engage in real estate development. Development is therefore undertaken primarily by sponsors. Sponsors not only provide the initial assets for a J-REIT but also support its subsequent income generation, including through redevelopment and asset renewal. Large real estate development groups can leverage high-quality assets, brand reputation, and management resources to help REITs build stable portfolios and market credibility.

When properties held by a REIT become older, experience slower rental growth, or require redevelopment in response to changing market demand, the sponsor will often repurchase those assets while simultaneously selling the J-REIT newer assets with stable income and stronger growth potential. This helps maintain overall portfolio quality and distribution stability. After repurchasing existing assets, the sponsor may redevelop or renovate them and, once the work is completed, sell them back to the REIT, creating a continuous asset recycling mechanism.

Japan also provides tax incentives for certain asset-transfer transactions of this kind. These measures help reduce transaction costs associated with asset renewal and transfers, thereby supporting a stable pipeline of assets and an efficient capital recycling mechanism. This has become an important factor in both Japan’s urban renewal and the long-term development of the J-REIT market.

It is also noteworthy that, under Japan’s framework, a REIT may lose access to tax pass-through treatment if sponsor ownership exceeds 50%. In practice, sponsor stakes have therefore generally been maintained at approximately 5% to 18%, helping align sponsor interests with those of other investors. In recent years, as the risk of hostile takeovers, including those conducted through tender offers (TOBs), has increased, some sponsors have raised their stakes to 30%–40% to strengthen their control over the REIT and enhance its defensive capacity.

J-REIT asset managers generally take an active role in operating and managing portfolio assets, in large part because their management fees are closely linked to J-REIT performance and asset size. By comparison, Taiwan REITs typically charge fixed management fees based on a specified percentage of net assets or total trust assets, as stipulated in the trust agreement. Because management compensation is less directly linked to operating performance, the incentive to continuously improve asset management efficiency is comparatively weaker.

J-REITs also allocate flexibly across offices, logistics facilities, residential properties, retail properties, hotels, and other asset types in response to economic cycles and market conditions, thereby diversifying exposure to any single sector or asset class. In an environment of rising interest rates and inflation, some operators have strengthened income resilience through lease design, for example by introducing inflation-protection clauses. Certain logistics operators have linked rent-adjustment mechanisms in more than 90% of their leases to core CPI, allowing rental income to adjust with changes in prices. This supports growth in net operating income (NOI) and helps offset the impact of rising interest expenses on overall returns. As interest rates in Japan gradually normalize, J-REITs are also facing higher borrowing costs, investor demands for higher yields, and asset valuation adjustments. Accordingly, greater emphasis is being placed on rental growth, capital management, and improvements in asset quality to preserve stable distributions.

Asset managers also proactively review their portfolios and may dispose of aging assets, properties with lower returns, or assets with limited growth potential. Capital gains from disposals may be distributed to investors, while proceeds are reallocated to assets with stronger income performance and growth prospects, thereby continuously improving overall portfolio quality. When J-REIT units trade at a significant discount, a REIT may also conduct unit buybacks to increase earnings per unit and net asset value per unit while optimizing its capital structure. This ability to manage portfolios dynamically in response to market conditions is an important source of the J-REIT market’s long-term competitiveness.

When the Bank of Japan implemented quantitative easing in 2010, it included J-REITs among the assets eligible for direct purchases, injecting liquidity and confidence into the market. J-REITs have also built long-term trust among international investors through stable distributions, professional outsourced management, transparent financial reporting, widespread English-language disclosure, and independent appraisal mechanisms. As Japan gradually emerges from prolonged deflation and normalizes monetary policy, the Bank of Japan has been moving toward a gradual withdrawal of its support for J-REITs, seeking to avoid sharp market-price fluctuations that could result from a one-time large-scale disposal of its holdings. This approach reflects the policy emphasis placed on market stability.

In terms of disclosure, the Tokyo Stock Exchange requires J-REITs to disclose not only periodic financial reports but also the composition of underlying real estate assets, occupancy rates, changes in rents, and various operating performance indicators, enabling investors to assess asset quality and operating conditions. Given the high level of overseas investor participation, most issuers also voluntarily provide information in English. The Association for Real Estate Securitization (ARES) further strengthens international communication through English-language briefings and investor services, helping reduce information asymmetry.

Foreign investors currently account for close to half of J-REIT ownership. In addition, the revamped Nippon Individual Savings Account (NISA)[1] introduced in 2024 has significantly expanded the amount of Japanese household funds invested in the capital market and has encouraged greater household savings to flow into J-REITs. Foreign participation not only enhances liquidity but also strengthens governance and facilitates the inclusion of J-REITs in global real estate indices, creating passive demand from ETFs and index funds and thereby providing a stable source of long-term capital.
 
[1] NISA was introduced in January 2014. Capital gains and distributions from stocks, investment trusts, and other financial products held in ordinary securities accounts are generally subject to tax of approximately 20%, whereas capital gains and distributions from eligible financial products held through NISA are tax-exempt. Source: Financial Services Agency, Japan, https://www.fsa.go.jp/policy/nisa2/know/

On June 27, 2025, Japan’s Financial Services Agency (FSA) clarified that certain data center “equipment” falls within the scope of real estate investment[2]. This includes elevators, air-conditioning systems, storage batteries, emergency generators, transformers, and other equipment that is integrated into the building structure at the design stage, but excludes movable servers purchased and maintained by tenants. Equipment accounts for approximately 70% or more of the total cost of a data center. Following the FSA’s clarification that such equipment constitutes real estate and may therefore fall within the investment scope of REITs, the Investment Trusts Association, Japan (JITA) subsequently amended and issued self-regulatory rules at the operational level on June 10, 2026. The previous wording imposing a 60% cap on the distributable amount of depreciation was removed, effectively allowing distributions of up to 100% of depreciation. The rule applies to all closed-end REITs and infrastructure funds. For data center assets, this addresses the problem of reduced distributable profits caused by high equipment costs and substantial depreciation expenses, significantly improving distribution competitiveness and representing an important recent innovation in Japan’s REIT framework.

The rationale is that infrastructure assets such as data centers, solar power facilities, and wind farms can generate stable cash flows, but their high equipment intensity results in substantial accounting depreciation. If distributions are based solely on accounting profit, depreciation can materially reduce book distributable income, leaving investors with distributions that do not fully reflect the cash flow generated by the assets and potentially reducing investment appetite.

Japan has therefore moderately relaxed restrictions on depreciation distributions while continuing to take creditor protection and capital maintenance principles into account. This allows REITs to distribute to investors amounts corresponding to depreciation, which is a non-cash expense. The reform not only enhances distribution capacity but also makes capital-intensive assets—including data centers, logistics facilities, and renewable energy assets—more suitable for securitization through REITs, thereby broadening the investment scope of J-REITs.

[2] Financial Services Agency, Japan, revision of the Q&A concerning investment corporations, June 27, 2025: https://www.fsa.go.jp/news/r6/shouken/20250627/20250627.html

Because Taiwan and Japan have different legal systems, directly introducing Japan’s investment corporation structure would require extensive amendments to corporate and other laws and would entail substantial costs. The Taiwanese government’s current initiative to introduce “fund-structured REITs” therefore represents a more pragmatic and less costly path. Under the proposed framework, a new REIT fund structure would be added under the Securities Investment Trust and Consulting Act and would operate alongside the existing trust structure, creating a dual-track system. Under the fund structure, professional real estate managers could be responsible for asset allocation and management, while trustee banks would return to their core functions of asset custody and oversight. This division of responsibilities could improve management efficiency and market dynamism.

Compared with Japan’s comprehensive pre-listing review of assets and governance, Taiwan’s existing framework places greater emphasis on requirements relating to trustee applications, risk diversification, income stability, and investor diversification. If the future fund structure can both reflect Taiwan’s domestic legal framework and strengthen front-end reviews of governance and asset quality, it could further enhance market confidence.

Japan’s experience demonstrates the critical role of sponsors. If Taiwan’s future fund-structured REIT framework permits related-party transactions, it could encourage major real estate developers and life insurers to serve as sponsors. After transferring properties to a REIT, a sponsor could have affiliated companies continue to manage the assets and could retain a partial ownership stake in the REIT, thereby aligning interests and creating incentives to contribute high-quality assets and maintain sound operations.

At the same time, safeguards are necessary to prevent sponsors from selling overpriced or lower-quality assets to a REIT to the detriment of beneficiaries. Taiwan’s draft amendments for fund-structured REITs therefore establish a comprehensive conflict-of-interest management framework. The draft requires real estate investment trust enterprises operating REITs to establish independent directors and an audit committee to oversee material transactions and related-party transactions. Material transactions would also require approval by a meeting of beneficiaries. Together with disclosure requirements, independent third-party appraisals, and regulatory supervision, these measures would create a multi-layered investor protection framework whose governance principles are already broadly similar to those of the J-REIT market.

The development of fund-structured REITs will require a substantial pool of professionals with expertise spanning both real estate and finance. The “ARES Certified Master” program promoted by the Association for Real Estate Securitization (ARES) has trained more than 12,000 professionals in Japan and has become an important foundation for market self-regulation and professionalization. Taiwan could consider establishing a similar training and certification framework through self-regulatory organizations such as the Securities Investment Trust & Consulting Association and the Trust Association, thereby developing a sustainable long-term talent pipeline.

In addition to governance and talent, taxation and regulation are also critical. Japan permits REITs to hold real estate or beneficial interests in real estate trusts through special purpose vehicles or special purpose companies (SPVs/SPCs), for both domestic and overseas investments. Taiwan currently permits investment through SPVs only for overseas real estate, while restrictions remain for domestic properties; whether these restrictions could be appropriately relaxed warrants further consideration. Japan also provides tax incentives for asset transactions between REITs and sponsors, encouraging the restructuring of older assets and the injection of new assets. Taiwan could consider similar mechanisms to promote asset renewal and capital recycling.

On the investor side, Japan provides tax benefits through NISA. Taiwan could consider including REIT products within TISA to encourage households to allocate long-term savings to the market.

In addition, as the government actively promotes AI, data centers, green energy, and digital infrastructure, Taiwan could draw on Japan’s experience and consider appropriately relaxing the rules governing the distribution of depreciation, while maintaining investor protection and financial soundness. This would enable REIT distributions to more accurately reflect the cash flows generated by the underlying assets, strengthen incentives to securitize such assets, and enhance their attractiveness to investors.

During the global financial crisis, several REITs in Japan faced bankruptcy and liquidation, and policy support from the central bank became an important source of stability. This experience illustrates that a REIT market requires not only a sound institutional framework but also stable sources of long-term capital.

If Taiwan’s amendments introducing fund-structured REITs are enacted, long-term allocations from sources such as Labor Insurance funds, Labor Pension funds, the National Development Fund, postal savings funds, and major life insurers could help enhance liquidity, stabilize prices, and strengthen investor confidence.

The continued renewal of high-quality buildings across the Tokyo metropolitan area is supported by a cycle in which sponsors develop properties, REITs hold stabilized assets, investors receive income, and capital is reinvested in new development. This is more than the success of a financial product; it is also an important engine for urban renewal and national competitiveness.

The success of Japan’s REIT market rests primarily on sound institutions, professional management, and market trust. As Taiwan advances fund-structured REITs, relaxes restrictions on related-party transactions, and strengthens governance mechanisms, complementary measures—including professional talent development and tax incentives to attract long-term capital—could help create a new generation of REITs. For potential domestic issuers, including asset management companies, real estate developers, and life insurers, this would represent more than the addition of another financial product. It would provide a channel for revitalizing real estate assets, broadening access to long-term funding, and establishing a sustainable capital recycling mechanism. From an international perspective, Taiwan is gradually building a REIT framework that is more closely aligned with global practice and could attract greater participation from overseas institutional investors.

Japan’s experience also shows that rigorous listing oversight, effective sponsor governance, highly transparent disclosure, and mechanisms that preserve market stability during the withdrawal of policy support and the normalization of interest rates are all important foundations for the long-term resilience of a REIT market. If Taiwan can appropriately refer to Japan's experience regarding these elements while adapting them to local market characteristics, it could further enhance the investment appeal and international competitiveness of its REIT market.

Over the next decade, Taiwan can refer to Japan’s experience to build a REIT ecosystem in which issuers are willing to participate, investors are willing to hold REITs for the long term, and the capital market is prepared to provide sustained support. Such an ecosystem could also help mobilize capital for public works and infrastructure, including AI data centers, logistics facilities, and green energy, thereby strengthening the competitiveness of Taiwan’s real estate sector and the broader market. A sound and well-developed REIT market can further channel long-term capital into the real economy and create new opportunities for the next stage of Taiwan’s capital market development.