TREND AND OVERVIEW OF THE JAPANESE PROPERTY MARKET.
Japan is currently the world’s 2nd Largest Economy and is now slowly coming out of a long recession just like a Giant awakening from Hibernation.
The Japanese Real Estate market is unique and cannot be compared with any other nation in Asia.
The key uniqueness of this Real Estate market is that foreigners can own FREEHOLD property in Japan unlike many other countries.
Y2005 was a turning point in the Japanese Real Estate Market. That was the year when Investors saw property prices spiraling upwards and foreigners started to sit up and take notice of the Real Estate wave that was beginning to grow. Many foreigners adopted a ‘wait and see’ approach as the market slowly gained momentum. However, since last year, foreigners have now started coming in droves to quickly invest in properties whose prices they see as discounted compared to other markets in Asia.
WHAT KEY TRENDS ARE SHAPING THE MARKET AT PRESENT?
The following major trends have been shaping the property market and making it attractive to investments from foreigners:
- Interest rate of the local currency is one of the lowest in the world. Over the next 2 years, projections are that the interest rates will remain low even if it is raised by 1%. Investors can therefore enjoy healthy returns on their investments even after Debt Financing their properties.
- US, UK and Australia are showing signs of slowdown in their property market. As such cash flows will inevitably flow towards Japan Real Estate market which will be attractive to these foreign investors.
- Japan’s laws are fully transparent and foreigners who invest in the country do not face too many hurdles unlike other economies (eg China and India) where there are many bureaucratic laws and other unknown variables to consider.
HOW DO YOU FORESEE THE DOMESTIC MARKET DEVELOPING IN 2007 AND BEYOND ?
Other large markets (eg, US, UK & Australia) are fundamentally staying flat. As such, many investors will be looking for stable investments with a potential for growth and Japan (as the 2nd largest economy in the world) would be the obvious choice. Predictions are that Real Estate investments from foreigners in Y2007 will be double that of Y2006.
Sales are projected to increase tremendously this year and move beyond the main metropolis cities. Local investors will be looking to sell their properties in the city areas for higher prices to foreign investors and with the cash, reinvest in outlying cities in anticipation for further growth. Interest in the property market will extend beyond the main big cities as locals will scout for good investments in smaller towns. This will certainly boost the Real Estate market in Y2007 and beyond.
WHAT SHOULD FOREIGN INVESTORS BE AWARE OF WHEN CONSIDERING TO INVEST IN THE JAPANESE MARKET?
Japan is a very easy market to invest in as there are dozens of foreign law firms and management companies and most importantly, foreigners are able to own 100% of all their Investments. However, foreign investors are advised to consider the following when investing in a country like Japan:
All investors would always want to consider an exit strategy for any Investment. Good location is therefore very important. So that your investment can realize positive Capital Gains in the future.
Cap Rates fall as prices increase. A good investor must always aim for a initial Cap Rate of 4–5% so that the investor can enjoy healthy returns and upon disposal of the project, they can exit at about 3% and with good Capital Gains.
Good Representation in Japan
Investors must have good representation. A boutique Real Estate company like NPC who understands the market well and whose networks and contacts are deep offering you the best deals and most prized properties.
WHAT ARE OUR CURRENT VIEWS ON THE MARKET IN GENERAL?
Tokyo has always been in the forefront and very attractive market for investors. However, in recent times, prices have been rising fast and Cap Rates are falling. Current Cap Rates are only 3–4% and the prices are slowly coming to a plateau.
Other cities like Osaka and Nagoya are still offering good Cap Rates of between 5.5–6.5%. And prices are reasonably lower than Tokyo.
Other regional cities like Fukuoka, Sapporo, Hokkaido and Okinawa are also giving much higher Cap Rates and offer very good long term investment opportunities. NPC is active in all these cities and we have offered attractive investment opportunities to all our clients.
NPC has been investing in past in countries like Singapore, India, China, UAE, Thailand and Malaysia besides Japan. Since Y2005, NPC has been concentrating mainly in the Japan market as it offers the most potential for growth among all the other countries due to its transparent laws, stable Government and low interest rates. It is a ‘haven’ for foreign investors as growth is predicted to continue over next 8–10 years. Some other countries are also enjoying good GDP growth, but unlike Japan have obstacles for foreigners who wish to invest in the Real Estate market.
- Leasehold properties with a limit on no. of years.
- Different Government policies for different states. Foreign ownership is not encouraged.
- No transparency in local laws.
- No transparency in local laws.
- Different Government policies for different states.
- Ballooning prices in major cities.
- Unfriendly Government policies towards foreign ownership.
- 100% foreign ownership not allowed.
- Capital controls.
- Unstable political situation.