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 Japan's property market is fully accessible to foreigners
Unlike most Asian countries, the real estate market in Japan remains wide open to foreign direct investors. You can own land and buildings outright; titled to your name or a corporation. Your right to property is the same as a Japanese national, even if you're a non-resident or plan to own property through a foreign corporate entity.
Great benefits point to opportunity
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No foreign ownership restrictions |
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Landlord friendly rental laws & customs |
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Great tenant search system & network |
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High demand rental property |
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Low rental income tax |
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Low capital gain tax |
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Secure political and investment climate |
Tokyo's GDP and population are the largest in the world
The area centered around Tokyo, including Chiba, Kanagawa, and Saitama prefectures, represents the most populous metropolitan area in the world. The Greater Tokyo Area comprises a population of over 35 million people. It has been the world's most populous urban area since the mid-nineteen-sixties. Despite Japan's declining population, Tokyo continues to grow. Tokyo produces the largest gross domestic product (GDP) of any metropolis in the world. The GDP of the greater Tokyo area is even greater than Canada, the 9th largest country GDP in the world. Tokyo held title as the world's most expensive city for over a decade, from 1992 through 2005. Japan is the 2nd largest economy in the world, after the United States.
Benefiting from expanding Asian economies
You likely know that Asia represents the most dynamic economic growth region in the world. Including China and India, the totality of Asia represents almost half of the world's population. Japan is in a great position to reap the many benefits gained from offering technical expertise, production know-how, and the resulting hi-tech products to emerging growth countries like India, China and Vietnam. In fact, Japan's largest trading partner is no longer the U.S. Japan now counts China as its largest partner, and growing. Though Asian developing countries take some business away from Japan, there is much more of a synergistic benefit to Japan from Asian country regional growth and expansion.
Japan is a large benefactor. One reason for Japan's more recent GDP and economic pickup is due to tremendous Asian demand for a wide variety of Japanese produced goods and materials. There is great need for high quality steel, construction machines, factory robots, environmental equipment, and many other items for which Japan offers expertise. Japan is a country that will continue to gain advantages from the growth of China, India and elsewhere.
The city's foundation supports the value of properties
Tokyo has the most advanced public transportation system in the world. The subway is clean, safe, and famous for precision "on time" arrivals & departures. The subway and railway systems compliment each other. Together they permeate the entire Greater Tokyo Area and branch out beyond Tokyo to connect to outlying suburbs. Central Tokyo also has 50,000 super clean taxis operating 24 hours a day. All taxis come with driver-operated doors. Knowledgeable taxi drivers are instilled to provide a professional and courteous service.
The vast majority of Tokyo's workforce relies on public transportation. An often sited complaint about Tokyo lifestyle is the railroad and subway "rush hour crowd". Yet in today's world, Tokyo's mass transit system is the envy of most cities around the world. More than ever, environmental issues demand metropolises to save energy and conserve on carbon emissions in order to use resources wisely to counter greenhouse affects. Tokyo has efficiently planned to that end. Even the compact size of Tokyo residential housing does a lot to save energy (though many Tokyo residents wish they lived in larger living spaces).
Since Japan does not have an abundance of natural resources, the government has worked very hard and long with domestic companies to seriously tackle an array of energy efficiency issues. Japan has now become a leader in the field of "energy savings" technologies, with some of the most advanced technologies available. Due to such advances, Japan boasts the highest "energy efficiency rate" in the world. The public transportation system, coupled with an energy efficient society - supported by leading technologies, all point to a positive future for Tokyo. While cities worldwide are only now realizing the urgent need to grapple with the current era of high energy costs, Tokyo seriously began tackling energy issues decades ago.
Tokyo has the edge over competing Asian cities, not only due to its economic breadth and size, but also due to its well thought out infrastructure which so efficiently serves the mass population. The overall concept has proven to be superior.
Market overview
Ever since the late 1980's Tokyo real estate bubble and crash of 1990, Tokyo land prices have dropped. Prices initially dropped drastically in 1991, then they dropped-off gradually each year until they hit a bottom in the 2003 -2004 time frame (some areas 2003, others 2004).
One and one-half decades after the 1990 real estate crash, the market has finally regained traction and is hot. After a lengthy post-bubble market correction, the prohibitive home prices of inner Tokyo city have finally emerged as approachable and affordable. A vast majority of Japanese living in suburbs around Tokyo have been compromising year-after-year with daily rush-hour commuting to Central Tokyo. But finally lower residential real estate prices are allowing them to purchase their dream homes closer to their place of work in Central Tokyo. Most awaited news that attractive land prices in Tokyo had ignited a new cycle of residential high-rise construction. The long awaited trend has arrived. New large scale projects have attracted buyers to 30-60 stories residential buildings in Central Tokyo. Historical low interest rates have also played a big factor in encouraging people to buy new homes in Tokyo.
Another spark igniting the market is that international and domestic investment capital inflows have been pouring into the Tokyo RE market ever since Japan opened its doors to REIT's and RE funds in 2000. Since then a lot of domestic money has gone into this new market rather than traditional low interest bearing bank savings and/or post office savings accounts (Japanese Postal Service became a public company in 2007. It holds the worlds' largest sum of savings). Major US financial groups and various country sovereign wealth funds have invested large sums of foreign direct investment money into Tokyo's RE market.
The supply and sales of new homes in the Greater Tokyo Area are at their lowest point the past 16 years. Why? One reason is that developers held-off selling their inventory in order to await a new price sheet. They know they can increase prices much more in the future. So the logic has been to incur current costs which can easily be offset by larger profit gains in the future.
Another factor arose in June 2007 when the government changed regulations for construction permits. A much more stringent and lengthy construction permit process has been implemented to safeguard against issues brought about by a scandal that surfaced in 2006. An architect cheated on a number of structural permit circulars which brought about a comprehensive legal review of construction safety issues. The result has been a tough new no nonsense legal regulation framework that requires detailed inspections and has created delays in the issuance of permits everywhere. A large number of construction projects were terminated or postponed for a long time. The situation improved recently, but a majority of project's have completion due dates that are severely delayed. The mess will affect the supply of new homes in 2008.
The average price of new homes has gone up the past 3 years. Even so, prices are still lower than 10 years ago when Japan experienced a severe recession. Overall, we believe the price of properties in Tokyo will continue to rise and remain a seller's market through 2008. Due to the entry of RE funds and large international players', an aggressive RE investment trend was initiated and should remain strong. The large scale properties market is an absolute seller's market that shall continue through 2008 and beyond.
February, 11, 2008
Economists continue to debate whether or not the US is in recession, and if so, the severity. Japan is currently experiencing an economic slow down as a result. Japan was the first country to respond to confusion over US economic conditions. That is because Japan continues to play an influential interconnected role in world economies.
The Japanese stock market plunged markedly since last December and new home sales are very low. One reason for the decline is due to misguided construction regulations implemented by the government last year. New procedures created a lot of unnecessary burden on the real estate sector. Fortunately, the government admitted to mistakes. Even so, it will likely take a year to catch up. The process of restoring what was damaged has begun.
The past two years, many areas in Japan enjoyed significant residential real estate price appreciation, especially in Tokyo. But that trend has now slowed. Recent news points to negative factors like inflation and the cost of living. People cannot envision a clear future. Lack of clarity impacts current decisions.
An exception to negative sentiment can be found at the heart of central Tokyo. We have not heard much about re-entry of big foreign players bringing fresh new investment capital to Tokyo, but Japanese developers are competing very hard against each other to win land for re-development in central Tokyo. Thus, office and residential rental markets are still hot there (note: January to March is the busiest period as Japanese move ahead of the school year, starting April 1st).
Always keep in mind that Tokyo retains a unique position within Japan, incomparable to any other city. Tokyo is different. While Japan is burdened by a population growth problem, and while many areas in Japan face a shortage of young generation workers, Tokyo does not. Only last year, Tokyo experienced a 100,000 population increase. Young people are flocking to Tokyo and the trend is becoming more popular with each passing year.
Companies selling Tokyo studio units for investment purposes are very busy. We believe many people are nervous about stock and bond markets, so they are repositioning themselves into real estate.
July 16, 2008
The real estate market has slowed down drastically the past 6 months. According to a recent report from the Real Estate Economic Institute (a public real estate research firm), sales of new condos in the greater Tokyo area reached a total of 21,547 units, a decrease of 23.8% compareded to the same period last year (Jan-Jun/2007 vs. Jan-Jun/2008). This slump represents the worstrrecord since 1993 (18,574 units). The average price was 48,200,000 Yen (approx. 460,000 USD) which is 3.7% higher than last year.TThe price up-trend has continued the past 3 years.
The continuation of the construction permit issuance problem, which began in June 2007, when the government changed regulations, has caused a lot of confusion which has delayed construction of many new projects. It continues to negatively affect the market. The US real estate market melt-down, is gradually affecting the market in Japan. Real estate funds and development companies whichrrelied on US derived financial sources, are now facing serious problems due to the shut down of readilly available financing and investment instruments. Japanese banks are following suit, becoming more conservative with their financialooutlays to real estate developers and cutting back on mortgage loans to home buyers.
Rising prices of oil and foodhhave negatively impacted the psychology of potential home buyers. The prices of construction materials keep rising as well, puting pressure on construction costs, thus squeazing developers' profits. Some developers are reducing prices of condo's outside of central Tokyo. But condo's in the great central Tokyo area, especially large scale high rises, still seem to be holding a strong position.
One year ago it was a sellers market, it was hard to negotiate a favorable sales price. Nowyyou have a good chance to find aggreat deal.
Apr. 10, 2009
The Tokyo real estate market markedly slowed in past months. Japan has been no exception in terms of having to bear it's portion of the worldwide recession.
Many Japanese developers ended up in bankruptcy, especially those developers who built properties designated for income production, to be sold by financial institutions by way of real estate funds. The serious financial problems which severely struck banks across the globe, stopped the flow of financing to both property developers (sellers) and RE Funds (buyers) last year. Many of them made great profit up until one year ago.
Many condominium developers selling "family type homes" in suburban areas have also experienced serious problems. There have been few buyers and it has been very tough to obtain additional financing from banks. Many good companies have unexpectedly been knocked out of the market.
There are two groups in Japanese real estate that are still making money. First, are those companies buying out troubled developers at super discount prices and then reselling them to home buyers at a substantial discount price, like 20% off. The second group, are those developers selling small condos to individual investors. Many Japanese worry about their future as they have been disappointed by investments like bonds, stocks, etc., including the government pension system. So they have become serious about securing their future. They don't trust paper instruments as much as tangible real estate, something that they can actually see and believe in.
Both commercial and residential rental market have also slowed, especially high priced rentals. Smaller sized units are the current trend.
Recently, the Japanese government announced several stimulus packages for the housing market:
1) Increased tax deduction limits for interest paid on mortgage loans.
2) Gift tax allowance will be changed from 1.1M to 6.1M yen for the purpose of remodeling or for a home purchase.
Here are our most recent recommendations to investors:
If you are a large scale investor able to acquire an entire building, this is an opportune time to seize great deals from depressed RE funds or developers.
Those of you considering purchasing a small investment like a condo unit, apartment or house, you can find good deals too. But keep in mind that demand is still high for residential units in central Tokyo. So don't expect throw away prices as that won't happen. But there are opportunities.
Good news for residents of Australia, UK, US, HK, Singapore and China:
We are pleased to announce that we can arrange non-resident mortgage financing, to either purchase property in Japan, or cash out of it.
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