Japan’s Exciting PropTech Arena

While Japan is considered by many to be a techno-geek’s paradise, those of us living here know all too well that, maid robots, vending machinery & entertainment gadgetry aside – in reality, tradition and long-entrenched old-skool practices often trump innovation, at least as far as business is concerned. As we’ve mentioned here before, this is a highly paper-oriented and manners-conscious society, which often sacrifices efficiency for “the proper” way to do things in many aspects – the Japanese will, in many cases, forego deals and money making opportunities, simply because the “other side” of the deal didn’t comply with cultural expectations and norms. And, as far as technology goes, any disruption to “the way things are/have been” is very difficult to implement, regardless of any actual dollar or yen benefits to the procedures being undertaken.

And so, much to the frustration of foreigners, who are often far more comfortable with the “move fast and break things” mantra of Silicone valley, they will often find that things that have been taken for granted in other parts of the world, have yet to be embraced in the land of the rising sun. Some examples of these technologies include such mundane things as web-based payment systems, electronic signatures (and in some cases even electronic remittance of funds), 24/7 ATMs and internet banking systems, and even email correspondence.

In recent years, however, some particular innovations have finally wormed their way into the Japanese business environment and, as is always the case, once the Japanese do make the decision to embrace any technology, they do so with extreme gusto and speed – often far more so than in other parts of the world, where decisions are made quicker, but implementation will often take many years and trials before it is efficiently utilized.

Below are several such examples of technological innovations which are, for all practical purposes, revolutionizing the real-estate industry, from the ground up – starting with construction techniques, expanding into individual buildings and homes energy consumption and utilization, and all the way up to city and town planning levels –

1. Robot Construction Workers, Drone Surveyors

The thorny crown of “world’s fastest ageing society” has led to some unique challenges in Japan, which in turn have given a huge boost to the Robotics industry – in which Japan has already been a global leader for many decades. From household, medical and care industry robots, and all the way to customer service & office administration – such as Softbank’s super-popular robotic assistant, “Pepper”. Innovations in automated labor and drone technology have now found their way to the construction industry. The government’s highly publicised “i-Construction” campaign, pushed and backed by the Japanese ministry of infrastructures, will financially support public works projects that plan to use drones and other technology for streamlining works – and these projects are already well under way in many of Japan’s cities and rural areas.

Drones, which almost instantly provide aerial information, such as bird’s eye views of construction sites, are being regularly used for surveying purposes. Robotic arms do the heavy lifting, reducing the number of people required to carry heavy loads by half, with human workers guiding and coordinating the machinery instead of physically carrying and lugging around huge 200 kg reinforcing rods, which previously required six or seven pairs of human arms – highly reducing physical accidental damage risk in the process as well. A single operator with a tablet device can now guide up to five automated dump trucks, bulldozers and vibrating rollers with GPS systems around building sites, providing task lists to these semi-autonomous vehicles, which roll around the grounds, going about their respective businesses.

This automation, aside from increasing production and efficiency and providing a partial solution to the decreasing worker numbers issue, also serves the additional purpose of re-igniting interest in the construction industry by Japan’s younger generation, who have been shunning construction work due to the long hours, intense physical labour and low pay associated with it in the past – an astounding 30% of construction site labourers are over 55, as the latest survey suggests, with only 10% of them under the age of 30 – a stigma which may change as the construction industry’s environment becomes more “white collar” with automation implementation.

2. The Zen of ZEHs

The Zero Energy House (ZEH), while far from being the prevalent construction standard in Japan or anywhere else in the world, is gaining traction fast, with several prominent companies such as Daiwa House Group, Sekisui House and MUJI – all internationally renown Japanese home builders – well into the process of rolling out their own ZEH initiatives. These companies utilize various technologies in the quest to build homes which produce as much energy as they consume, resulting in a neutral or negligible energy footprint.

These technologies include familiar aspects such as solar panels and better insulation technologies, as well as newer, even more innovative practices such as Argon Gas-Filled, Triple-Pane, Low emmisivity-Glass (“e-Glass”), aluminum-resin composite shades and “double-skin” insulated walls. Other innovations are Home Energy Management Systems (HEMS) , which allow residents to control their air conditioning and energy use through an iPad app, as well as to monitor and visualize their energy consumption and savings. Another uniquely Japanese commercial application aptly named the “Ene-farm” (Energy Farm) is a refrigerator sized hydrogen based generator, which uses natural gas and oxygen to produce house-hold use electricity, and further utilizes the heat generated by the machine itself for domestic water heating purposes.

3. Green, Smart and Well Connected Cities

ZEHs are one of the key components in the “Green City” initiative, of which Japan is a member, with its capital, Tokyo, leading the way nationally, having cut its power consumption by 20% since first implementing the metropolitan government’s environmental guidelines. Under the Green Building Program, building plans for structures with more than 5,000 square meters of floor area must meet a comprehensive set of standards for sustainable, eco-friendly building practices before receiving a building permit.

To take their green building practices global, in 2006 Tokyo joined C40 Cities, a global climate leadership initiative in which cities around the world share best practices for sustainability. The government’s Green Building Program is presented by C40 Cities as a case study in sustainable urbanization. As C40 Cities’ global initiatives expand, Tokyo unites with the organization in its efforts to promote more environmentally friendly urban growth models.

Being environmentally aware, however, is only one building block of our current era’s “Smart City” movement – a concentrated effort towards building future cities which promote a new industrial concept brought about by the internet, and to take steps toward improving the efficiency of the workforce and energy sector. A notable feature of smart cities is that they are built around information and communications technology (ICT) — from Wi-Fi and the Internet of Things (IoT) to big data, artificial intelligence (AI) and cloud computing. According to IHS Technology, a global business intelligence service provider, “smart cities encompass a broad range of different aspects to describe cities that have deployed — or are currently piloting —[ICT] solutions across three or more different functional areas of a city.” In Japan, smart cities are largely funded via government subsidies. The smart cities market here, which stood at around ¥1.12 trillion in 2011, is expected to grow to ¥3.8 trillion by 2020.

Aside from energy production and consumption “green” practices, some of which have been discussed above, and others of which include features such as smart energy meters which can point out areas in which each and every building can further reduce its energy footprint, local municipalities are also experimenting with a variety of new intelligent transportation systems — including park-and-ride systems, on-demand bus services, light rail transit services, and two-wheeled, battery-powered vehicles — to optimize and reduce energy consumption, as well as ease pollution and congestion issues. Vehicle automation and the sharing economy may further change the transportation climate in big cities in way which we can hardly even predict yet.

In the more distant future, however, although perhaps sooner than we believe, some experts think and hope that focus, while always derivative from IT innovations, will shift from the technology of smart cities to more social and cultural considerations. Dr. Andreadis, a molecular biologist, shares her vision of a smart city with readers of “Japan Today” as being one that’s as self-sufficient as possible, organic (rather than created by top-down planning), responsive to the needs of all its inhabitants (not just the human ones) and reliant on robust, low-impact, non-intrusive technology –

“We already know we need well-coordinated traffic lights, subways and bike lanes; hospitals with reliable back-up generators; small parks, grocery shops, and schools that are down the block from our house. We will also need heavy-duty recycling, composting, and efficient heating/cooling systems; mixed-use zoning, which results in much better safety and maintenance of shared spaces than CCTV cameras; as many street trees as street lights and as many solar panels as gas-driven boilers; community and roof gardens (growing vegetables, not just flowers); and even a rational admixture of wildlife — not just pigeons and rats, but also peregrine falcons and coyotes.”

Japan Business Federation Pushing for Change to Stagnant Wages of Post-Bubble Era

17 Feb, 2020 –

Japan Business News

Japan Properties

Reviewing prevalent Japanese-style employment practices such as the seniority-based wage system and lifetime (or at least long-term) employment — as proposed by the Keidanren business lobby for this year’s wage negotiations — is indeed a pressing challenge as Japanese firms seek to survive global competition in a rapidly changing business environment. But that is one thing, and to bump up pay — whose sluggish growth continues to restrain consumer spending — is another.

Many Japanese businesses that compete globally need highly qualified workers with expertise in such advanced technology fields as artificial intelligence — and they face tightening competition with overseas rivals in either recruiting or retaining such talent in the globalizing market. They will face clear disadvantages in this competition if they remain bound by the lifetime employment system, in which employees are hired en masse upon graduation from school, receive on-the-job training and get seniority-based wages and promotions under the assumption they will stay with the employer until retirement.

The big businesses think that the collective-style annual wage talks — in which negotiations at big companies in each industry proceed under the herd mentality and results at top firms set the sector-wide trend — do not benefit their changing manpower needs, either. In its policy toward this year’s negotiations with labor unions, Keidanren (the Japan Business Federation) is calling for a shift from uniform raises for all employees to distribution of wage hikes proportionate to their tasks and performance. Several major high-tech companies have already begun reviewing their remuneration system to offer higher pay for qualified workers in research and engineering jobs irrespective of their age and career at the firm.

If the conventional employment/wage practices at Japanese companies are hampering their ability to compete globally, individual companies should review and change them as necessary through talks with their employees, and showcase it as a new policy to attract the manpower they need. At the same time, this should not be an excuse for the firms to deflect calls for more substantial wage hikes.

As Keidanren Chairman Hiroaki Nakanishi acknowledged in his talks with labor leaders, the wage levels of Japanese workers remain low among the world’s major advanced economies. Even as the annual wage negotiations have resulted in base pay scale hikes of at least 2 percent over the past six years amid what is billed as the economy’s longest postwar boom cycle, pay raises have not caught up with price increases. In 10 of the past 12 months, inflation-adjusted net wages declined from a year earlier. The stagnant wage growth is cited as a factor behind the underlying weakness in private consumption, which accounts for 60 percent of Japan’s GDP.

The surge in big companies’ earnings in recent years have not been translated into higher wages for their employees. As listed firms enjoyed record-breaking profits, the labor share of the value added — the ratio of what is spent on employee wages and their welfare expenses out of what companies make — was 66.3 percent in fiscal 2018, nearly flat from the 43-year low marked the previous year and a sharp decline from the peak of 74 percent in 2008. The retained earnings of Japanese companies combined hit a record ¥463 trillion last year. Corporate earnings — which remain near record levels despite the setbacks of the past two years — have clearly not been invested enough in manpower. The businesses need to think again whether that contributes to domestic demand-driven economic growth.

In the initial round of its talks with Keidanren, the Japanese Trade Union Confederation (Rengo) charged that the Japanese-style employment practices were not established in the first place among small and medium-size companies, which employ most of the nation’s labor force, or for the growing ranks of workers with irregular statuses such as part-timers and term-contract workers.

In the protracted economic doldrums following collapse of the bubble boom in the early ’90s, many businesses cut back on new hires and turned to irregular workers as a low-cost expendable workforce. Such employees have come to account for nearly 40 percent of the nation’s workers, and even as job market conditions have improved in recent years, they still earn only about 60 percent of what their regular full-time counterparts make. Many members of the “employment ice age generation” — who graduated from school in the post-bubble decade — have been stuck in such low-paying jobs. The large number of this generation earning low incomes is now deemed to pose a future threat to the social security system.

As part of the government’s “work-style reform” drive, large companies will from April be required to follow the “same work, same pay” principle: they must offer the same wages for workers who engage in the same tasks and have the same skills and output, irrespective of their job status. Employers will be pressed to explain the reason for any gaps between what the irregular workers and their regular employees make.

Many of the irregular workers remain left out of the annual wage negotiations, and whether the same work, same pay principle is applied to them will depend greatly on the employers’ behavior. It’s their duty to address the problem.

(Source – “The Japan Times“, Pic – “Tokyoform“)

 

Japan’s Real Estate Prices Set to Keep Rising

Japan Properties

Japan Real Estate

12 Feb, 2020 –

TOKYO — U.S. investment fund Blackstone Group is to reacquire a portfolio of rental apartments in Japan for 300 billion yen ($2.8 billion), the Nikkei Asian Review has learned, marking the largest real estate deal in the country’s history. The record purchase of the apartments, which Blackstone previously sold in 2017, highlights the moves being made by foreign companies that are further pushing up Japan’s rising real estate prices.

Japanese properties have been experiencing high yields, taking low interest rates into consideration. The deal will see Blackstone purchasing approximately 220 rental apartment buildings across Japan through its operating fund from Beijing-based Anbang Insurance Group.

Blackstone first acquired most of the apartments in 2014 for an estimated 200 billion yen before selling them, together with some additional properties, to Anbang for close to 260 billion yen in 2017. The previous largest deal in Japan was made by Morgan Stanley in 2007 when the finance company acquired 13 hotels in the country at the cost of nearly 280 billion yen from ANA.

Japan’s ultralow interest rates are luring foreign investors, as they tend to look carefully at the difference between investment yields and interest rates. Even if they buy properties at high prices, lowering investment yields, they are able to earn significant profits thanks to low borrowing rates. The yield spread when investing in major office buildings in Tokyo was 2.8% in Sept. 2019, higher than New York’s 2.3% and other global major cities. These investment moves inflated real estate prices.

The Japan Commercial Property Price Index compiled by the Ministry of Land, Infrastructure, Transport and Tourism, which surveys property prices in the country’s three biggest cities including office buildings and rented apartments, has surged by 30% since 2010. Industry experts forecast that the hike will continue thanks to foreign money.

(Source – Nikkei Asian Review, World Trade Centre at Minato City / “Guilhem Vellut“)

Japan’s Real Estate Property Market: 2019-2020 Annual Report & Projections

29 Jan, 2020 –

The Bigger Picture

While 2018 was a year of investing outside of one’s backyard, 2019 became the year of finding an investment destination to venture to. Considering the fact that of all the countries in the Asia-Pacific region, Japan is the only one with zero restrictions on foreign property ownership – barring a handful of historically protected locations and structures – the country remains the region’s largest real-estate property investment market, and its fully documented, legal-recourse entrenched business climate continues to make it the prime choice for non-speculative, high-yield-rental-income-oriented investors worldwide. True, we can’t turn a blind eye to the country’s prolonged deflation. But, investors are not deterred. Experts say the country will overcome it, perhaps not with returns of the ‘bubble’ era, but they believe solid returns are realistic.

Japan is also a safe haven with low geopolitical risk, which in this global economic climate, holds a lot of clout. Take, for example, the continued trade and political grandstanding wars between China and the USA. The result has been increased capital inflow from China into Japan, as Chinese companies seek to relocate funds. Plus, in 2019, amidst numerous protests, marches and non-cooperative movements in Hong Kong, developers feared that the government might not be able to roll out enough sites for 2020. We have seen the shortage of land and risky local investments, increase inflow to Japan by citizens from Hong Kong and China mainly into hotels, private lodgings as well as whole buildings or independent houses designed for home-sharing where they can obtain a private lodging license.

Investments in traditional hot spring (Onsen) resorts to capitalize on tourism boom

Japan National Tourism Organization set a goal of attracting 40 million annual inbound arrivals by 2020, and more beyond 2020, as the country hosted the 2019 Rugby World Cup, hosts the 2020 Summer Olympics, and the up and coming 2025 World Expo. Where there are tourists, there is a need for accommodation. It is expected that the number of hotel rooms will rise 38% by 2020 in its top three property markets of Tokyo, Osaka and Kyoto. Tokyo hotel occupancy has been at 80% on average in 2019, with the rest of the country still ripe for the picking at a comfortable 70%. The volume of tourists has also been attracting private equity funds like SoftBank-owned Fortress Investment Group LLC and Hong Kong-based Odyssey Capital Group who have been spending billions to tap into the appeal of traditional inns to capitalize on the tourism boom. Japan has almost 13,000 traditional hot spring (onsen) inns where bathers go unclothed in big communal baths heated by geothermal energy that’s bubbled up to the surface. The onsen and ryokan properties are located in natural settings, but undervalued after experiencing recession and mismanagement. They have become hot investment targets, growing in occupancy, but still averaging less than 50%, most likely due to their seasonality and the severe lack of catering capacity to non-Japanese speaking foreigners in the vast majority of sites.

Japan places its bets on a billion dollar casino industry

If boosting tourism is the name of the game, the government has increased tourism threefold from 2013 and intends on generating tourism and convention revenue from hotels and meeting spaces to boost visitors to 60 million annually by 2030. Part of the plan is to invest upward of USD$10 billion in casinos. Investment firm CLSA predicts that Japan’s gross gaming revenue could reach USD$20 billion annually, leaving casino operators all over the world salivating at the prospect of opening resorts in Japan, which has the potential to become Asia’s second-largest gambling market after Macau. Buyers are also considering an integrated casino resort in Osaka, host of the 2025 World Expo.

Land prices sustain positive growth for the first time in 25 years

Japan’s land prices rose for the second straight year with the increase spreading beyond big cities, according to, “Mitsui Fudosan Japanese Real Estate Statistics,” paving the way for commercial developments, ski resorts and golf courses. According to the “Chika Koji” land price report, commercial land prices in regional areas (excluding Greater Osaka and Greater Nagoya) posted the first positive growth in 25 years since 1991. The increase in average land prices was driven partly by rising property prices in regional Japan. Commercial land prices in regional Japan, which excludes metropolitan areas surrounding Tokyo, Osaka and Nagoya, were up 0.3 per cent in the year to July 1, turning positive for the first time since Japan’s asset-inflated bubble collapsed 28 years ago. A steady increase in inbound tourists and ultra-low interest rates propped up demand for hotel construction and office buildings, the government said in the report. Nationwide commercial land prices rose 1.7 per cent after a 1.1 per cent gain the previous year, helped by strong office building demand in major cities. Prices rose the most in the popular ski resort of Niseko on the northern island of Hokkaido, with a 58.8 percent increase. The second-biggest spike was in a part of Osaka in western Japan, which rose 44.4 percent. Station-front developments are also likely to increase where transportation, commerce, and healthcare concentrate primarily around major train stations. The highest roadside land prices per sqm according to Mitsui Fidosan are as a follows – Tokyo 45.6 million, Osaka 16.0 million, Yokohama11.6 million, Nagoya 11.0 million, Fukuoka 7.9 million, Kyoto 5.7 million,  and Sapporo 4.9 million.

 

Resort revenue all year round

Japan Investment Properties

Japan Real Estate

As land prices are on the increase, 2019 has seen foreign investors descending upon the northern ski resorts in droves. Returns on investment in Niseko properties can reach 7% in good times, according to a local real estate company — better than the global average of around 5% for ski resorts. In the town of Kutchan, land prices surged 66.7% in 2019, according to prefectural data, the fastest rise in the country for a fourth year running and still remarkably affordable. Ski resorts in Niseko are a bargain by global standards with renowned powder snow. The area ranked only 31st in prime residential land prices in British real estate services company Savills’ annual Ski Report, with an average price of 8,139 euros ($9,000) per sq. meter in October, and more than 60% cheaper than Courchevel 1850 in the French Alps, which led the list at 23,030 euros. U.S. resort Aspen placed second, while destinations in Switzerland, Austria and France claimed most of the other top slots.

For those who prefer to hibernate in the winter, Japan’s golf courses are making a comeback! Japan is the No. 3 golfing country in the world in terms of facilities, after the United States and Canada, according to The R&A, a governing body for the sport. It has many high-quality courses, including some that rank among the best in the world. In its 2018 list of the world’s 100 best courses, Golf Digest included four in Japan: Naruo and Hirono golf clubs in Hyogo Prefecture, Kasumigaseki Country Club’s East Course in Saitama Prefecture, and Kawana Hotel’s Fuji Course in Shizuoka Prefecture. Olympic golf at the Tokyo Games in 2020 is attracting tourism and investments from golfers from East Asia, Europe and North America. Once upon a time, developers flush with cash built courses throughout Japan in the early 1990s, but about 200 closed over the past couple of decades, with some converted to solar energy farms. Golf in Japan can also be relatively inexpensive: a round of 18 holes, lunch and a cart can often cost less than $94. A few new courses have opened over the last 15 years. In December 2016, the private Tokyo Classic Golf, an 18-hole, 7,200-yard course designed by Jack Nicklaus, was inaugurated in Chiba City east of Tokyo. With the revival of golf, course operators can ride the wave of ski revenue in the winter and forward swing to golf revenue in the summer.

Osaka, Fukuoka and Nagoya markets to watch

Japan Real Estate

Japan Investment Properties

Economic volatility usually impacts office and commercial markets first. Japan’s commercial property market started to decline in 2017. By 2019, difficulty placing capital in Tokyo led a growing number of investors to look to other domestic markets as sources of more affordable deals, namely, Osaka, Nagoya and Fukuoka. While, price inflation in Osaka served to compress yields causing the market to overheat to almost Tokyo proportions, Osaka managed to outshine Tokyo with its office and hotel market, easily accessible 24 hour airport and the city’s far more affordable cost of living. At under 3%, 2019 saw office vacancies in Osaka at the lowest in Asia with signs of oversupply in the hotel sector, leaving some investors seeking opportunities for potentially distressed assets in the area, and likely to last for at least the next two years.

No surprise that Nagoya, one of Japan’s main industrial and commercial metropolitan centers conveniently located between Tokyo and Osaka, and soon to be the beneficiary of the newest and fastest bullet train line from Tokyo, did phenomenally well. Overall, 75% occupancies for office properties, and occupancy rates across all property types the highest since 1993. Not to mention, grade A office space at a historical high occupancy of 99.4%! A new supply of commercial properties is expected to hit the market in 2020, making it easier for tenants to secure space in the office sector. A large development is already underway in Nagoya’s Meieki area. Plus, railroad company Meitetsu plans to build a 30-storey mixed-use building directly south of Nagoya Station and will double the size of Meitetsu Nagoya Station in time for the Linear Chuo Shinkansen bullet train’s opening in 2027. The new maglev line will run at a maximum speed of 505km/h and eventually connect Tokyo with Nagoya and Osaka in 40 minutes and 67 minutes, respectively, thereby forming a gigantic commuter belt with 70 million residents.

Another reason for the capital push to Osaka as well as Yokohama, Fukuoka and Nagoya is the belief that Tokyo condo prices are approaching their last pre-bubble peak of 1991 and therefore, further price hikes are highly unlikely. Japan’s Real Estate Institute (JREI) forecasts only slight price hikes on condominiums until 2020, mainly cooperative housing (condominiums) of no less than three stories with reinforced concrete, steel-reinforced concrete and steel frame apartment buildings. Overall, the property market remained strong in 2019 with historically tight market conditions expected to continue for occupiers, developers and investors, despite some uptick in Tokyo’s net supply towards 2020.

The general notion among global investors these days seems to be that Osaka, Nagoya and Fukuoka, which were previously considered “second tier” markets – meaning, provided higher yields but lower liquidity and a relatively small selection of deals – have now established themselves as extremely viable markets, for both residential and commercial deals of all sizes. These locations are secondary only to Tokyo and Yokohama, Japan’s two largest cities, where both prices and yields have long been less than satisfactory for deal hunters – and Osaka is fast becoming similarly over-priced. This notion is also reflected in bank lending criteria for non-resident foreign investors, previously limited to only Tokyo, Yokohama and Osaka – but now extended to Kyoto, Nagoya and Fukuoka in many cases. And, considering the fact that all of these cities offer yields that are generally higher by at least 1% to 2%, when compared with Tokyo, Yokohama and Osaka – the decision to purchase in those cities, even for the most risk-averse investor, is virtually a given.

The quest for demographic overhaul

It is no secret that Japan’s gross domestic product (GDP) growth has rarely reached 2% in the past five years, and the country has one of the worst demographic outlooks of any nation in the world. Japan’s declining population, is its biggest long-term problem. The estimated number of people aged 65 or older in Japan stood at 35.88 million in 2019, accounting for 28.4% of the nation’s total population, with both figures hitting record highs, according to an internal affairs ministry survey. The share of the elderly population was the highest among 201 countries and regions in the world. The elderly population increased 320,000 from a year earlier. Elderly men totaled 15.60 million, up 150,000, while the number of elderly women increased 170,000 to 20.28 million. According to the National Institute of Population and Social Security Research, the elderly population is expected to account for 30% of the total population in 2025 and 35.3 % in 2040, when the second baby boomers, who were born in 1971-1974, will be 65 or older. The number of people aged 70 or older stood at a record 27.15 million, as the first baby boomer generation, born in 1947 to 1949, reached that age. Japan finds itself in a desperate state of having to tackle social security system reform and labor shortages.

The economic outlook for younger Japanese depends on how well Prime Minister Shinzo Abe and future governments deal with one of the biggest natural demographic collapses in human history. Japan’s population plummeted by 448,000 in 2018, and found itself dipping below 100 million in 2019. One resolve is the quiet overhaul of Japan’s once tightly controlled visa policy protecting the traditional society. The country opened its doors to an influx of workers from China, Vietnam, and the Philippines, resulting in a doubling of foreign workers in Japan, to 1.5 million, over the last five years. While still relatively low by global standards, Japan is closing the gap with more than 3 million overseas workers from the U.K. and Germany. Beginning in April, Japan will for the first time start issuing visas for unskilled guest workers in the hope of attracting more than 345,000 additional overseas workers by 2024, although it will take deeper automation and immigration to boost Japanese productivity figures.

Japanese Property Market

Japanese Property Market

In real estate arena, institutions for the elderly have been gaining traction providing nursing care services such as bathing, meals, and other day to day long-term accommodation services. Gearing up to accept more foreign workers under new visas launched in 2019, Japan held its first qualifying exam for applicants focusing on the knowledge and skills required to work in the country’s hotel industry and nursing care. Japan created new visas to bring more foreign workers into the country. The step marked a major policy shift from the nation’s traditionally strict immigration rules. Over the next five years, the government expects up to 345,150 foreign migrant workers to acquire a newly created resident status called Specified Skilled Worker No. 1 for work in 14 labor-hungry sectors including accommodation, nursing care, construction and farming. The visa will enable foreigners to stay for up to five years.

Japan transforms traditional retail to trendy logistics

Also moving away from tradition in 2019 is the retail sector. As a direct result of the e-commerce boom, retail found itself suffering as major brands focused primarily on the very top locations nation-wide, making investments in the less central shopping and retail centers riskier. Average prime retail rents in Tokyo, Osaka, and Nagoya remained unchanged for 16, 12, and six quarters respectively, according to CBRE research. In Tokyo, domestic trading companies aggressively pick up whatever they can, therefore opportunities are not readily available and rents have been trending lower as a result. Furthermore, October’s consumption tax hike from 8% to 10% is forecasted to hit the retail market hard.

Meanwhile, as projected, the e-commerce market has continued to explode throughout the country, as it has around the world – a trend of large scale distribution and shipping centers located in the outskirts of the city, moving to central city build-to-suit smaller facilities. In this sector, an economic downturn, or even a mild recession isn’t likely to dampen growth significantly, considering the demand of online services provided to consumers. For this reason, investment in logistics facilities is considered to be a far more reliable, stable investment for many years to come, im comparison with traditional bricks and mortar retail. The appeal is to the point where developers are now more than happy to build such facilities even without pre-commitments or leases from potential tenants.

Data Centers emerge as favoured niche sector

Driven by the growing appetite for data by cloud computing providers and the impending advent of 5G mobile technology, data centers are currently a favoured niche sector, according to PWC/ULI’s annual survey. Data centers are an affordable market for smaller scale commercial investors, as the sites are both affordable and generally not very big physically or too centrally located, which also makes them more affordable. South Korea, Japan, and Australia are the first Asia Pacific nations to begin the rollout of 5G services and, alongside Singapore, are the prime targets for investors in the sector.

5G will also impact property markets on a larger scale, as the sector focuses on greater efficiencies and customer convenience. Upcoming smart buildings will reduce costs and collect occupancy-related data to help boost efficiency. Retail landlords will have the ability to use customer loyalty apps, which can be used for parking or ordering food, while larger office investors in the region are experimenting with apps allowing tenants to book facilities and services. Apps can also be used, in tandem with sensors, to control or monitor different aspects of building functionality, including air-conditioning, heating, lighting, security, building performance, and eventually transmit data required for efficient processing of traffic, waste, water, and power.

Changing work culture opens the rural property market

Japanese Investment Properties

Japan Real Estate

Also transforming is Japan’s traditional work culture to one with start-ups – a culture of work-life balance with a need for affordable shared office space, a growing market for diversified investment portfolios. Abandoned homes across the country, more than 8 million as of 2019, mostly in rural areas, are providing a solution. Some investors are converting C grade buildings in rural locations into B grade buildings – for instance, shoddy old hotels converted into co-living share houses near university campuses, as well as co-working office spaces, shortening commute times and thereby providing better work-life balance.

As appealing as the Japanese property market is, the widespread use of Japanese language for rental data and contracts, poses a barrier to entry in the greater, nation-wide property market. For this reason, aside from international hot-spots such as Tokyo, Osaka and Niseko – where yields are becoming uncomfortably compressed due to intense demand and price hikes – it is unlikely that Japan will be able to compete with other global destinations such as the USA, UK or Australian, for independent, small-scale investing – until information used for investment decision making, as well as ongoing communications with professionals on the ground is made accessible in English. Through the services of buyers’ agencies & proxy portfolio managers, however – and considering the fully documented, legal-recourse entrenched business climate – the Japanese property market continues to be the prime choice for non-speculative, high-yield-rental-income oriented investors worldwide. Given there are very few restrictions on foreigners buying property in Japan, coupled with volatility around the world, this thriving property boom is not likely to end anytime soon.

Co-authored by APAC Manager, Ziv Nakajima-Magen and Sales and Marketing Manger, Priti Donnelly

(Sources – “Emerging Trends in Real-Estate APAC 2020,” – PwC/ULI, Savills, Mitsui Fudosan, Pic – Niseko, Japan / “Mark Kenworthy),Old Man Near Tulips / “Aaron Shumaker), Golf / “Chris Urbanowicz“, Apartment ShareHouse / “JAPANKURU)

 

Toyota to Develop ‘City of the Future’ in Shizuoka, Japan

14 Jan, 2020 –

Japan Real Estate

Japan Properties

Toyota Motor Corp. plans to build a prototype “city of the future” at the base of Mount Fuji, powered by hydrogen fuel cells and functioning as a laboratory for autonomous cars, smart homes, artificial intelligence and other technologies.

Toyota unveiled the audacious plan for what it plans to call “Woven City,” in a reference to its origins as a loom manufacturer, on Monday at the big CES annual consumer electronics trade show. “It’s hard to learn something about a smart city if you are only building a smart block,” said James Kuffner, chief executive officer at Toyota Research Institute-Advanced Development.

The Woven City idea, under discussion for a year, is aimed at creating safer, cleaner, more fun cities and learning lessons that can be applied around the world, he said. It will have police, fire and ambulance services as well as schools, and it could be home to a mix of Toyota employees, retirees and others, Kuffner said. The development, to be built on the site of a car factory in Shizuoka Prefecture that is scheduled to close by the end of this year, will begin with 2,000 residents for the first few years, and also serve as a home for researchers. Construction is slated to start next year. Toyota did not disclose any cost estimates for the project.

Executives at many major automakers have talked about how cities of the future could be designed to cut climate-changing emissions from vehicles and buildings, reduce congestion and apply internet technology to everyday life. But Toyota’s plan to build a futuristic community on 71 hectares near Mount Fuji is a big step beyond what rivals have proposed. The proposal highlights not only Toyota Chief Executive Akio Toyoda’s ambition, but also the financial and political resources Toyota can bring to bear, especially in its home country. “You know if you build it, they will come,” said Toyoda, who called the project “my personal ‘field of dreams.’”

“I believe it is up to all of us, especially corporations like Toyota, to do our part to help make the world a better place,” he said. “This Woven City is one small, but hopefully significant, step toward fulfilling that promise.” Only fully autonomous, zero-emission vehicles will be allowed to travel on the main streets. Residents will have in-home robotics to assist their daily lives, with sensor-based AI systems monitoring their health.

Toyota said it has commissioned Danish architect Bjarke Ingels to design the community. Ingels’ firm designed the 2 World Trade Center building in New York and Google LLC’s offices in Silicon Valley and London. Toyota said it is open to partnerships with other companies that want to use the project as a testing ground for technology.

(Source – The Japan times, Pic – Mount Fuji/ “Roger Walchy“)

Niseko Ski Resorts Rank Cheaper in Price with Higher than Average Returns by Global Standards

Japan Investment Properties

Japan Ski Properties

17 Dec, 2019 –

TOKYO — Foreigners are descending upon the northern Japanese ski resort of Niseko in droves, lured by not only its renowned powder snow, but also land prices that remain remarkably affordable even after sharp rises in recent years.

Along an icy road near the slopes sit nine brand-new condominiums with wooden walls and large windows. Upon opening the door to one, the eye is drawn to a high ceiling and a broad spiral staircase. Stepping inside the wide-open space reveals a two-floor living area that can accommodate 14 people dining together. The five-bedroom residence features indoor and outdoor baths with a view of the snowy white peak of Mount Yotei, Hokkaido‘s answer to Mount Fuji.”These condos were finished only a year ago,” said Kojiro Morihiro, head of sales management at a local real estate brokerage.”

Even with prices in the 300 million to 500 million yen ($2.8 million to $4.6 million) range, six of the nine units have already been sold to buyers in Hong Kong and elsewhere in Asia, to be used as vacation homes or rented to guests for the equivalent of thousands of dollars a night. Land prices in one district of the town of Kutchan, which is part of Niseko, surged 66.7% this year, according to prefectural data, logging the fastest rise in the country for a fourth year running.

Yet as ski resorts go, Niseko is a bargain by global standards. The area ranked only 31st in prime residential land prices in British real estate services company Savills’ annual Ski Report, with an average price of 8,139 euros ($9,000) per sq. meter in October.This was more than 60% cheaper than Courchevel 1850 in the French Alps, which led the list at 23,030 euros. U.S. resort Aspen placed second, while destinations in Switzerland, Austria and France claimed most of the other top slots. And returns on investment in Niseko properties can reach 7% in good times, according to a local real estate company — better than the global average of around 5% for ski resorts. This combination makes the area an attractive bet for investors.

Morihiro, the brokerage manager, starts each day by reading email in English from prospective clients looking to buy, say, a hotel or condo. More than 90% of his customers are wealthy foreigners, and visitors from abroad even show up at his office unannounced in the winter. His client list includes roughly 5,500 foreign names, including executives, investors and celebrities. As more capital flows into Niseko, the people who buy, develop and use the land are increasingly non-Japanese. Visitors walking through downtown find rows of bed-and-breakfasts resembling luxury apartments, with cafes and shops on the ground floor — and signs posted only in English.

The bonanza for foreign investors has made life difficult for some locals. A man running an Indian restaurant downtown reported paying 400,000 yen in rent each month year-round despite only opening in the winter. The property is owned by an Australian. “If we leave, another tenant will move in right away, and we won’t be able to go back,” the Indian man said. “Rents are so high here,” a woman working at another restaurant lamented. “I commute an hour by car from the suburbs.”

And relying on foreign tourism for growth can create problems of its own. Overdependence on inbound demand creatures exposure to geopolitical and currency risks, said Koya Miyamae of SMBC Nikko Securities.

(Source – Nikkei Asian Review, Pic – Niseko, Japan / “Mark Kenworthy“)

Top 5 Due Diligence Tips to Mitigate Risk on Japanese Properties

28 Nov, 2019 –

Japanese Real Estate

Japan Investment Properties

Accidents, damages and natural disasters can happen when investing in real estate anywhere in the world. In Japan, most tenants are quite docile and place high value on their integrity by nature. Therefore, the majority of damages to a unit, if any would be through wear and tear rather than accidental or intentional. In case of any internal damage, tenants would be required to pay for damages they are responsible for, while the owner covers the rest. Insurance is at a surprisingly low cost of only USD $1 to $3 per month depending on age, location and size of the property. Most building owner co-ops prefer to keep insurance minimal and set funds aside through the accumulated funds collection from unit owners for building maintenance and potential future renovations/repairs. While coverage is available through insurance, it usually does not cover all costs.

Therefore, part of our service as a proxy to foreign investors is to help mitigate risks by conducting due diligence on the management of the building including accumulated funds status, and on tenant stability and security.

 

Due Diligence on Building’s Accumulated Funds

Although insurance policies cover damages due to fire and earthquakes, tsunami, volcano and flood damages, there are no guarantees. Therefore, we look for a building with healthy accumulated funds to be able to cover the cost of damages not covered by insurance. These are funds collected from all unit owners by building management through monthly invoices for building maintenance, repairs and renovations over time, paid either manually or through automatic payments from the owner’s designated bank account.

Generally, insurance will cover 25% to 50% of the cost of damages to the building depending on the type of damage, location, and age of the building. Some policies state specific partial coverage; others state no coverage for various natural and man-made occurrences. Any remaining losses not covered by insurance are generally covered by the building’s accumulated funds pool.

If there have been no large renovations in the last decade, full damage may be compensated to the building owner as follows:

a) the total amount in the reserve funds pool collected from unit owners (33% of the purchase price per unit is what we ideally like to see in the pool if there have been no significant renovations in the last decade. This is to assure us that there will be enough funds available to cover these renovations when required).

b) up to 50% coverage of the cost of the damage through insurance policy

c) balance covered by any rental income accrued

If a building is faced with damages and does not have sufficient funds to cover the repairs, the building may raise its building fees from each apartment owner or charge a one-time payment, which could result in reduced yields for the unit owner. Therefore, prior to purchase and as part of the due diligence process we look for a correlation between the building’s renovations history and the status of the funds pool. We want to ensure that either:

a) Renovations or repairs have been recently performed and therefore justify lack of funds in the accumulated funds pool

b) Renovations or repairs will be required in the near future and there are sufficient funds to cover them.

 

Security on New Tenants

On vacant units, we strive to ensure secure and stable tenants occupying the units before recommending our clients go ahead with the investment purchase. When placing a new tenant in a property, there are two types of securities aside from personal guarantors. We always insist on having at least one of the two:

a) tenants must either pay a 1 month security deposit

 OR

b) tenants must sign up for rent insurance, which covers up to three months of delinquency and any damages caused during the tenancy. This is the preferred method. Rent insurance may not be available to international students, holiday tenants, or anyone else who does not qualify, as well as anyone else considered high risk who can potentially disappear one day, leaving damages or debt behind.

 

Due Diligence on Tenants of Occupied Units

On tenanted units, the existing tenant may have only paid a security deposit, or only have personal guarantors. Although this cannot be changed upon purchase, we present the tenant information to our client as part of the due diligence to decide whether to refuse the deal or move forward with the purchase accordingly.

 

“Death in Property” Insurance Clause

Because of Japan’s aging population, we recommend a “death in property” insurance clause. For small apartments, the cost is approximately 1,500 to 2,000 JPY ($15 USD) a year. Because it is so inexpensive we, in fact, recommend it to all tenants regardless of age. In the event of a death, renovations/repairs/cleaning expenses of up to about 1 million JPY will be covered under the policy, as will the next two years of vacancy and/or reduced rent. This will also protect your income.

 

Security Deposit and Standard Insurance on Commercial Properties

Commercial properties experience more wear and tear than residential properties. Therefore, commercial building owners will need more expensive insurance for unit interiors, and will also need to put aside funds for all exterior building maintenance, renovations and repairs.

If you own the entire building, depending on the size of the building, you may need to hire a building management company to maintain, manage and take care of the building common areas.

 

(Source – Priti Donnelly, Nippon Tradings International”, Pic – NipponTradingsInternational)

Deal Analysis Tokyo – Edogawa Hotel Room Unit

28 Nov, 2019 –

Japan Investment Properties

Japan Real Estate Investment

Sub-leasing is a popular rental strategy, in which a tenant – usually a company specializing in short term rentals – signs a master lease in front of a property owner and landlord, for a fixed monthly amount, and then make it their business to sub-lease the property to others – normally short term tenants, or tenants who cannot otherwise lease a property for various reasons such as being on short-term visas, having no guarantors or other securities, etc.

The landlord enjoys a stable and fixed monthly income, regardless of whether there’s an actual tenant in the property or not, and does not need to concern themselves with vacancies, finding new tenants, small maintenance and repair requests and so forth – and the sub-leasing tenant enjoys the benefits of rental income, without having to actually purchase a property themselves.

And, while there are plenty of companies specializing in this practice, who regularly offer their services to landlords in search of hassle-free, hands-off property management, it is more rare to come across an entire building, or several floors of a building, being leased and managed in this way.

However, this more “institutionalized” form of sub-leasing does exist, particularly in Japan’s larger metropolitan centres – in these cases, the main advantages for the landlord are two-fold –

1. The fact that an entire building or large parts of it are being advertised, managed and otherwise handled in this way, makes for longer term potential for the arrangement to continue as far as the eye can see. While sub-lease companies can essentially terminate their master lease at any time, this is far less likely to happen in the case of a larger scale operation such as a “hotel building” – which, in all likelihood, will maintain the sub-leasing strategy for its entire life-span, provided it remains profitable for all involved.

2. In the case of the entire building or floor being managed via sub-lease agreement, there are normally far more items included in the “free maintenance” list the sub-leasing company would be responsible for. Furthermore, since the property is, for all practical purposes, a hotel of sorts, there will often be improvements and upgrades made collectively to all units under management – which, even if they do cost the unit owner something, are almost always done in bulk purchases for a large number of units – which means that costs are reduced significantly, and are, in fact, often undertaken completely by the sub-leasing company, which is interested in maintaining the units at a high standard, to allow them to charge their guests a higher premium for their stays.

Tokyo Location, Small City Pricing

Image via Google Maps Image Capture: March 2019 Japan

There are, of course, also dis-advantages to this sort of arrangement – the main one being, that properties purchased under these arrangements, cannot be re-purposed and re-utilized for other uses by the landlord – as the building’s management company and owners’ co-op have enshrined the sub-leasing arrangement in the property’s by-laws, which must be adhered to.

What this means in practice is, that even if the sub-leasing company decides to re-negotiate the master lease terms upon contract renewal – typically every 1-3 years – the owner has very little choice in the matter. All they could do, if they are unhappy with the price the sub-leasing company is willing to offer, is try and sell the property – and considering the fact that the rent payable may have dropped upon contract renewal, as a result of economics related to demand, pricing, higher management or maintenance requirements, or any number of different reasons – market price may also drop accordingly. This is unlikely to happen if the property is in an attractive location which has been gaining in popularity and price, but is always a remote possibility that needs to be taken into account upon purchase.

For this reason, not all investors will be willing to take on such a proposition – and with the lower buyer base, prices can be negotiated as well, which makes the market for properties being managed in this manner a buyers’ market.

It is for this reason that one of our clients, a Canadian investor who is currently living and working in Tokyo, has managed to purchase the property described below at the highly discounted price of 4.4 mil JPY – just over 40,000 USD at the current exchange rate.

The Numbers

The rest of the numbers involved in this deal, aside from the substantially discounted price, are as follows –

  • Building fees are 12,500 JPY per month (including building management and reserve funds contributions)
  • Master lease rent payable to the landlord is 37,800 JPY
  • NO property management (tenant management) monthly fee

What this all translates to, including all purchase and running costs, is a bottom-line annual yield of approximately 5.7% net pre-tax – far higher than most Tokyo properties will generate (normally 3-4.5% at best).

Due Diligence

As there isn’t really any tenant due diligence to be performed for this type of property, the main items under consideration were building management fundamentals, such as renovation history, reserve funds pool status, and so forth.

These were satisfactory, with most larger ticket items performed over the last 12 years – including the building’s exterior, elevator systems, hot water supply systems and water pumps, pipes and exposed iron fittings, which have been re-painted and anti-rusted on a regular basis.

Lastly, and as mentioned above, the unit interiors have been regularly maintained and renovated, at no cost to unit owners – which is an added bonus, that more than covers for the relatively depleted reserve funds pool – approximately 14 mil JPY at the time of purchase, which, for a building constructed in 1988, and holding 116 studio units, is a relatively low amount.

Deal Analysis

Considering our investor’s particular circumstances – specifically, affordable, low-capital outlay properties in Tokyo, which is a contradiction in terms most days of the week – this was a really no-brainer from our perspective – it was, and remains to this day, an extremely difficult task to find affordable properties generating reasonable yields in Tokyo city – let alone at this low price. While, conceivably, there may be some older suburban properties available for sale around the outskirts of the greater Tokyo metropolitan areas, it is extremely unlikely to find any that are as hands-off, turn-key and hassle-free as these sub-leased hotel type properties.

Having considered the advantages and dis-advantages detailed above, the client has decided to green-light the deal. This was back in April 2018, and as anticipated, there has not yet been a single issue related to this property, which has been functioning as smoothly as expected to this day.

 

(Back to Deals Analysis Page)

Japan Launches First Stimulus Measures Since 2016 to Cope with Declining Population and Natural Disasters

Japan Real Estate

Japan Investment Properties

11 Nov, 2019 –

TOKYO • Japanese Prime Minister Shinzo Abe asked his Cabinet yesterday to compile a package of stimulus measures to support the economy and build infrastructure to cope with large natural disasters, according to the government’s top spokesman. Chief Cabinet Secretary Yoshihide Suga told reporters that the package will include steps to promote investment for growth through aggressive use of fiscal investment and loan programmes.

The government will compile the package as soon as possible, although the size of spending will depend on proposals to be made by various ministries, Economy Minister Yasutoshi Nishimura told a news conference after a regular Cabinet meeting.It will be the first stimulus package since 2016, as the longest postwar economic boom sputters amid the US-China trade war and as the government watches the impact of an Oct 1 tax hike.

Japanese policymakers have been under pressure to fend off heightening overseas risks with a diminishing tool-kit, as soft global demand hurts the export-reliant economy. Finance Minister Taro Aso said the planned economic package should help enhance productivity and achieve strong growth to overcome the pressure caused by a declining population, which he said is the “biggest problem” Japan faces in the long run.

Mr Aso added that the size and scope of the stimulus measures still needed to be worked out. He suggested that a supplementary budget would be compiled by the year-end, along with an annual budget for the next fiscal year that starts in April 2020, to ensure the economic package would be rolled out over a 15-month period. Mr Abe had told a top economic council on Thursday that the government will consider what policy measures it can take to prevent global risks from derailing the Japanese economy.

Japan’s economic growth likely slowed to an annualised 0.8 per cent in July-September from 1.3 per cent in the second quarter, a Reuters poll showed this week. The data will be reported next Thursday. An increase in the sales tax to 10 per cent from 8 per cent, put in place since October, may also hurt consumption, analysts say. A key Japanese economic gauge, the index of coincident economic indicators, rose a preliminary 2.0 points in September from the previous month, Cabinet Office data showed later yesterday, signalling an uptick in economic activity before the tax increase took effect.

The sub-indexes for retail sales and wholesale trade both rose 7.3 points in September from August, seeing their largest jumps since April 2015, due to demand for big-ticket items such as cars and household electronics, as well as cosmetics and medicines.

Slowing growth underscores the challenge for Mr Abe’s government as it tries to strike a delicate balance between the need to boost growth and fix the industrial world’s heaviest public debt burden that is more than twice the size of Japan’s US$5 trillion (S$6.8 trillion) economy. Some economists have raised concerns that additional public works spending would further strain the nation’s dire public finances and aggravate a labour crunch in a fast-ageing population.

 

(Source – “The Straits Times“, Pic – Tokyo Japan, Shinjuku / “Daniel Mennerich Photo“)

You Asked Us – How Do I Declare My Japanese Properties on My Taxes?

Japan Investment Properties

Japan Real Estate

29 Oct, 2019 –

It’s tax time in various parts of the world. Some of our clients have been asking how to declare taxes — Japan or their home country — and what is the process.

Most western countries have a tax treaty with Japan. To prevent double taxation, you should confirm the existence of such a treaty between Japan and your country of residence prior to deciding whether a Japanese investment property portfolio would be profitable for you. If so, the way it usually works is declaring first in Japan, then submitting your tax statement to the tax authorities of your home country, who will tax you on the difference, if any.

For example, if you have a single property generating less than the minimum reporting threshold here in Japan (385,000 JPY NET annually, with all purchase and running costs fully deductible), your tax obligations in Japan are non-existent. As such, you can simply submit your annual income and expense statements, received from us, to your accountant in the country you are in as is. There is no Japanese tax advice to attach, as you’re not paying income tax in Japan.

If, however, you plan to expand your portfolio in the next two years to a level which would take you far beyond that minimum reporting threshold in Japan, it might make sense to hire a local accountant here in advance, for them to be able to file expenses claims on your behalf ahead of any tax duties which might occur in the near future. As mentioned, though, all purchase and running costs are deductible and can be carried forward 3 years, so if you’re only planning to be purchasing another 1-2 similarly priced units, it’s unlikely that the annual expense for an accountant’s services will be necessary. They charge about 15,000 JPY per person, plus 20,000 JPY per property (in the first year of declaring the purchase) or 5,000 JPY per property (in subsequent years) to file tax returns and claim depreciation and expenses on your behalf. Therefore, unless your NET tax duties will potentially reach this expense level, nothing to concern yourself with.

As for reporting in your home country, once you reach the income tax payment minimum threshold (see below), you will be required to hire the services of a local accountant to submit your tax statements, claim any deductions, etc. Therefore it is best to seek advise from a local accountant who will guide you based on your current financials.

(Source – Priti Donnelly, Nippon Tradings International”)

Climate Change & Japan – Forecasted Effects, Readiness & Preparations

Japan Properties

Japan Investment Properties

24 Oct, 2019 –

As we know all too well – even if those among us with vested interests to the contrary will not readily admit it – the effects of climate change and, more specifically, global warming, are going to drastically change almost everything about the world we live in – and even more so the world our children and grandchildren will be living in – and in the vast majority of cases, this change will likely be for the worse.

Asia is one of the places where these effects are going to hit the hardest, according to scientists, who predict an increase of approximately 50% in rainfall in coming years – barring a few countries such as Pakistan and Afghanistan, who may actually experience a decrease – and since these rainfalls will be limited to fewer and far more intense days annually, the results, rather than prop up agriculture production and vegetation – will have the opposite effect, of destroying crops and man-made structures through floods.

Coupled with the rising temperatures, typhoons and cyclones will also become – as they already are becoming – more frequent and volatile.

Japan, which has 30,000 km of coastline and is, essentially, a large group of islands, is one of the countries destined to be most gravely effected by the recently amended expectation of a 3 degree Celsius average rise in global temperatures by the year 2100 – with a devastating 3-7 degrees in the sea of Japan alone.

Agriculture

Japan, which like many of its Asian neighbours, relies on rice as the basic staple food for all ages, will suffer a serious blow unless it somehow adapts, as rice production is expected to drop by 50% – with production costs similarly doubling in the next eight decades.

Equally alarming is the anticipated collapse of all coral reef systems in the region, which naturally spells disaster for marine ecosystems, as well as the extinction of a huge proportion of the nation’s seafood supply – on which it heavily relies for both domestic consumption and export.

Energy

The anticipated scarcity of cooling water will lead to reduced productivity in thermal power plants, intermittent performance of hydro-powered installation due to uncertain water discharges, an increased reliance on unsustainable fossil fuel, which will further exponentially increase the pace of the climate change in a vicious circle – and eventually will likely lead to wars and conflicts over limited power sources.

No alt text provided for this image

Economy

A Japanese study as to the effects of sea-levels rising conducted in 2013 and published in part by “The Japan Times” has determined that the height of waves hitting the coast would be three times larger in the event of a 60-cm rise in sea levels, combined with a typhoon that is 10 percent stronger than average.

As a result, inundation zones widen and concrete sea dikes can be breached by extra-large waves, which can cause subsequent damage.

Additionally, since groundwater in coastal zones is directly linked to the height of the sea nearby, when sea levels rise, the groundwater table rises as well.

Soil in coastal areas can then become saturated, causing it to be vulnerable to liquefaction in the event of an earthquake, of which Japan has one of the world’s highest frequencies.

Low-lying coastal areas are especially prone to the risk of flooding and liquefaction, with the coastlines around Tokyo Bay, Osaka Bay and Ise Bay representing the highest risk.

Osaka is among the world’s ten most vulnerable cities to rising sea levels, and is where damages have the most devastating potential – as economists project that the city could suffer the loss or damage of nearly U.S.$1 trillion in assets owing to coastal flooding by the 2070s—more than four times its current economic risk (UCS).

Nagoya, which is also one of Japan’s most vulnerable cities to climate change, is also one of the least prepared – and is actually among the top 20 cities with the largest growth of annual flood losses in the Asia-Pacific region between 2005-2050, according to “The Third Pole”, the institution dedicated to understanding and providing solutions for Asia’s impending water crisis and its numerous aspects.

No alt text provided for this image

Housing

The millions of people living in and around the coastal areas of the country are painfully aware of Japan’s painful past, in which Tsunamis often saw large swaths of coastal areas underwater throughout history – with the latest disaster, in 2011, costing more than 18,000 lives (approximately 2,500 people still reported as missing, with the rest confirmed dead) and over $309 billion USD in financial and asset damages to the nation as a whole.

Many, who are also aware of the fact that climate change is going to make things worse, are choosing to live away from coastal areas, or in the upper floors of buildings – but as there is no surveying of opinions or data on the subject, no accurate numbers or levels of such awareness have been published.

Solutions

From a national perspective, the general mindset seems to have come to terms with the fact that the current pace of climate change and its forecast effects are no longer likely to be avoided or slowed in any way, and so efforts are now focused on preparation and minimization of potential damages.

Expenditures required for this purpose are focused on several crucial areas –

1.     Prediction and monitoring

2.     Upgrades of existing port facilities

3.     Re-modelling of coastal structures

4.     Construction of anti-tsunami barriers

No alt text provided for this image

Back in 1993, cost estimates put the required expenditure at over 12 trillion JPY (over 110 billion USD) – however, as the effects of climate change become more and more pronounced, the cost of protection naturally rises as well.

In Japan things are further complicated by the stringent budgets allocated to local governments, which in practice mean that only national governance can take on the job.

With 40% of Japan’s coastal protections outdated and deteriorated, the national government has taken on several initiatives to renovate and reform the current state of readiness – but in some places, like Nagoya, where these projects have only just begun to scratch the surface, there is much work to be done, and the danger is immense.

As of recent reports, the executed plan has been receiving a budget of 1 trillion JPY (approximately 800 billion USD) annually, which are allocated to various areas such as those detailed above.

One can only hope that, unlike other global climate change tackling initiatives, this will not turn out to be a case of “too little, too late”.

(Source – Ziv Nakajima-Magen, Nippon Tradings International”, Pic – NipponTradingsInternational)

Japanese Land Prices Continue to Rise Driven by Office and Hotel Construction Demand

Japan Real Estate

Japan Properties

30 Sep, 2019 –

JAPANESE land prices rose for the second straight year in the year to July with the increase spreading beyond big cities, a government survey showed, a sign the benefits from the central bank’s ultra-low interest rate policy are broadening.

The 0.4 per cent increase in average land prices was faster than the previous year’s 0.1 per cent gain and driven partly by rising property prices in regional Japan, the survey showed on Thursday, underscoring the strength of the economy’s recovery. The survey by the land ministry captures the prices of land on July 1 and compares the rate of growth against the same period a year earlier. Land prices are among data closely watched by the Bank of Japan to gauge how its ultra-loose monetary policy is affecting the economy and asset prices.

Commercial land prices in regional Japan, which excludes metropolitan areas surrounding Tokyo, Osaka and Nagoya, were up 0.3 per cent in the year to July 1, turning positive for the first time since Japan’s asset-inflated bubble collapsed 28 years ago. A steady increase in inbound tourists and ultra-low interest rates propped up demand for hotel construction and office buildings, the government said in the survey.

Nationwide commercial land prices rose 1.7 per cent after a 1.1 per cent gain the previous year, helped by strong office building demand in major cities, the survey showed. Residential land prices slid 0.1 per cent, a slower pace than the previous year’s 0.3 per cent decline, the survey showed.

The ministry surveyed about 21,500 locations nationwide. The survey is used as a standard for land transactions, together with another one published by the ministry in March. REUTERS

(Source – The Business Times, Pic – Construction / “Hideya Hamano“)

Property Investment For Foreigners: How to Screen Tenants

27 Sep, 2019 –

The following is an excerpt from “Japan Real Estate Property Investment For Foreigners Part 2” by Ziv Nakajima-Magen – Partner & Executive Manager, Asia-Pacific Nippon Tradings International (NTI)

Japan Properties

Nippon Tradings International

Q: I understand there is no credit check system in Japan, so how do I check out a potential tenant for my downtown Tokyo apartment? Are there credit guarantee companies and if so, how reliable are they?

A: Credit guarantee companies or rent insurance companies, as they are known in Japan, are quite reliable, and are one of the three types of guarantees a tenant can potentially provide when leasing a property (the other two being a security deposit, or personal guarantors – which can be of various degrees of reliability, from friends or colleagues, through family members, and all the way up to employers). Guarantee companies will interview a potential tenant, review their income status and require documentation to prove it, prior to approving them – and will often refuse to issue the insurance contract and advise against the tenancy, if they are unsatisfied with the results.

Generally speaking, Japanese tenants, while not as officially verifiable as tenants in most Western countries, also tend to be far more reliable, and would rarely have payment issues compared to other countries. In close to 200 properties managed by our company, we have so far had less than 5 tenants with chronic payment issues, and only 3 who absconded altogether (the rent insurance paid three months of missing rent on two of those tenants’ behalves, as well as for the cleaning and removal of personal items following that – in the one case in which they’ve managed to locate the tenant and take them to court, the landlord got their rent compensation throughout the entire court case period).

Perhaps most importantly, tenants in Japan would almost never intentionally damage a property, use it for illegal purposes, squat/allow unauthorized sub-tenants to move in with them, or any of the other ills often associated with bad tenants elsewhere – and, surprisingly enough, this is also true for the lowest end of the tenancy market. The reason for this is that, culturally, “doing the right thing”, or behaving in the “correct” way is one of the main pivots of Japanese society – strictly governed by social expectations, concepts of respectable and honorific behavior and “proper” societal norms– which, to the average Japanese, can be a far stronger deterrent than legislation and fear of financial repercussions. This is doubly true in the case of company employees, whose biggest fear is that their bosses and colleagues may somehow find out that they have behaved inappropriately. Strange but true.

(Source – Ziv Nakajima-Magen, Nippon Tradings International”, Pic – NipponTradingsInternational)

Japan’s Golf Tourism Market could Give Winter Resorts Summer Appeal

International Real Estate

Japan Properties

25 Sep, 2019 –

RUSUTSU, Japan — As a Japanese couple teed off on a sweltering summer morning here in Rusutsu, a mountainous village in northern Japan, construction workers were building a new luxury condominium complex overlooking the fairways and ski slopes in the distance. When it opens in December 2020, the 10-story complex, the Vale Rusutsu, will have 156 units at prices from $656,050 for single bedrooms to about $5.2 million for elaborate penthouses. That’s an eye-popping amount for Hokkaido, Japan’s sparsely populated northernmost main island, but the developer, Kamori Kanko, is banking on a growing crop of investors, as well as ski and golf enthusiasts, from Asia to make the $131 million project profitable. So far, it has sold 83 units, the company said.

“We have one of the largest golf courses in Japan, with mild summer temperatures averaging about 19 degrees Celsius (66 degrees Fahrenheit),” said Toshimune Suto, a real estate sales manager at Kamori Kanko. Its Rusutsu Resort was designed as an all-season playground near the slopes of Mount Yotei, a 6,225-foot volcano dominating this part of Hokkaido, about 800 kilometers, or 500 miles, from Tokyo.

In addition to 37 ski runs with more than 40 feet, or 12 meters, of snowfall per season, the resort has an amusement park, pools, rafting, hot air balloons and four 18-hole golf courses, including one designed by Masashi Ozaki, known as Jumbo, one of Japan’s most famous golfers. Kamori Kanko began in the 1950s as the operator of a zoo. After acquiring the Rusutsu property in 1981, it continued to add facilities and develop the surrounding hills. In 1993, it built a hotel tower, now the Westin Rusutsu, and earlier this year it opened a Japanese-style onsen hot spring spa with sweeping views of the valley. When the adjacent Vale Rusutsu is finished, the resort will have a capacity of 3,634 beds.

Although Kamori Kanko owns most of the land in this part of the valley, others are vying for a piece of the local action, since large investments have gone into Niseko, a nearby ski resort. Riverhill Growth, a Hong Kong development company, has acquired a plot abutting the resort’s Izumikawa golf course where it is building 10 four-bedroom, 3,200- to 4,300-square-foot, or 300- to 400-square-meter, chalets. The units, which will have big decks for barbecuing, heated patios and cedar cladding, will be priced at more than $2.5 million and will be maintained and rented out by an outside company.

“Holidaymakers from Asia come here and fall in love with the place and start looking at real estate,” said Anthony Hand, the managing director of developer Riverhill Growth. “Having a house on a golf course,’’ he added, “means buyers should be able to get rental revenue from it in summer as well as the skiing in winter.” Foreign golfers, though, can run into language barriers and bias. Last year, Kasumigaseki Country Club near Tokyo relented to pressure to admit women as full members after it was selected as a 2020 Olympics venue.

“There are still too many impediments for foreign golfers to find it easy to play golf at many courses in Japan, but it will have to change,” said Fred Varcoe, a Tokyo-area journalist who writes about the game. Kamori Kanko, which at one time operated ski resorts in Colorado and California, withstood Japan’s economic downturn in the 1990s. But that wasn’t true for many of Japan’s golf course operators. Developers flush with cash built courses throughout Japan in the early 1990s, but about 200 have closed over the past couple decades. Some have been converted to solar energy farms. While some have tried to remain private clubs, others have opened to the public.

According to the Japan Golf Courses Employers Association, there were 2,257 golf courses in Japan in 2017, down from a peak of 2,460 in 2002. About 6.7 million people played golf in Japan in 2018, down from 14.8 million in 1992, according to a Japan Productivity Center survey of 3,000 Japanese aged 15 to 79. Many of the players are in their 60s and 70s, according to the center, a reflection of Japan’s rapidly aging population. But Japan was still the No. 3 golfing country in the world in terms of facilities, after the United States and Canada, according to The R&A, a governing body for the sport. It has many high-quality courses, including some that rank among the best in the world.

In its 2018 list of the world’s 100 best courses, Golf Digest included four in Japan: Naruo and Hirono golf clubs in Hyogo Prefecture, Kasumigaseki Country Club’s East Course in Saitama Prefecture, and Kawana Hotel’s Fuji Course in Shizuoka Prefecture. Golf in Japan can also be relatively inexpensive: a round of 18 holes, lunch and a cart can often cost less than $94. A few new courses have opened over the last 15 years. In December 2016, the private Tokyo Classic Golf, an 18-hole, 7,200-yard course designed by Jack Nicklaus, was inaugurated in Chiba City east of Tokyo.

Japan has found new inspiration in rising pros like 20-year-old Hinako Shibuno, a rookie on the L.P.G.A. of Japan Tour, who won the Women’s British Open earlier this year, kindling hopes that she might rise as high as former top-ranked Ai Miyazato. In addition to tournaments on the Japan Golf Tour, the country will host Olympic golf at the Tokyo Games in 2020. Some course operators are trying to ride a wave of tourism and investment from overseas while luring golfers from East Asia, Europe and North America.

Japan received a record 30 million inbound tourist visits last year, a jump from 8.6 million in 2010. Most of the tourists are from other Asian countries, according to the Japan National Tourism Organization. Half the players at Rusutsu Resort are from South Korea, which has numerous flights to Sapporo’s New Chitose Airport, a 90-minute drive from Rusutsu. “Koreans are fanatical when it comes to golf,” said Panch Ratnavale, the director of Niseko Village, a ski and golf resort 30 minutes northwest of Rusutsu by car. “They can do 36 holes every day. Their priorities are different. If you want to talk about maniacs, I’ve never seen anyone more passionate than Koreans.” Niseko Village, which is owned by YTL Hotels of Malaysia, has two golf courses, one of them designed by Arnold Palmer. Between the two, YTL is building a 50-room Ritz-Carlton Reserve on the slopes of its Niseko Village ski hill.

The Ritz will bring total beds at Niseko Village, which also has other accommodations including ski-in, ski-out chalets, to about 1,500. While YTL runs beach resorts and hotels in Europe, East Asia and Australia, Niseko is its only golf resort, and it intends to use the Ritz to target the growing Asian golf trade. On the other side of Mount Niseko-Annupuri, one of Japan’s most popular ski destinations, the operator of the 18-hole Hanazono Golf has renovated its clubhouse, adding a Mediterranean-style restaurant. The operator, Nihon Harmony Resorts, hopes to lure golfers from overseas, including those staying at the affiliated Park Hyatt Niseko Hanazono, an eight-story, 600-bed hotel and condo complex that’s scheduled for completion this winter. The Park Hyatt is at the foot of the Hanazono Niseko ski hill, near Hanazono Golf.

“Niseko is well known as a winter resort, but we’re trying to push its summer appeal as well,” said the general manager, Yasuo Kato. Course operators in Hokkaido are not alone in looking overseas: In recent years, industry groups and government agencies have begun organizing seminars on golf tourism. “Golf tourism is still in its infancy in Japan, despite the huge influx of tourists,” Mr. Varcoe said. “The time will come when golf courses in Japan will need to tap into this market and then you might see a big change in attitude.”

(Source – “The New York Times“, Pic – Golf style=”color: #333333;”> / “Chris Urbanowicz“)

Japan Formalizing Bidding Process for Casino Proposals

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23 Sep, 2019 –

CAESARS Entertainment said it will not pursue a licence for a casino in Japan and will focus instead on its current business plan, including a merger with Eldorado Resorts scheduled to close next year. Caesars management made the decision out of sensitivity to the Japanese government and business partners, who must make decisions this year to advance the casino process, chief executive officer Tony Rodio said in a statement.

Casino operators all over the world have been salivating at the prospect of opening resorts in Japan, which has the potential to become Asia’s second-largest gambling market after Macau. The Japanese government has given preliminary approval for what is expected to be three major resorts. Cities are formalizing their bidding processes, with proposals for concepts in Osaka due next month.

A casino in Japan is expected to cost upwards of US$10 billion, with the government’s intended focus on generating tourism and convention revenue from adjacent hotels and meeting space. MGM Resorts International has already stated its intent to pursue a resort in Osaka, while Las Vegas Sands said earlier this month that it will not submit a bid there, favouring instead a resort in the Tokyo area. Wynn Resorts has also signaled an interest in the Tokyo Bay, which could include Yokohama.

“As Caesars has pursued a licence to operate in Japan over many years, we have been treated with respect and goodwill by Japanese government, business and community leaders, and with kindness by all the Japanese people we have encountered during this journey,” Caesars chairman Jim Hunt said in a statement. Caesars is withdrawing just as the path towards casino resorts in Japan has become clearer. In recent years, the island nation has passed laws that legaliz

ed casino gambling and set forth conditions allowing resorts to be built. Operators and local municipalities are waiting for the national government to appoint a casino control commission and release guidelines on how sites and operators will be chosen, a process that has been beset by delays.

Yokohama, located about 30 minutes south of Tokyo, formally announced last week that it wants to take proposals for an integrated resort to be built on its Yamashita Pier. Right after the announcement, operators such as Las Vegas Sands, Wynn and Galaxy Entertainment Group came out with statements praising the move and underlining their interest in building in Yokohama. Investment firm CLSA predicts that Japan’s gross gaming revenue could reach US$20 billion annually.

Caesars, the largest owner of casinos in the US, missed an opportunity to get a licence in Macau, the biggest casino market in the world. The company has been struggling with a large debt load taken on after a 2008 leveraged buyout. Financier Carl Icahn took control of the Las Vegas-based company and engineered the US$8.6 billion sale to Eldorado.

(Source – “The Business Times“, Pic – Ruleta style=”color: #333333;”> / “anlopelope“)