Resort Condos the Ideal Property Choice for Personal and/or Investment

Japan Real Estate

Japan Resort Property

14 Aug, 2019 –

As everyone in Japan now knows, there are millions of vacant houses and apartments throughout the country, many of which are on sale for a song. The money and effort needed to renovate these properties, however, often isn’t worth it given how inexpensive new houses can be. That, of course, is the main reason why there are so many vacant homes in the first place.

With the Airbnb boom, people may think they can buy some of these cheap residences, fix them up and make a killing by renting them out to tourists. However, 75 percent of the Airbnb listings in Japan are in Tokyo, Osaka and Kyoto, cities where property remains expensive, and 70 percent of all listings are apartments and condos. There is one area of potential: resort condos, one of the most depressed real estate markets in Japan. During the bubble years, tens of thousands of units were built in onsen (hot-spring) resorts and ski areas, and they sold very well. Eventually, though, the ski boom ended, and after the bubble burst and the economy contracted, most owners realized they couldn’t afford a second home. Even when they could, they found they didn’t have the time to use these vacation homes effectively.

The major housing portal sites in Japan list thousands of used resort condominiums, with prices going as low as ¥100,000. In order to put that sort of number in perspective it’s helpful to first look at cheap non-resort condos in the Tokyo metropolitan area. Most of these are former kōdan, or condos that were built in the 1970s and ’80s by the Japanese housing authority, which eventually morphed into the semi-public housing corporation UR. Despite their unappealing outward appearance, these condos are good value due to the durability of construction and quality of landscaping. In fact, in recent years younger buyers have shown an interest in old kōdan, partly out of an interest in the retro, but also because the buildings are relatively easy and cheap to remodel. Two home-furnishing companies — Mujirushi (Muji) and Ikeya — are even working with UR to renovate old kōdan with their products, though this is only for rental units.

On the Home’s portal site (www.homes.co.jp/mansion/chuko), we found a 56-square-meter apartment for ¥3.5 million in Shiroi, about 40 minutes from Tokyo in Chiba Prefecture. At 36 years old, it qualified as superannuated by Japanese housing standards, but in our experience, kōdan tend to be well kept by the companies who manage them. The monthly management fee (kanrihi) was advertised at ¥5,000 and the monthly repair fee (shuzenhi) at ¥12,000. The reason for the low management fee is that residents in old kōdan are expected to pitch in with cleaning and light maintenance. The apartment was also only an eight-minute walk from the nearest station. The main drawback was that it was on the fifth floor of a five-story building with no elevator.

In Sayama, Saitama Prefecture, properties tend to be more expensive than in Chiba, but we found a 42-year-old, 48-square-meter kōdan for ¥1.5 million. The price was low because it came with a kokuchi (notification). Kokuchi usually indicate that someone died there or that there was once a fire. The management and rental fees of the kodan were ¥4,000 and ¥9,000, respectively. The main drawback was that you needed to take a 10-minute bus ride to the nearest station.

Resort condos are even cheaper than these nonresort examples. The best place to search for vacation properties is at bessou.suumo.jp, since it deals exclusively with second homes. The main areas for second homes around Tokyo are Karuizawa in Gunma Prefecture, the Fuji Five Lakes region in Yamanashi Prefecture and the Izu Peninsula. The former two areas don’t have many condos, but Izu has hundreds of vacant ones thanks to a late ’80s resort housing boom that was partly sparked by TV dramas set in the area. When these units were new, they sold for between ¥40 million to ¥50 million each.

In Atami, Shizuoka Prefecture, the most famous seaside community on the peninsula, we found 113 condos for sale on one portal site. The cheapest was going for ¥300,000: 40 years old, 40 square meters, eight minutes by bus from Atami Station. It sounds like a steal until you read the fine print: ¥43,000 a month for management, ¥15,000 a month for repairs.

The management fees are the main stumbling block for sales of resort condos, because such buildings usually require more maintenance, especially if they have large communal onsen baths and other vacation-type amenities. They also tend to have live-in superintendents who must be paid full-time salaries. We found a better bargain in Usami, along the Ito Line: ¥550,000, 38 years old, 37 square meters, 20 minutes by bus from the station, and with a management fee of only ¥13,500 a month. You could even get natural spring water pumped into your unit, but you would have to pay ¥1 million for the rights.

During our online search, we found a condo in Naeba ski resort, Niigata Prefecture, listed for ¥100,000. It was 27 square meters, 26 years old and had a ¥12,400 monthly management fee. However, there were no photos of the unit, so we assumed it was probably in even worse repair than it sounded. In the same building, another unit of 36 square meters was selling for ¥300,000, with a ¥17,500 monthly management fee.

The ads don’t always reveal a prime caveat. Years after they realized they couldn’t afford them, the owners of some of these condos have not only been unable to sell their properties, but they also have not kept up with the management fees and property taxes. This means anyone who buys such a unit will also have to cover a backlog of payments that could run into millions or even tens of millions of yen. Low sale prices can therefore be deceptive. Naeba is famous for this problem because of oversupply. Other ski resorts in Nagano Prefecture and Hokkaido have had better luck selling or renting condos to non-Japanese, mostly Australians, who only come for the season.

One region that offers a sensible balance is Onjuku, on the Kujukuri shore of Chiba Prefecture. A haven for surfers, Onjuku has a lot of resort condos. We found one — 47 square meters, 37 years old, renovated with new water heater — five minutes from the main train station and going for ¥1.1 million, with a management fee of ¥12,710. Several years ago, we were thinking of living in Onjuku, and the real estate agent showed us some condos on the beach, confessing that he moved to the area because of the surfing — selling real estate was what he did in his spare time. Some people, it seems, do prefer resort life all year round.

(Source – “The Japan Times“, Pic – Onsen Etiquette 101 / “txkimmers“)

NTT Converts Old Assets, Starts Property Business

11 JJapan real estate property ul, 2019 –

Japan’s biggest telecommunications provider, Nippon Telegraph and Telephone (NTT) will tap into its idle real estate assets nationwide in an effort to break its dependence on its mobile phone unit, NTT Docomo, which generates 60% of its profit.

NTT established NTT Urban Solutions as a wholly owned subsidiary on July 1, with NTT Urban Development and NTT Facilities under its umbrella. NTT Urban Solutions will play a key role in the group’s real estate business. It also owns a 49% stake in NTT West Asset Planning, a real estate operator affiliated with NTT West.

NTT owns 7,000 telephone exchange stations and 1,500 office buildings nationwide, but it has been unable to put all of those assets to productive use. Most NTT telephone exchange stations were built in prime locations in smaller cities before the company was privatized in 1985.

According to NTT’s financial reports, its land and buildings were worth 2.5 trillion yen ($23 billion) at the end of March this year.

Some properties secured for rebuilding telephone exchange stations have been left idle due to digitization, among other reasons. There were also cases where developers other than NTT Urban Development were entrusted with the redevelopment projects of NTT East and West.

NTT racked up about 12 trillion yen in sales and 1.7 trillion yen in operating profit in the fiscal year that ended March. Of that, the property unit’s sales of 400 billion yen and operating profit of 30 billion yen made up only 2-3% of the total.

Meanwhile, NTT Docomo — which generates 35% of sales and 59% of operating profit — is facing headwinds, including government pressure to cut mobile phone fees and market maturation.

NTT President and CEO Jun Sawada has vowed to grow the property unit by using the group’s assets since he took the post last June. The company plans to invest 1 trillion yen to 1.5 trillion yen in NTT Urban Solutions to boost sales to 600 billion yen by 2025.

With a shrinking population and tougher competition, it will not be easy for NTT to improve its profit-earning capability in Japan’s property market. NTT Urban Solutions President Hiroshi Nakagawa said he wants to use the group’s expertise on information technology and energy in urban development.

For example, a building owned by NTT East in Sendai in northern Japan will be pulled down and rebuilt as a multipurpose complex, including offices for companies and researchers using next-generation synchrotron radiation facilities, which are used to analyse the structure of materials at the atomic level. The building will feature NTT’s advanced technologies, such as ultrafast communications, security and artificial intelligence.

Since its privatization, NTT has been unable to make full use of its manpower, technology and assets as group companies sought growth independently. A real estate subsidiary will serve as a test for Sawada’s reconstruction measures.

(Source – Nikkei Asian Review, Pic – NTT Logo/ “Seek Logo“)

Deal Analysis – Super-central Studio unit, Kyoto

Deal Analysis – Kyoto City Studio Apartment

In this article, we will review and analyse a sample deal facilitated on behalf of one of our clients, in Kyoto city, Japan – once the national capital, it’s second most popular tourist destination (second only to Tokyo), and still its undisputed most important cultural and historical centre. Medium sized population wise (just under 1.5 million inhabitants), the city boasts no less than 17 UNESCO world heritage sites, is home to 20% of Japan’s official National Treasures, and 14% of its official Important Cultural Properties – these include temples, shrines, magnificent gardens (including the previous imperial palace and surrounding gardens), the world famous philosophers’ walk with its’ many tea-houses and meditation spots, the geisha quarter of Gion, the famous golden pagoda, and more.

Regardless of all of the above, the city is also a major economic centre, with its main industries being information technologies, electronics – and, of course, international and national tourism – all in all, a fantastic investment hot-spot and, as a result, normally quite low on yields and high on purchase prices.

Studio unit + Kitchen & balcony – 3.7 mil JPY (app. 34,000 USD)

Kyoto investment real estate property studio apartment

Advantages –

·        Exceptional yield for central Kyoto – close to 10% net pre-tax per annum!

·        Tiny unit (1 room, 15.25 sqm + small balcony) – makes for minimum repair and maintenance fees, as well as for a discounted property tax bill, reserved for units under 200 sqm.

·        East facing balcony – plenty of sunlight – attractive feature for potential future tenants.

·        Current tenant – single male in his mid-sixties, retired – has been in residence for the past five years, without any late payments or other issues – and paid a security deposit equal to approximately one month of rent.

·        Kyoto city, as detailed above, is a large and prominent city, white-collar economy wise, and renown internationally.

·        Location is super-central, within 9 minutes walking distance to the city’s main train, subway and bullet train transportation hub – Kyoto station. Building is located on the banks of Kamogawa, the city’s main river, which crosses it from North to South. One of the best spots in the city.

·        Building built in 1989, which means it is up to the latest earthquake resistant building standards, introduced in 1981.

·        Belonging to the “Asahi Plaza” building brand, a famous national developer which takes pride in well maintained, well populated buildings – a long list of maintenance and renovation items performed over the past decade and earlier seems to indicate this to be true for this particular block of units as well.

Kyoto investment real estate property japan after renovation studio apartment

 

Disadvantages –

·        The tiny unit size means typical tenants would be exclusively singles. Generally speaking, this means shorter tenancies when compared with larger sized units, which tend to attract longer-staying tenants such as families – as singles may more frequently change their status via marriage, work dynamics such as relocation to a different company branch or, at some point, moving in with their elderly parents, as is often the case in traditional Japan.

·        The building’s reserve funds pool (known as the sink fund pool in other countries), used for renovations and repairs, has a relatively low amount in it, compared to the number of units in the building. Monthly fees collected from owners have been raised in 2009, to accommodate for the extra renovations and repairs required with age, but an up and coming major renovation will cost more than the amount currently reserved – which means the building management company will most likely apply for a loan to cover the difference. While this in itself is standard practice, it may mean that any additional, unexpected repair or renovation required in the near future may necessitate either a further hike in building fees, or a one-time payment charged to all unit owners – both cases will reduce the monthly yield, at least slightly.

·        Tenant is aged, which naturally may mean potential future hospitalization, disability or death.

Deal analysis –

Weighing the advantages and disadvantages one against the other, the client has decided to approve this particular deal, due to the reasons specified below –

1.      The high return, aside from being more lucrative, also means more potential manoeuvring room in future due to increased building maintenance/repair/renovation fees. Central city properties in Kyoto rarely yield more than 7% net pre-tax – so anything gained beyond that is a spectacular bonus, considering these central properties may also gain in value over time.

2.      Building profile is excellent – and coupled with its location, all but guarantees a steady stream of potential future tenants – this, along with the current tenant’s security deposit, more than covers for any potential vacancy risk derived from his age.

3.      The fact that the unit is small isn’t really an issue, considering its location, again – plenty of potential single tenants would be more than happy to rent a room conveniently located at the heart of the city. Additionally, any attractive location in Japan (aside from Sapporo city, in the North) only features single or couple sized units at these yield levels as a general rule.

 Summary –

All in all, the deal seems to be quite attractive – an affordable unit generating such high return, in the heart of one of Japan’s most prominent cities, is an exceptionally rare gem. There is a slight risk factor involved, due to the tenant’s age and building accumulated funds/renovation plans and history, but more than easily mitigated by its redeeming factors.

The client, whose main criteria is yield and location, having considered all of the above, has decided to go ahead with the deal, as mentioned – their first purchase in Japan, and an excellent start to a hopefully profitable and hassle-free portfolio.

(Back to Deals Analysis Page)

Blackstone Enter Japan Logistics Arena

17 Jul, 2019 –

Japan Real Estate

U.S. investment firm Blackstone Group will spend over 100 billion yen ($926 million) to buy distribution centers in Japan, seeing room for growth in the country’s relatively small e-commerce market, Nikkei has learned.

Blackstone is expected to buy five or six sites from Singaporean state-owned property investor Mapletree. One location in Odawara, a city southwest of Tokyo, serves as a key fulfillment center for Amazon Japan covering the greater Tokyo area.

While e-commerce accounted for about 10% of all sales of goods in the U.S. last year, Japan’s ratio lags at roughly 6%. Blackstone anticipates that Japanese distribution centers will have high operational rates for years to come and generate stable earnings for the group.

The acquisition will mark the latest deal by foreign buyers in Japan’s logistics sector. Singapore-based GLP, Asia’s largest warehouse operator, raised 625 billion yen last year from investors including Canada Pension Plan Investment Board for a logistics site development fund.

Hong Kong logistics group ESR established a 200 billion yen fund in May targeting state-of-the-art warehouses.

Blackstone has not disclosed projected returns, but distribution centers typically yield around 4% — an attractive level at a time of negative interest rates in Japan and Europe.

Blackstone, one of the world’s top investment houses overseeing $512 billion in assets, will buy the distribution centers through a fund dedicated to real estate. This fund draws money globally from institutional investors.

(Source – Nikkei Asian Review, Pic – Data Center / “Kevin McGrath“)

Cashed-Up Investors Unfazed by Anti-AirBnb Laws

7 Jul, 2019 –

Japan Real Estate

Osaka at Night

Frankie Leung Kai-ha has bought three properties in Japan over the past three years. The latest one, bought just last month, is a four-storey building that he plans to renovate into an Airbnb private lodging. The three investments cost about the same as one medium-sized flat in the expensive urban centre of Hong Kong, where Leung lives. His latest deal also came amid the increasingly volatile trade relations between China and the United States, which threaten to undermine the economics of both countries. “The trade war is one of the major reasons I’ve invested more in Japan. I’m quite concerned about the impact,” said the 36-year-old, who is the co-founder of a bakery in Macau. “I think it’s safer to put some money in Japanese yen in case anything happens.”

Leung is one of a growing number of citizens from China who have found interest in the Japanese property market, especially in hotels and private lodgings. This is despite the island nation’s introduction of a tough law in June last year to regulate the home sharing market – such as Airbnb listings – which requires higher standards for shared lodging homes and limits when and where operators can run such services. Some Hong Kong property agents told SCMP that the rule – known as the minpaku law – had priced out small-time investors with limited budgets, but not buyers with deeper pockets, who have helped drive the investment craze.

Joe Kwan, director of property agency Trusty Group, said the amount of money involved in the company’s Japanese property deals last year was up 30 per cent on 2017, despite a 24 per cent drop in the number of deals. Kwan observed that those upmarket investors are typically spending tens of millions of Hong Kong dollars on land, hotels, and whole buildings or independent houses designed for home sharing, rather than on cheaper flats in normal residential buildings, which are highly difficult to obtain a private lodging licence for.

Tokyu Livable’s Hong Kong branch, which focuses on serving big-budget clients, said sales had risen by 20 to 30 per cent between 2015-16 and 2017-18. Japan Hana Real Estate said 70 per cent of its business involved shared lodging. “Indeed, recently about half of our sales involved hotels, and an increasing number of clients are asking about buying private lodgings,” said Masaaki Ishida, branch manager of Tokyu Livable.

According to Chinese overseas property investment portal Juwai.com, the number of Chinese buyers asking about Japanese properties had multiplied almost 13-fold in the first quarter from the same period last year. Many investors see Japan as a safe haven against the risks of the US-China trade war, agents said. They added that buyers also held a rosy outlook of the country’s economic and tourism development, with the Tokyo Olympics next year and a plan to develop an integrated casino resort in Osaka, one of Japan’s largest metropolitan areas and the host of the 2025 World Expo. Ishida said that the number of overseas tourist visits to Japan had increased threefold to 30 million last year from 2013, while the country targets to attract 60 million visits by 2030. “It’s a common concept that all investors believe: where there are people, there are opportunities for investment,” he said.

Generally, Tokyo and Osaka have benefited the most from the increasing investment, according to agents. However, Osaka had taken over Tokyo in investments in private lodgings, said Glass Wu, CEO and co-founder of Japan Hana. Wu said that was because the capital city’s property market had become too hot for some buyers, while Osaka remained cheaper and had fewer restrictions in managing private lodgings under the minpaku law. Agents generally agreed that managing private lodgings could normally generate better returns than long-term residential rental, the return on which had been stable at around 4 per cent due to Japan’s rent control system. But they also pointed out risks such as the law limiting periods when the services can operate, and additional management and cleaning fees.

Leung’s three properties, including two flats of around 400 sq ft each for long-term rental and the four-storey building for private lodging, are all at prime locations in Osaka. The properties cost about HK$10 million (US$1.28 million) in total, which would only get you a flat of about 600 sq ft in Hong Kong’s prime areas. “I think making any property investment in Hong Kong right now is too risky,” Leung said. Leung, who lives in a family home in Hong Kong, said he had been waiting for the city’s real estate market to cool down so he could invest here.

However, the wait is likely to last, as the city’s shortage of land may still keep the market going. Two major measures to increase land supply, including 1,000 hectares of artificial islands off Lantau Island and a plan for the government to co-develop farmland with private developers who own the sites, have recently met with delays due to the political turmoil over the extradition bill. The two measures were expected to see progress last month, but amid numerous protests, marches and non-cooperative movements, the government has pushed the plans back with an uncertain timetable for the projects. Developers had earlier raised fears that the government might not be able to roll out enough sites for sale next year.

(Source – SCMP, Pic – Osaka Cityscape Japan / “fwallpapers“)

 

Deal Analysis – Sapporo House

Single Family Home, Sapporo

Single family homes, as opposed to condo units, offices and shops, are often the investment asset of choice in many countries, due to the larger land parcel attached to them, which makes for better capital growth potential – and also due to the flexibility inherent in ownership of said land parcel, as far as future renovations & re-development prospects are concerned.

In Japan, however, houses tend to take a back seat to condo and other building units, at least as far as investment is concerned. This is mainly due to the building materials and standards in use – which are primarily wood and light metals, as opposed to bricks, mortar and concrete, in the vast majority of cases.

In addition, larger, family sized properties such as houses are harder to find tenants for, due to the decreasing population trend. Singles, as well as couples without children, are simply far easier and faster to populate properties with in Japan.

Lastly – capital growth in Japan is far from a given for the decades ahead, as discussed extensively here and on countless other platforms. Houses also require more maintenance on average, due to that larger floorplan, and also due to the owner’s responsibility for all exterior and structural issues – which, in the case of co-owned condo buildings, are covered in most cases by monthly contributions to the reserve funds and management funds pools.

As a result, houses can carry more “surprises” in store, as far as expenses are concerned, and aren’t as stable and predictable, income-wise, as condo residential or commercial units in co owned blocks. One of the down-sides of owning individual units in co-owned buildings, however, is the fact that the use of the property is limited to owner co-op bylaws and regulations and so, short term rentals, sub leasing, commercial use, etc, are far less of an option for landlords, which reduces income potential whereas house owners are often free to do as they wish with their property, including very creative hacks such as turning it into a shared house, guest house, etc.

Lastly, while family tenants are more rare and can take longer to source, they tend to be longer term tenants, as opposed to singles, whose life circumstances can change far more often, for various reasons.

Sapporo City

Japan’s 5th largest city, with a population of just under 2 million people, Sapporo is the largest city in Hokkaido, the country’s Northern most landmass, which is characterized by long and snowy winters. It is also Japan’s 4th most popular tourist destination, drawing over 13 million visitors annually, particularly for its internationally renown winter
festival, which takes place towards the end of January annually.

As opposed to Japan’s other large cities, however, Sapporo is much cheaper – precisely because of this reliance on tourism. The city suffered a massive decline in visitor numbers following the 2011 Tohoku Tsunami and subsequent nuclear spillage in Fukushima. Although Hokkaido is a far cry from those locations, international tourists were concerned, and the city’s economy suffered as a result – and so didn’t enjoy the price hikes that the rest of the country’s major cities have benefitted from, between 2012 2016 – or at least not nearly to the same degree.

The tourists have returned since 2013 or so, but property prices haven’t recovered significantly as of 2019 , which makes for fantastic potential rental yields.

Main industries are, naturally, mainly tourism – but also academic education and retail  –
a robust, mainly white collar economy, with the only disadvantage being much longer vacancies on average – since the relatively harsh winters mean that very few tenants change their residence between the months of September and March.

Sapporo House – 6 Rooms – 3.8 mil JPY (app. 34,000 USD)

Sapporo House Single Family Home SFH Exterior Layout Floorplan

As mentioned above, prices in Sapporo are phenomenally low. The house in question, built in 1973 , has 5 bedrooms, a living room, large kitchen/dining area, and takes up 125 square meters of a roughly 193 square meter land plot.

It has beem well-maintained and renovated throughout the years, and while it isn’t within walking distance to a nearby train or subway station, it comes with a carpark, like many houses in Japan – which means that anyone renting it is far less concerned with public transport accessibility.

Single mother + 3 children in residence for the past 7 years – no payment or other issues to date, paying approximately 360 USD per month, for an annual net pre-tax yield of about 10.6%

Advantages

• Obviously, the cost and yield are phenomenal – no further explanation necessary

• As mentioned above, a family tenant, who, with any luck, may stay in the property for life, or at least for a good few decades

• The house appears to be in good shape, at least as far as visible items are concerned. The exterior and roof have been well maintained and do not require any maintenance in the
foreseeable future

• Quiet and popular residential area

Disadvantages

• The age of the structure would dictate more maintenance and renovations overall, during the property s life cycle

• All of the general disadvantages mentioned above, inherent in the purchase of a stand alone house, as opposed to a unit in a co owned building.

• The previous owner of the property has been taking care of snow clearing from the roof and surroundings of the house during the winter months an added expense of approximately 300 USD, or slightly less than one month rental income
annually.

Deal Analysis & Summary

In this particular case, the buyer, an asset & portfolio management company based in Hong Kong, has intentionally targeted houses, as opposed to individual units or small buildings as they preferred to focus on the advantages inherent in owning an entire land parcel, as specified above and also due to the lower demolition and removal costs  projected for future re-development purposes (far lower for small wooden structures, as opposed to metal framed or reinforced concrete builds).

Due to this preference, they have already considered and accepted the vast majority of existing and potential disadvantages listed above and so, it was only a matter of finding the appropriate property that would satisfy their budget and yield requirements.

The additional expense of the snow-clearing “perk” provided to the current tenant, easily factored into annual projections, while reducing overall yields, also provides for a satisfied and loyal tenant, which further increases the stability of the investment at the time of purchase all in all – making for an easy deal to approve from their perspective.

 

(Back to Deals Analysis Page)

Deal Analysis – Commercial Office Property

 Fukuoka City Office – 2 Rooms– 5.9 mil JPY (app. 52,000 USD)

Fukuoka city, which we have written about extensively in the past, has been the target of a large exodus of Tokyo businessmen and company employees since the double disasters of 2011 – the devastating tsunami and subsequent nuclear spillage at the Fukushima Daichi plant. Due to its’ geographical position as Japan’s gateway to South-East Asia, a vast influx of Chinese investors crossing over from the north-west and purchasing large quantities of investment properties, would seem to also indicate the promise of this area. Monocle magazine has included Fukuoka city, the prefecture capital, in the world’s top 10 most live-able cities several years already. In Q4-2012, Fukuoka city property prices have begun rising, and haven’t stopped since.

fukuoka city commercial investment real estate property

Advantages –

·        Location – in the heart of Fukuoka’s central business district, and within only 5 minutes walking distance to the city’s main transport hub, Hakata station (bus/subway/train/bullet train). Without a doubt, the best spot in the city for a business.

·        Dual-purpose unit – current tenant is a Chinese trading company – but the property may be used for residential purposes as well if required in the future.

·        Exceptional yield for this location – 8.4% net pre-tax per annum – unusual for central city properties in Fukuoka, and ever rarer for properties of this size (36.5 sqm).

·        Tenant has rent insurance, covering up to 3 months of delinquency – also obliged by lease to pay a cleaning and restoration fee upon vacating.

·        Three large renovations performed in 2013-2014 (exterior, water supply & drain pipes, new elevators installed).

 

Disadvantages –

·        Built in 1980 – one year prior to the introduction of the latest earthquake resistant standards.

·        Previous building management company replaced in 2013 due to financial mismanagement.

·        Current accumulated renovation/repair funds quite low, covering less than 5% of the purchase price per unit owner.

Deal analysis –

The new management company has immediately taken action to act on the large renovation items required since their hiring in 2013 – the building now seems to be in good hands. The lack of large accumulated funds is slightly disturbing, but with three large renovations already performed, chances of another large item being required in the near future is greatly reduced. Furthermore, the exceptionally high yield for this profile and location provides the investor with a buffer in case of monthly fees being raised or a one-off payment required, as annual yields will still be most likely acceptable.

Coupled with the fact that, in this particular location, prices have more than doubled in the course of the last five years, growth potential, while only secondary criteria, is also quite likely – and more than compensates for the older build.

The tenant, in place for more than two years upon purchase, seems to be well established and profitable – with no late payments or other issues, and a rent insurance policy and cleaning/restoration fee most likely covering any substantial potential vacancy expenses.

Considering all of the above, our client, a Thailand-based family office, has decided to add this property to their already substantial portfolio – this purchase marked their second commercial/mixed purpose property purchase, and provided them with further diversity and hedging in an already highly profitable investment portfolio.

(Back to Deals Analysis Page)

Japan’s Solar Energy Market

02 Jul, 2019 –

The “Boom”

The years following the disastrous 2011 tsunami, and subsequent nuclear disaster at Fukushima Daichi power plant, marked the start of a golden age for Japan’s renewable energy sector. Out of the variety of other renewable energy sources available, namely Bio-mass, Geo-thermal and Wind – solar PV panel installations have by far been the most popular and wide-spread technology, growing in leaps and bounds between 2012-2017, from 6,632 Mega-Watt capacity to just under 43,000 (almost 6.5 times over this five-year period alone) – third globally, behind Germany and China, the world leaders in solar energy production.

The immediate shutdown of the nation’s entire nuclear power plant infrastructure, which was providing just under 25% of usable energy at the end of 2011, paved the way for the “green” movement to embark on what was then labelled as the “renewable energy revolution”, a trend which has enjoyed wide public support, and has led the government to launch the world’s highest feed-in tariff system, which forced utility suppliers to buy excess solar generated energy from installations feeding this energy into the existing power grid, and launched a solar-farm projects building frenzy which has lasted all the way into mid-2016. Nuclear power plants have been reviewed, renovated and re-started in part, but still account for just under 5% of the national power capacity at this stage – with renewable energy already providing approximately the same level of energy, and bench-marked by the government to rise to 22-24% by 2030.

The “Bust”

In the last two years, however, as existing grids began to feel the strain and have been unable to sufficiently and appropriately upgrade their infrastructures to deal with the ever increasing feed-in supplies and alternating, unstable supply/demand peak times (consumption is far higher in the evening, when solar feed-in is virtually non-existent). These problems can be overcome through the use of solar energy batteries, but these naturally further increase the price of construction and maintenance. As a result of these issues, Japan’s government has cut these tariffs, and have also re-iterated their commitment to large coal and gas projects, due to recent sharp decreases in the cost of these “dirtier” resources. This has led to a large number of solar energy projects going bankrupt, some in mid-development, with a record number of 65 companies shuttering in 2016 alone – mainly due to vague business strategies which relied solely on government subsidies, poor sales, and insufficient capital. Power companies have also been strong advocates of the nuclear re-start policy, as the obligation to pay premium rates since 2012 has been substantially eating into their profits – and have invested a substantial amount of money and other resources in lobbying local and national governing bodies to push towards this goal, with renewable energy being “abandoned by the roadside” as a result of this shift.

The “Real Picture”

Various analysts, however, believe the future of renewable energy in Japan, mainly solar, is still a positive one. They point to the fact that stricter government regulation has weeded out operators who have been delayed and half-baked in their construction and utilisation efforts, by forcing licensees who have failed to secure power grid access out of business. Insurance company coverage policies have meanwhile forced existing operators to better utilize their equipment through proper monitoring and maintenance. Industry experts point out that some of these operators have lost up to 10% of their capacities due to malfunctioning or under-maintained panels, and that consolidation of smaller, less efficient local operators will further increase the efficiency of energy production and utilization. This increase in maintenance and monitoring has provided for a large increase in solar panel maintenance companies branch offices and staff nationwide, providing more employment opportunities and re-vitalizing local rural communities in several areas as a result.

Additionally, as Japan faces a severe shortage of large and open land areas required for large solar energy production – a typical solar farm generating energy equal to one modern nuclear power plant requires 60 square kilometers of land resources – solar operators are now slowly but surely shifting into floating solar installations which, in addition to being easier to construct, as they do not require land excavation or stringent earthquake resistant foundation building standards, are also providing the added value of reducing evaporation and slowing algae growth in freshwater. The construction of floating solar farms also enables these facilities to be in closer proximity to large metropolitan centers, which simplifies delivery and further reduces supply costs.

From Utilities to Households

Lastly, Japan is now also going through a shift from utility-level solar installations to small and mid-sized rooftop installations, which are already a standard feature in many of the nation’s new homes and commercial buildings, and are estimated to provide up to 70% of the national solar capacity in the longer term. What this means, in light of the declining feed-in tariff system, is that many households with solar panels installed will remain with large amounts of excess power on their hands – which would naturally mean a need for better and cheaper energy storage solutions – a trend which electronic giants such as Panasonic and Tesla have been quick to capitalize on. Panasonic strongly believe that 2019 will be the turning-point year in which the number of houses built with rooftop solar panels, combined with the in-attractive level of feed-in tariffs, will create a shift from grid supply to storage and utilization of excess energy. Declining costs of residential solar installations further promise to maintain the high level of interest in this type of construction, and, hopefully, secure Japan’s solar energy future for decades to come.

(Graphs – Wikipedia)

 

(Source – Ziv Nakajima-Magen, Nippon Tradings International”, Graphs – Wikipedia)

Japan’s Tallest Skyscraper in Shibuya Major Attraction to View World’s Busiest Crosswalk

Japan Investment Properties

Japan Real Estate

01 July, 2019 –

Often referred to as the world’s busiest crosswalk, thousands of pedestrians scramble across Tokyo‘s Shibuya Crossing daily. At peak times, the hypnotic pace of the changing traffic light seems to signal the masses into a mesmerizing, yet claustrophobic, waltz. For many, the controlled chaos of Shibuya’s “Scramble” epitomizes the efficient madness of the cutting-edge city. Here, 10 lanes of traffic and five major crosswalks converge along a modern canyon of neon-colored buildings in the heart of Tokyo.

The Shibuya Crossing serves as center-stage for a Times Square-inspired New Year’s Eve countdown, and is the focal point for the wild Halloween celebrations that have grown increasingly famous in recent years. Its popularity is easily explained.

Along with Shinjuku Station, the district’s Shibuya Station bears the honor of being one of the world’s busiest train stations. Connecting to popular areas such as Shinjuku, Harajuku and Roppongi, it’s virtually impossible to bypass Shibuya on a visit to Tokyo, or even a trip across town. And you wouldn’t want to, anyway. Movie buffs will appreciate the fact that “The Fast and The Furious” famously slid through the technicolor crossing in the movie series’ third installment “Tokyo Drift.” Scarlett Johansson and Bill Murray fans may remember the “Lost in Translation” film scene featuring a sea of clear umbrellas overtaking the intersection. And in the Japanese cult-classic “Battle Royale,” the crossing stood as a futuristic cityscape in the flick.

It’s not uncommon to spot a mascot shimmying across, and there always seems to be a heat of MariCar racers zipping by. It’s both a place to see and be seen. Even during major events like Halloween, the street remains functional, with officials squeezing people onto the sidewalks with retractable ropeways. No matter how busy, traffic at this massive intersection is rarely congested. Emergency vehicles even make their way through rush hour crossings with ease.

In the lead up to the 2020 Olympics, the area has seen significant development and an ever-expanding skyline. The crossing itself undergoes near daily upgrades, with newer and more impressive video boards constantly vying for the attention of passersby. There are no fewer than five major screens with video and audio impressively synced to each crossing, displaying information such as the weather forecast, during red “no walk” signals, and often cartoons when the green “walk” signal lights up.

Hachikō the dog was an akita who would meet his owner Hidesaburō Ueno at the Shibuya Station after work every day in the 1920s. When Ueno died unexpectedly, Hachikō continued to visit the station every day for almost a decade. His loyalty has become revered in Japan where he is known as chūken Hachikō or “faithful dog Hachikō,” and the breed is especially popular in the district. Today, a near constant line of visitors waits outside the station’s exit named for him to take photos with a bronze statue of Hachikō, sometimes offering a wreath of flowers in the summer or a hand-knitted scarf during the colder months. (Hachikō was still alive and present for the statue’s initial unveiling in 1932, but that model was recycled for the war effort, and the current statue is a 1984 remake.) Even the district’s buses and vending machines are adorned with his smiling puppy face, and there’s an official Hachikō mascot who frequents the area.

One of the images most associated with Japan is a bird’s eye view of the frenetic crossing. It’s a highly sought after image but can be challenging to obtain. By far the most popular place to snap photos is shopping mall Magnet by Shibuya 109’s 7th-floor viewing platform. Standing directly over the crossing, it offers the most immediate angle. Open daily from 11 a.m. – 11 p.m., the cost of admission has varied seasonally since opening in 2018, but as of late has been free of charge. The deck is equipped with a camera that, for a small fee, can sync to a visitor’s smartphone to take selfies from above. The platform is not accessible for baby carriages or wheelchairs.

While the crossing isn’t directly visible from train platforms, a bridge in Shibuya Station over the street offers a unique side-perspective, and it’s the easiest to access. That area of the station doesn’t even require a ticket purchase. A cross-hatch design in the windows makes it a little more difficult to capture the perfect photo, but with ample space and indifferent commuters, it’s an easy place to stake a spot. The Shibuya Hikarie building, which houses offices, shops and theaters, is one of the best places to take in a wider view of the district’s full action.

A couple blocks from the main crossing, this taller viewpoint on the 11th floor gives an expansive sight of the crossing over the train station. The comings and goings of the trains add another layer of complexity to the endless rush hour below. Though not an official viewing platform, it is accessible and open to the public. The Shibuya Excel Hotel Tokyu boasts the grandest take of the crossing itself, with complete views of every corner. Officially, it is only open to guests of the hotel, but given the popularity, it has been allowed to patrons of the hotel’s 25th floor restaurants.

Soon all these will be in the shadow of the Shibuya Sky, a new 47-story skyscraper. The tallest in Shibuya, its roof deck will feature a 360-degree platform from which to survey the entire district, including an even more direct view of the crossing. When it opens in September 2019, it will surely be one of the area’s most popular attractions.

But the best place to connect to the spirit of the Shibuya Crossing is the street itself. In the span of just a few crossings an impromptu limbo line may break out, even a dance-off could go down. There’s a sense of wonderment from the glowing neon, and a connection in the energy among the people. The Scramble is a place to get lost, meet up and feel the heartbeat of Tokyo.

(Source – “CNN“, Pic – Tokyo 756 / “Tokyoform“)

Quality Affordable Homes for Rural Japan

Japanese Property Market

Japanese Property Market

25 Jun, 2019 –

More than 8 million homes lie abandoned across Japan, a symptom of the declining population and people’s migration to major cities. For one company, this isn’t just an ominous demographic signal, it is also a business opportunity.   Katitas Co. is a house-flipper, deploying a business model that would be humdrum in other countries but in Japan is considered innovative. That is because people in the country have a deep-seated aversion to second-hand homes.

Katitas buys old properties where the buildings are often considered worthless, renovates them on the cheap, and sells them to people in rural areas who don’t have the means to buy new homes. Its shares have risen more than 60 percent this year as investors bet the model will yield steadily higher profits. “There’s big potential in this business,” Katsutoshi Arai, Katitas’ president and chief executive officer, said in an interview. “People who live in rural areas but can’t afford new houses have no choice of quality, affordable housing.”

A record 8.46 million homes were unoccupied in 2018, according to a government report in April. The number, which represents 14 percent of total residences, is only set to rise, according to Katitas. “It’s clear that the number of vacant houses will surge,” Arai said. “There’s a big pool of properties that we can buy.” Houses in Japan traditionally haven’t been built to last like those in the U.S. or Europe. The country’s wooden homes have typically been depreciated to zero over about 20 years and often knocked down and rebuilt. Sales of pre-owned houses make up just 15 percent of the market, compared with about 83 percent in the U.S. and about 88 percent in the U.K., according to a land ministry report.

Katitas mainly buys single-family houses that are on average 30 years old in regional towns. It uses a standard renovation toolkit — such as putting in new floors, kitchens and toilets — and sells them for about half the price of a comparable new home, according to the company. Buyers are usually people in their 30s to 50s with annual incomes of ¥2 million to ¥5 million. “The company’s business model is really good,” said Shota Watanabe, a fund manager at stock picker Rheos Capital Works Inc. in Tokyo, which holds Katitas shares. It is likely to have “stable and steady growth.”

Katitas, which is based in Gunma Prefecture, posted operating profit of ¥9.1 billion for the fiscal year ended March, more than double the level three years earlier. Analysts expect that to increase to ¥12.4 billion by the year ending March 2021, according to estimates compiled by Bloomberg. Of 10 analysts covering the stock, nine rate it a buy while one says hold. On average, they expect shares to rise a further 14 percent over the next 12 months. The company, which has a market value of about ¥161 billion, counts Baillie Gifford & Co. and Matthews International Capital Management among its biggest shareholders, according to data compiled by Bloomberg.

Home-furnishing retailer Nitori Holdings Co. owns about 34 percent of Katitas after acquiring the stake from Advantage Partners Inc. several months before the private equity firm offloaded the rest of the company’s shares through Katitas’ December 2017 listing. Katitas has started selling second-hand houses furnished with Nitori’s sofas, tables and other items. Nitori said the company chose Katitas as a partner because the firms have similar management philosophies.

Arai joined Katitas in 2012 when it was still owned by Advantage Partners. His mission was to engineer a turnaround at the firm, which was struggling at the time. He instituted the model of buying empty homes directly from owners, rather than the previous method of purchasing houses in court auctions. The supply of housing in auctions had been drying up and becoming more expensive. “Katitas’ strength is its ability to assess properties and the risks associated with buying them, as well as its renovation expertise,” said Shinichiro Kita, a senior partner at Advantage Partners who brought Arai to Katitas. “There are thousands of potential homebuyers.”

One analyst has turned more cautious on the stock. SMBC Nikko Securities Inc. senior analyst Junichi Tazawa lowered his rating to neutral from outperform in May, saying Katitas is looking less cheap within its sector after the rally this year. Katitas has risen 61 percent in 2019 and trades at 22 times estimated earnings, versus 14 times for the Topix Real Estate Index. Arai has an unconventional background for a CEO. At the age of 28, he ran for the Tokyo Metropolitan Assembly, losing by a small margin. He then worked as a secretary for a member of the Diet before moving on to roles at management consultancy Bain & Co. and Recruit Holdings Co.

Arai says Katitas is targeting selling 10,000 houses per year sometime in the next 10 years, up from 5,352 homes last fiscal year. In the long run, he’s seeking to increase that to 50,000 homes. “We aren’t just a company that buys, remodels and resells second-hand houses,” he said. “We want to provide people with a better life.”

(Source – “The Japan Times“, Pic – Old Man Near Tulips / “Aaron Shumaker“)

Hong Kong Investors Eye Japan’s High Yield Data Centres

Japan Real Estate

Japan High Yield Investment Properties

18 Jun, 2019 –

HONG KONG — Asian real estate investors are turning to rapidly expanding data centers as alternative investments amid a region-wide property slump. Nearly half of property investors in the Asia-Pacific region are active or plan to be active in data centers this year, according to a recent real estate industry survey by U.S. think tank Urban Land Institute and PwC. They are now more bullish about their prospects than other niche property types, such as shared offices and student housing, according to the survey.

Data storage businesses around the world are expanding, fueled by the growth of cloud services, e-commerce and video streaming. The hottest market is in Asia, where Canada-based Structure Research predicts co-location revenue will surpass that of North America by 2020. “We are seeing a lot of private equity investors and investment banks paying attention to this unique asset class,” said Colin Galloway, APAC vice president at Urban Land Institute. The promising returns have overcome concerns about the technical requirements of the facilities and the huge capital spending they entail. Cash yields can range from the mid-single digits to midteens, depending on development type and geography, according to Galloway.

On the other hand, skyrocketing property prices have pushed down profits from traditional real estate. Rental yields for Hong Kong’s residential properties, for example, have hovered around 3% in recent years. “Anything that provides higher yield becomes attractive,” said Galloway. Real estate services company Colliers says that in Hong Kong, converting existing industrial buildings, which are often used as offices, storage space and wholesale stores, to data centers can lift rent average rents by more than 60%.

Asia’s real estate market is cooling when the region is already struggling with a slowdown in China and the fallout from the U.S.-China trade spat. House prices in Hong Kong have dropped from mid-2018 as Chinese demand waned, and governments in Singapore and Thailand are tightening restrictions to contain financial risks. As the market outlook darkens, data centers offer respite to battered property investors.

Real estate advisory JLL dubbed Singapore, Tokyo, Hong Kong and Sydney the “big four” markets for data center investment, thanks to their robust infrastructure, connectivity and ease of doing business. Hong Kong and Singapore are particularly attractive because they are seen as relatively safe from natural disasters and due to their status as financial hubs, which translates to more demand from the financial services and insurance sectors. Japan is dominated by local players and Australia is less connected to the rest of Asia. Singapore is likely to win a head-to-head competition with Hong Kong to be Asia’s data center hub.

Tech heavyweights like Google and Facebook have shifted their focus from Hong Kong owing to its dire land shortage and political uncertainty. Industry experts, speaking on condition of anonymity, acknowledged that Beijing’s increasing influence is a concern when it comes to storing data in the semiautonomous city. In 2013, Google called off its long-planned Hong Kong data center project, saying it needed “to focus on locations where we can build for economies of scale.” It started building in Singapore and Taiwan instead. Facebook also broke ground for its first Asian data center in Singapore last year, citing supportive government policies that offered the land almost for free.

“Singapore’s reputable rule of law, well-established tech cluster, and, most importantly, cheaper land provided by the government, have made it a more attractive location than Hong Kong for data center operators,” said Denis Ma, head of research at JLL Hong Kong. But Hong Kong is not out of the race. The city’s chronic land shortage is unlikely to be solved soon, but global co-location data center players — which provide services and facilities to third-party corporate clients — will continue to expand in the territory.

Hong Kong is still a very important strategic location for clients in East Asia,” said Steven So, executive vice president of NTT Com Asia, one of the world’s largest data center operators. In addition to easier access to the Chinese market, Hong Kong is well connected with other countries by submarine cables, which facilitates high-speed data transmission, he said. “Sometimes Singapore is just too far away, and it serves Southeast Asian countries better,” So added. NTT Com, which operates three Hong Kong data centers totaling 70,000 sq. meters, is seeking to expand by working with local developers who have land available.

But Hong Kong and Singapore’s status as regional data center hubs may be challenged in the future. Indonesia, Vietnam, China and others are tightening regulations, requiring companies to store their citizens’ data locally for security reasons. This could divert investment away from the big hubs.

 

(Source – Nikkei Asian Review, Pic – Data Center / “Kevin McGrath“)

More Japanese Short-Term Rental Properties Expected Ahead of 2020 Olympics

Japanese Investment Properties

Japan Real Estate

10 Jun, 2019 –

Airbnb Inc. says it’s back in business in Japan, a year after stricter home-sharing regulations forced it to freeze a major portion of its listings in the country. There are 50,000 listings available in the country, with another 23,000 rooms in hotels and traditional inns known as ryokan, Airbnb said in a statement on Thursday. That compares with 60,000 total in June 2018, when the new home-sharing rules went into effect.

While Airbnb is no stranger to clashes with regulators, it had tried a more cooperative approach in Japan. But the government set a deadline for hosts to register and then in June 2018 forced those that were unregistered to cancel reservations two weeks ahead of that date. Listings plunged by almost 80 percent to just 13,800, the Nikkei newspaper reported at the time. Airbnb, privately valued at $31 billion, is preparing to go public as early as the end of this year or by 2020 at latest, and argues Japan is an example of how its business model can withstand even the most restrictive regimes.

“This shows that we can grow even in those environments,” Nathan Blecharczyk, Airbnb co-founder and chief strategy officer, said in an interview in Tokyo. “It’s important to have those rules in place long term, even if they are more restrictive.” Legalization has opened doors for some of Japan’s largest corporations to enter the home-sharing market. Local collaborators already include SoftBank Group Corp., convenience store operator FamilyMart UNY Holdings Co., electronics retailer Bic Camera Inc. and airline company ANA Holdings Inc.

The company on Thursday said partnerships in the market grew to more than 117 companies, including property developer Panasonic Homes Co. and real estate brokerage HouseDo Co. While the exact details of the agreements are yet to be decided, the companies may help supply a pipeline of properties for lease or purchase that are home-sharing friendly, said Yasuyuki Tanabe, Airbnb’s country manager for Japan. “The tide has changed,” said Tanabe. “And there are particular challenges in Japan. Everybody is saying we are going to live to 100, but we won’t have enough money to live to 100. There is going to be more interest for people to start hosting for extra cash.”

Airbnb is scrambling to shore up and expand its Japanese business as the summer Olympics approach next year. Prime Minister Shinzo Abe’s government is seeking to attract 40 million arrivals in 2020, the year Tokyo hosts the games. Such events traditionally bring more hosts into the market in anticipation of a demand spike, Blecharczyk said, citing 85,000 guests served by the platform during the 2016 Olympics in Rio de Janeiro.

Japan’s home-sharing rules limited private stays to 180 nights a year, but local authorities have raised the hurdles for hosts by piling on more restrictions. The Shinjuku ward of central Tokyo, for example, prohibited lodging in residential areas on weekdays, while Kyoto limited stays in such locations to about 60 days between January and March for hosts without a special license.

In the wake of the new rules, Airbnb poured $30 million into strategic initiatives in Japan, including a marketing campaign that included TV, print and social media ads to improve the image of home-sharing in the country. It also hasn’t given up on municipalities like Shinjuku. On Thursday, the company said it has an agreement with the ward to make sure hosts operating there abide by the rules and that guests and hosts are up to date on the local disaster preparedness measures.

Outside of Japan, Airbnb is still locked in a fight over regulation in New York, its biggest domestic market where a law from 2010 made it illegal to rent an entire apartment in a multi-unit building for less than 30 days without a tenant present. Making peace in New York is not a prerequisite for going public for the San Francisco-based company, Blecharczyk said, declining to give further details on the timing.

“Every jurisdiction eventually passes policies that legitimize home-sharing, of course, with all kinds of caveats and rules,” he said. “There are no more existential questions about Airbnb.”

(Source – “Bloomberg“, Pic – Apartment Share House / “JAPANKURU“)

Growing Number of Japan’s Old Hotels Converted to “Onsen” Inns

For Japan’s growing flood of foreign tourists, one of the top internet search terms is “onsen,” the traditional hot springs where travelers have soaked since the days of the samurai. Now some of the world’s oldest businesses are attracting big new money.

Private equity funds like SoftBank-owned Fortress Investment Group LLC and Hong Kong-based Odyssey Capital Group are spending billions to tap into the appeal of traditional inns amid a tourism boom that’s ramping up ahead of next year’s Tokyo Olympics. The big funds are moving in as centuries-old spas, many of them still family-run, struggle to find successors in an aging country where small towns and villages are losing young people.

 Odyssey, along with two other investors, last year purchased its first Japanese onsen, an inn with 28 tatami-floored guest rooms near the Sea of Japan called Kagetsu, or “flowering moon.” Christopher Aiello, managing director of Odysey’s Japan real estate business, says the firm plans to spend $500 million in the next three years buying about 20 more traditional Japanese hotels, which are known as ryokan. “The Japanese hospitality sector has tremendous opportunities for investment,” Aiello said in an interview. “Many of these ryokan are very undervalued after experiencing so much recession and mismanagement, but a lot of them are located in beautiful natural settings.”

At Kagetsu, the founder’s granddaughter, Tomoko Tomii, greets her guests at the inn’s stone-paved entrance, dressed in a delicate pale-pink garment like a kimono. The 40-year-old says the family decided to sell to the Odyssey group last year because debts had piled up and they needed money to update rooms and design an English-language website. “We had no choice but to look for a sponsor,” she said. “We appreciate that our buyer is stabilizing the business, but not kicking us out.” Odyssey and its partners sent two professional managers to help streamline operations, but agreed to let Tomii and the family’s 30 employees stay on after the sale. That was important because concern for the welfare of employees deters many small business owners from selling, even when they’ve fallen into desperate straights. Japanese proprietors, in particular, have a reputation for being “allergic” to selling.

Japanese hot springs have become hot investment targets for other big businesses, too. Yokohama-based Breezbay Hotel Co. is looking to acquire 100 lodges and onsen inns over five years, according to its chief executive officer, Noritada Tsuda. Bain Capital LP has been buying onsen since 2015, when it purchased a chain of 29 Japanese spas and resorts, including one on an artificial island in Tokyo Bay. Last month, the Boston-based private equity firm opened a new ocean-view property in the rural prefecture of Mie, bringing the number of its Japanese hospitality assets to 36, with plans for more. Fortress, the New York-based fund purchased in 2017 for $3.3 billion by Masayoshi Son’s SoftBank Group Corp., is also in the game. In February, the firm opened a downtown Osaka spa the size of two city blocks where day trippers can soak in tubs on the edge of a traditional Japanese garden, with a hotel-and-mall complex next door and a 51-story tower rising above.

It’s a novel experiment that transplants the onsen experience into the heart of one of Japan’s grittiest neon metropolises.Thomas Pulley, chief investment officer for global real estate at Fortress, is a self-described Japanophile who says he traveled to the country five times during the construction of the resort to handpick its cherry trees and the earthenware baths used in its private, open-air rooms. The tubs cost about $20,000 each. For a modern touch, the spa also has a comic-book lounge where bathers can peruse a library of 15,000 manga.“Onsen is truly unique in Japan,” said Pulley, who ran Credit Suisse Group AG’s private equity business in Tokyo during the 2000s. “There’s hopefully great demand for this type of urban onsen resort.”Fortress already owns more than 90 Japanese spas and hotels, but plans to spend the equivalent of  $3.6 billion on more. Pulley said SoftBank’s backing has given Fortress extra credibility and opened doors to more deals in Japan.

Both Bain and Fortress are raising cash by selling their properties to publicly-traded real estate investment trusts they sponsor. Shares in Bain’s REIT have risen about 10% this year, while Fortress’ Invincible Investment Corp. has gained more than 20%. The benchmark Nikkei 225 Stock Average is up less than 6%. Japan has almost 13,000 traditional onsen inns, where bathers go unclothed in big communal baths heated by geothermal energy that’s bubbled up to the surface.

Many of these old hotels are at the end of remote mountain roads or in small seaside towns and, after decades of economic recession, financial distress is common. The most venerable of them, an inn that has run continuously since it was opened in 704, filed for bankruptcy this year. More than half are at risk of simply closing down because they lack someone to take over from their aging owners, according to a 2017 report published by the trade ministry. Solving the succession problem is why Tokyo-based human resources firm BizReach Inc. in March launched an online match-making platform to try to pair owners of traditional ryokan with potential buyers.” Owners are still a little resistant to selling,” said CEO Soichiro Minami. ”But we think people will gradually open up.”For the Tomii family, the decision to sell to the Odyssey group came after the realization that the actual work of running the hotel — pampering guests and preparing elaborate meals — was leaving no time for figuring out how to make money at the business.“We were too busy with the day-to-day,” Tomii said, “to even think about the future.”

(Source – “Bloomberg“, Video – Onsen Etiquette 101 / “Bloomberg“)

You Asked Us — Value and Yield, Ideal Properties, Hassle-Free Purchase and Management

22 May, 2019 –

Japan Investment PropertiesJapan is the world’s second biggest property investment market, very attractive to both foreign and local buyers with high yield properties available in abundance, and attractive properties sold almost as quickly as they are listed. When it comes to investing from abroad we know you have lots of questions about this market. We are always happy to talk shop. Thank you for sharing your questions.

 

Where is the value in Japanese properties?

What makes the Japanese property market unique is its high yield cash flow market, as opposed to the more speculative ‘invest for growth’ model more common to real estate. That being said, our customers still want to know, “Is it all about cash flow or is there value in Japanese properties?”

Officially, and as far as tax depreciation tables are concerned, Japanese structure value depreciates each year (with a tax depreciation term of 25 years for wooden or steel framed structures, and 47 years for reinforced concrete buildings). Where there may be value is in the land. Properties do tend to hold their land value as long as the economy does well, and provided the area still attracts quality tenants. In many cases this may even increase its value overall, albeit, the land portion is very small. In terms of appreciation, land has been gaining value in all central metro areas as of 2016, to various degrees, and this trend will most likely continue at least until the 2020 Tokyo Olympics.

 

How can I obtain both yield and value in this market?

The main reason investment properties depreciate is because of macro-economics related to rental income potential. When salaries and rents drop or remain stagnant, so does a property’s yield – which then makes the market value drop as well. However, because high-yielding Japanese investment properties tend to be smaller/older condo units in which owner-occupiers are rare, they’re priced solely on their rental income potential. And, in case of owner-occupied property profiles, which are bigger, fancier properties, market value drops mainly due to de-population of a particular area, or a more general overall economic downturn such as the 25 years of deflation up until 2012.

Therefore, if it is both yield and value you are looking for, the best option would be attractive locations,  avoiding overheated areas such as central Tokyo, Osaka and Niseko because of severely compressed rental yields due to price hikes. Instead, we advise to focus on market fundamentals such as population, industries and average rent and aim for the highest possible rental income yield in the most stable environment possible.

Although most of our clients are buy-and-hold investors for the long-term, we have assisted in selling about a dozen properties out of approximately 200 under management, and in all cases but two, clients sold at a profit, taking into account all purchase and sale costs, and rental income accrued between purchase and sale. As in all property investment scenarios, sales tend to generate higher profits when timed correctly, and when sellers aren’t in a rush.

 

How do I find the right property for me?

Our clients come from a variety of investment backgrounds all over the world with experience from novice to large portfolios. We tailor your criteria to find the right property for you. For example, we have been asked for highest yielding properties based on location, in this case, Kumamoto, an area which has been performing well, with good and solid price growth, and future growth potential. In Kumamoto, the local government support network for welfare recipients is more robust, and includes direct payments of rents to landlords, better subsidized employment and community volunteer opportunities for those who can afford it, as well as rehabilitation and housing services. Our listings showed a property for USD $14,000 at 8.26% yield net pre-tax with rental income of approx. USD $113/month.

We also have facilitated requests based on net income, in this case specifically, USD$350/month or more anywhere in Japan. You tell us what your criteria is (location, budget, age, size, type of property, such as residential, commercial, hospitality, logistics/warehouses, etc.) and we will find the investment property with the highest yield to suit you.

Our calculations are based on net pre-tax meaning after all known costs, but before taxes as individual income/corporate/property taxes can vary depending on personal circumstances. The yield does not include unknowns such as vacancies, maintenance/repairs or capital appreciation/depreciation. It does include known costs such as realtor fee, our fees, property management, purchase tax, insurance, and monthly building fees in case of individual units in co-owned blocks. We provide you with a deal analyzer spreadsheet for you to see the breakdown of numbers.

 

Will my overseas investment be hassle-free?

When investing in a property from abroad, the last thing you want to do is lose sleep over it. The idea of troublesome tenants and property repairs may sound like a nightmare. In truth, Japan is a landlord’s paradise with stable, reliable tenants who are docile by nature. Japanese hold their reputation high. Therefore, late payments are rare. Maintenance and repair tends to be of wear and tear rather than accidental or intentional damages. All of the properties we facilitate are occupied for immediate rental income, unless specifically requested otherwise. We keep you informed and manage the property on your behalf including collecting rent, paying bills, communicating with the building manager, insurance companies, tax authorities, etc, and transfer income to you when rates are profitable.

 

If I’m traveling to Japan, can I buy my own properties?

You can, but if you don’t speak Japanese you could face challenges. Real estate agents are foreigner shy and may not agree to meet. You could Google agents in the area you are interested in who do speak English, but the options will be few. Our team speaks English and Japanese and therefore, we could make inquiries with a wider area of local agents on your behalf and accompany you for far more productive meetings. So, go ahead — relax in the hot springs, savor the infamous foods of Osaka, hit the fluffiest ski slopes in Hokkaido or Nagano, and let us take care of your property business on your behalf.

 

Thanks for your interest in our services. Our Mailing List continues to grow for the popular featured property listings and business /property news from Japan and the region. If you would like to join and receive our free Ebook series, please contact us at info@nippontradings.com.

We are always excited to have motivated agents from around the world join our Agent Referral Program. If you have a strong presence on social media or active in marketing and interested in being part of our team, for more information contact us at info@nippontradings.com.

(Source – Priti Donnelly, Nippon Tradings International”)

 

 

 

 

Osaka Top Investment Pick for Steady Income-Producing Assets

Japan Real Estate

Japan Investment Properties

13 May, 2019 –

Prime rents within Tokyo’s 23 CBDs pushed to $71.57 per 1,420 sqft per month, a cyclical high for stock of this nature. Optimism continued across Japan’s commercial real estate market in Q1 despite the continued threat of a consumption tax increase in October, with strong corporate balance sheets providing the flexibility to invest, according to a report by Colliers International.

Japan’s property market remained strong in Q1, suggesting more upside in asset prices, and Colliers International said it expects historically tight market conditions to continue for occupiers, developers and investors despite some uptick in Tokyo’s net supply towards 2020. “Although economic prospects for all regional cities, including Osaka and Nagoya, are not as robust as those in Tokyo, investors seeking steady income-producing assets ought to find more attractive opportunities in local cities where more underutilised assets exist, notably Osaka,” the firm noted in its report.

Market sentiment remained cautiously optimistic as Japan continued to attract investors with more infrastructure development ahead of the 2020 Tokyo Olympics. That said, transactional volumes remained down for Q1 2019 as stock remains limited. However, Colliers International noted that Japan’s investment market is still favorable to overseas and domestic buyers alike, with the logistics market remaining an ‘interesting sector’ as yields continued to track towards 4%. Prime rents within Tokyo’s 23 Central Business Districts (CBDs) were observed to push to $71.57 (JPY8,000) per 1,420 sqft (tsubo) per month, a cyclical high for stock of this nature.

The report highlighted notable deals inked during the quarter, such as Japan Retail Fund’s (JRF) divestment of Osaka Shinsaibashi Building in Osaka for $136.9m (JPY14.9b) at a capitalisation rate of 3.5% to a domestic special purpose company (SPC). Likewise, Nippon Building Fund reportedly sold G-BASE Tamachi in Tokyo to contracting firm Shimizu for $259.1m (JPY28.9b) at a capitalisation rate of 3.4%.

According to Colliers International, office space in Osaka remains as the top investment pick, although Tokyo has better fundamentals to support rental growth beyond the cyclical horizon. A lower-than-expected vacancy rate in markets is expected to keep net investment yields above an attractive 3.5%, even with more money chasing steady yields in real estate.

“Regionally, rents continue a modest upward trajectory as limited supply is met with strong demand for good quality stock. The logistics market continues to show strong investment returns and sets a positive tone for Q2 2019,” Colliers International said.

(Source – “The Investor“, Pic – Osaka Cityscape Japan / “fwallpapers“)