Japan’s Elderly Population Highest in the World

Japan Investment Properties

Japanese Real Estate

18 Sep, 2019 –

TOKYO (Jiji Press) — The estimated number of people aged 65 or older in Japan stood at 35.88 million as of Sunday, accounting for 28.4 percent of the nation’s total population, with both figures hitting record highs, an internal affairs ministry survey showed the same day. 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.

The survey results, released ahead of Respect for the Aged Day on Monday, a national holiday, indicate Japan’s urgent tasks of tackling challenges such as social security system reform and labor shortages in rapidly aging society. 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 30.0 percent of the total population in 2025 and 35.3 percent 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.

In 2018, people aged 65 or older who were in the workforce increased 550,000 to a record 8.62 million, rising for the 15th straight year. Of the total, men totaled 5.12 million and women 3.50 million. Elderly people accounted for 12.9 percent of the total workforce, hitting a record high. Of total workers aged 65 or older, those in the wholesale and retail industries made up the largest group, of 1.27 million, followed by 1.07 million people working in the agriculture and forestry sectors and 940,000 people involved in manufacturing.

Of 4.69 million elderly workers, excluding corporate executives and self-employed people, 3.58 million, or 76.3 percent, had nonregular jobs, up 2.04 million from a decade ago. The largest group of such workers said they chose the work style because they wanted to work at times convenient for them.

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

Brexit Impact on the Japanese Real Estate Market

08 Sep, 2019 –

If the Brexit referendum of 2016 is any indication, Japan and the Asian market could once again be top performers over fears that UK domestic stocks could be hit by a messy exit from the EU. Call it Brexit nervousness or fears over slowing growth in European equities, but take a look. Almost half of the top 10 best-performing funds were focused on the Asian markets. According to the Financial Times, the Top 10 best performing fund sectors in the UK were –

Although there are concerns of overheating in the Japanese real estate market particularly with prime office space in Tokyo where the price per sqm has been the highest since before the 2008 financial crisis, it’s not stopping major British and American funds as well as overseas investment firms from diving in to the Japanese property market. UK asset manager Aberdeen Standard Investments has set its sights on housing for seniors, acquiring existing properties to develop housing for seniors and the elderly, a sector expected to see continued stable returns as Japan’s population ages. Similarly, US private equity firm, KKR plans to combine real estate investments with private equity. ASI an asset manager with focus on Europe has been cleared to set up a real estate fund in Japan working with Orion Partners, a Hong Kong based firm and expecting to manage a portfolio of up to 100 billion yen. As well, one of the world’s largest sovereign wealth funds Norway’s Government Pension Fund Global purchased five Tokyo commercial properties in late 2017. And, in July 2019 Blackstone acquired 100 billion yen of logistics facilities.

Meanwhile, as the number of foreign tourists continues to surge, so does the construction boom for hotels. According to the Singapore Times, the number of foreigners visiting Japan increased by 8.7 percent in 2018 from the previous year of approximately 31.19 million people. In Tokyo and Osaka Prefecture, the average hotel occupancy rate continues to remain high at around 80 per cent.

For Japan, the property boom is not likely to end anytime soon. The fact that there are very few restrictions on foreigners buying property in Japan, volatility around the world or disappointing returns on domestic investments is expected to spike this thriving property market.

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

Migration and Diversity, Japan of the Future

Japan Investment Properties

Japan Real Estate

02 Sep, 2019 –

For a sense of what the United States might look like in a reality where the hard right’s dreams of drastically reduced immigration come true, you could come to Japan and ask my father-in-law about the house across the street. The owner of the house died some time ago in this low-key, working-class suburb of Kitakyushu, in Japan’s southern island. The house has fallen badly into disrepair. None of the heirs seems interested in it: The taxes are too high, and there isn’t really a market for this kind of house anyway.

It’s far from a unique story. Japan’s population is shrinking, with far-reaching consequences that seep into every corner of life here. “Akiya” — abandoned houses like the one blighting my in-laws’ street — are just one sign of it. As the country ages and older people die with no one to replace them, neighborhoods across Japan are also slowly dying. As many as 8 million houses in Japan are vacant, and the trend is only deepening. Rural villages are disappearing, and more and more Japanese towns and suburbs have become “dying communities” where children are a rare sight; authorities barely manage to find the care workers needed to look after legions of retirees.

Of course, Japan is hardly alone in having an aging population where native-born people’s death rates increasingly outnumber their births. But in just about every other developed country, the houses freed up by the elderly are snapped up by new arrivals — young workers from developing countries in the prime of their lives, eager for a better future for their families. Not in Japan. A solid political consensus has rejected mass immigration here for as long as anyone can remember, leaving this one of the most homogeneous countries on earth. You can think of Japan as a kind of Trumpian paradise: an ethnically defined national community with few foreigners. And no future.

Recently, sales of adult diapers outnumbered sales of baby diapers here for the first time, another harbinger of the demographic collapse that has left the country a pale shadow of the economic powerhouse that made Americans paranoid a generation ago. A chronic dearth of new workers has left economic growth lagging for a generation, turning “japanification” into economic shorthand for decline. All that — plus the ossified 1950s gender roles that simply never went away here — has turned Japan into one of the least attractive places for women to have children. Low birth rates only compound the demographic death spiral.

The problem has recently become bad enough to force even the conservative administration of Prime Minister Shinzo Abe to rethink its stance on migration. Under strong pressure from the business lobby, which has been desperate for extra workers for years, the government is opening up new routes into the country for foreign workers — but the political schizophrenia around migration is only too evident even in this partial new opening. The government has begun making more work permits available to foreign workers, but makes little effort to help them integrate. Visa rules force most foreign workers to apply for extensions frequently and prevent them from bringing their families. By all accounts, discrimination in housing is rife, as well as perfectly legal. The foreign workers who do come can’t fail to hear the message: Come, work, but don’t think you’re welcome to stay.

Economic imperatives and cultural consensus are at war in Japan’s immigration debate: It’s no longer possible for the country to continue to pretend it can get by without migrants. But it’s politically impossible to truly welcome them, either. The result is that more and more jobs simply stay vacant, not just in industry and agriculture but also in the kinds of elder-care jobs this aging country most desperately needs to fill. All the while, invasive bamboo shoots dig deeper into the grounds of the abandoned house across the street from my in-laws’. A huge glut of these kinds of homes and next-to-no demand have driven the market prices for homes like this one all the way down to zero in many cases, setting off a raft of click-baity “Japan Is Giving Away Abandoned Houses for Free” stories in global media.

It’s a half-truth, at best: Many of the houses require thousands of dollars in repairs and maintenance to be habitable, and property taxes have to be paid all the same. But even the half that’s true is misleading: This isn’t a fun, quirky story about “weird” Japan. It’s a bright red warning sign of demographic meltdown, and an indictment of a society that has chosen homogeneity over progress. In the end, President Trump isn’t wrong: America does have a choice. Japan proves that the choice between homogeneity and diversity is real. It’s just that homogeneity leads to decline, while diversity offers at least a chance of ongoing vitality and prosperity.

Which would you prefer?

(Source – “The Washington Post“, Pic – Seniors in Japan / “Hiro Kokoro Photo“)

Interview with Japanese Asset Manager

27 Aug, 2019 –

Japan Investment Properties

Japan Property Market

Below is the transcript of an interview we conducted on our PodCast (iPhone/iPad users click here) with Mr Akira Katsuno of “La Nation” – a Japanese residential/commercial and parking lot asset manager,

(To listen to the original episode click here)

(Transcript follows) –

Z: “With us today is Akira Katsuno, senior managing director of “La Nation co”, a building and asset management firm in Fukuoka city, Japan, where our offices are also located.

Akira, aside from being a very nice, and quite funny guy, and also being fluent in both English and French – which is quite rare for Japanese professionals – is also very knowledgeable in all things to do with servicing apartment and commercial buildings, both large and small. For those of you who have already bought, or are looking at buying, entire buildings here in Japan, this should be quite an interesting listen, so stay tuned.

Akira san, thank you for joining us today, we’re happy to have you with us.”

A: “Thank you, I’m glad to be here”

Z: “So first, could you maybe explain to us, what exactly is a building management company, what does your company actually do? “

A: Management of a building is any work which is supposed to improve the asset value of a building – while also managing the facilities and environmental hygiene of the building. If the total floor space of the building is 3,000 square meters or more, it is called “a specific building”, and if it’s less than that it’s called “smaller buildings”.

For specific buildings, the larger ones, the law stipulates that it is necessary for one representative to register as a building environmental sanitation management technician. That person has the authority to provide their recommendations to the building’s owners and tenants, and they are obliged by law to act on these recommendations.

So, in reality, these representatives carry out the duties of de facto supervisors for specific buildings. Their main tasks are to have broad knowledge of the building’s structure, facilities, indoor environment and hygiene, such as lighting and noise environment, water supply and drainage, cleaning, pest and rodent control, waste, etc – these are all required duties.

The larger the building, the more people will be responsible for the above work under the direction of the Building Management Engineer. Also, as the age of the building goes up, the renovation work of course increases too, so there has to be a detailed plan such as to when construction will be renewed and at what timing.”

Z: “I see. Now, you mention that as the building gets older, more work is required – and I know there are some government and tax depreciation guidelines as to just how old a building should get – but in reality, there are actually much older buildings still around, and still being used and renovated, right?”

A: Yes, that’s right. Officially, the useful life of a building is summarized as follows –

Wooden and synthetic resin structures have an official live span of 24 years – for timber and mortar constructions it’s 22 years – steel Reinforced Concrete or Reinforced Concrete is 50 Years – Brick, masonry, block building 41 years – and Metal construction is 38 years.

Of course, these life spans are just general recommendations from the government – in reality, there are many buildings that are much older than this recommendation – especially bigger buildings, with many units and tenants, can be regularly renovated and maintained without a problem, so that their life span becomes longer.”

Z: “Yes, that’s been our experience as well – we have several clients who own units in reinforced concrete buildings, especially those that have more than 100 or 150 units, and are well over 40 years old – but they are very well maintained and renovated, and it seems like they can definitely continue to be liveable much longer than that, which is really the case in other countries as well, isn’t it?

Now, another question for you – from a building management perspective – what are the differences between a building which has just one owner, or owned by a few single individuals – and a co-owned building, where each unit is owned by different owner? How is your job different in both cases? “

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A: “Well, firstly, it’s important to understand that the management company and the management association are two separate entities. The management company is a company that manages buildings. A management association, or union, is generally an aggregate of room owners – it’s an organization that consults and decides on matters that need to be addressed within buildings.

If there are individual unit owners, they will usually join the building management association, and negotiate any resolutions related to the building – with regard to their positions within the union. There are two kinds of resolutions: ordinary resolutions and special resolutions. An ordinary resolution is one that requires a simple majority of votes – 51%. The special resolutions require that the total number of votes be more than three quarters of the members, and in some cases more than 80% of the total members. Those that require more voting rights are more important resolutions – for example, if the management association wants to consider selling the building to a development company.

Also, it’s important to note that if there are two owners for one unit, only one of them will be the representative owner and have voting rights. So, each unit only has one voting right.”

Z: “Gotcha. And, in case of a single owner, how much money should they keep for maintenance and renovations each year, to be safe? “

A: “For average buildings, with a total floor area of around 3,300 square meters, somewhere between 250 yen to 300 yen per square meter, per year. For high-class office buildings, over 9900 square meters, about 360 yen to 600 yen per square meter. For smaller buildings, say around 1,700 square meters, about 150 yen per square meter is the typical market price. These costs also depend on the structure of the building, the equipment and facilities, its age, frequency of cleaning and inspections, whether or not the manager is onsite daily, and the average response time.”

Z: “Ok, now, you’ve mentioned a case of an 80% vote to sell a building – if that building IS co-owned – what happens when it becomes too old and isn’t worth renovating anymore? Do you recommend to sell it? Do you help to find a buyer? How much does it cost to demolish a building and dispose of the remains?”

A: “Well, if some owners vote that a renovation is required, and others say it isn’t, there is often a case of dispute. In these cases, you may want to try and sell the parts owned by owners who don’t want to renovate. Rather than looking for other purchasers, it is more likely that the management association will continue discussions with those who want to renovate and find buyers for owners who want to sell. Basically, when there are multiple owners of buildings or land, negotiations become necessary for most big decisions.

As for demolishing and removal, steel-frame reinforced concrete buildings normally cost about 15,000 yen per square meter.”

Z: “That’s great, thank you, very helpful information. Now, let’s talk a bit about your other specialty – setting up and managing parking lot businesses. Japanese cities are notoriously short on parking spaces, and there are many investors who are buying and profiting from parking lot businesses – now, we’re not talking about a simple land plot used to rent out space on a monthly basis to people in the neighbourhood, which is pretty straight-forward – our clients and listeners are usually more interested in central city hourly parking lots, where profit can be much higher. What would it cost to setup one of these operations?”

A: “Well, depending on the size of the lot – generally speaking, each car space requires 12.5 meters of space – so something like 100 square meters of land can be used for maximum 8 spots. In these cases, a car lock flap mechanism is installed in each space, and an electronic payment machine is installed somewhere on the grounds, so that owners can punch in their lot number, pay the parking fee, and release the car. These cost somewhere between 1,400 to 2,300 US dollars per spot – the more spots there are, the cheaper the total becomes.

If you’ve got a larger space, or a small building with 2-3 parking floors, it becomes cheaper to install a boom gate mechanism, and card issuing payment machine – this kind of setup costs somewhere between 1-3 million yen – so anywhere from 9,000 to 27,000 US dollars, depending on the layout and number of spots.”

Z: “And how much could an investor potentially make on these types of operations?”

A: “Well, it really depends on location – very central areas usually enjoy about 50% occupancy at all times on average, and can charge as much as 200-300 yen per half hour of parking on average – so even a small car park can generate as much as 1 mil JPY per month – about 8,000 US dollars. If it’s a bigger lot, or has a multi-story building with more spots on it, it can go significantly higher. But, of course, large land plots in central city locations cost a lot more to buy, too.”

Z: “So, is it worth building a 2 or 3 floor car parking facility? How much does that construction cost? “

A: “Again, it depends on the location and how much you can generate without construction. You should evaluate the price of the land and the construction separately. If you’re bought very expensive land, say, near a major train station in a major city, just 2-3 floors would not generate enough profit.

Construction cost, anyway, is about 65,000 yen per square meter, so almost 600 US dollars per meter.”

Z: “And what kind of service does your company, or the parking management company provide?”

A: “Parking management will help organise construction, do the cash collection and deposits to the owners, and also provide machine and customer troubleshooting, and of course cleaning work.”

Z: “Excellent – and your company can help with all of that as well?”

A: “Yes, that’s right, we’re happy to help.”

Z: “Super, very good stuff, Akira san, thank you very much for your time today!”

A: “Anytime, it’s been a pleasure”.

Are you interested in Japan’s real-estate property investment market? Maybe you have been watching developments in this arena for some time, but aren’t sure how to make your first move? Perhaps you’re concerned about language and cultural barriers? We here at Nippon Tradings International are always happy to talk shop, and will gladly answer all questions, free of any charge or commitment. We can also provide you with affordable, accessible one-stop-shop services for all your Japan real-estate property investment needs. Contact us today to learn more!

 

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

How Much??? – Japan Real Estate Property Investment Taxes

13 Aug, 2019 –

Japan Real Estate

Japan Investment Properties

The following is a brief and general outline of taxes applicable to property investors in Japan.

Please Note – this information is for general reference only. The author is NOT a professional accounting services provider, and cannot assume responsibility for your particular taxation circumstances. It is highly advisable to hire the services of a Japanese accountant, to educate yourself more thoroughly and accurately, and to assist in submitting your tax statements, claim any expense deductions, and maximise your profits.

Income Tax

Income tax thresholds in Japan are the same for individual residents and non-residents alike. Non-residents, or residents who have lived in Japan for a period of less than five years, are not required to report their income in other countries to Japanese tax authorities.

The Japanese financial year end on 31 December, and tax statements and payments are to be concluded by 31 March the next year.

It’s important to note the following –

a) Many countries, and definitely most developed 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. Depending on your personal financial circumstances and whether any claims/deductions are applicable in your case, however, you may have to pay the difference in taxation levels.

For example, if you are taxed at 5% in Japan, and 6.3% in your country of residence, your local tax department will require you to report your income locally as well, and then pay the remaining 1.3%. Consult with your local accountant to find out which taxation scenario applies for your particular circumstances.

b) Once you reach the minimum reporting threshold (below), it his highly advisable to source the services of a Japanese accountant, in order to file tax return statements, claim expense deductions & depreciations, etc. Bear in mind, however, that in Japan, property purchase costs can generally be claimed in full, and also carried forward for several years, so if you’ve purchased a small multi-family apartment building, or individual apartments, for instance – you would normally not be required to pay any income tax for the first few years at least – as long as that portfolio is your only source of income in Japan.

The property purchase does need to be declared to the tax office and the deductions claiming process kicked off within the first year after the purchase, however, so if you believe you may be purchasing more properties over the course of the next few years, it is, again, highly advisable to consult with an accountant from the very first purchase, or even prior to that, in order to implement the most tax-efficient strategy well in advance of any income tax payment due.

c) Whenever you reach a higher income tax threshold, the new level is only applicable to income exceeding that of the previous level- meaning, for example, that once your income exceeds 380,000 JPY, you will only be paying 5% on EVERY JPY beyond that sum, and not on the entire amount. Here are the thresholds currently in place –

* Under 380,000 JPY per-annum – 0% (non-taxable income)

* 380,001 – 1.95 Million JPY – 5%

* 1,950,001 – 3.3 Million JPY – 10% + 97,500 JPY

* 3,300,001 – 6.95 Million JPY – 20% + 232,500 JPY

* 6,950,001 – 9 Million JPY – 23% + 962,500 JPY

* 9,000,001 – 18 Million JPY – 33% + 1,434,000 JPY

* Over 18,000,000 JPY – 40% + 4,404,000 JPY

Property (Fixed Assets) Tax

Property tax in Japan is approximately 1.4% of the official taxable estimated value of the property per-annum, with slight variations possible due to the age of the property, its designated purpose, location and size.

Properties under 200 sqm in size enjoy a large discount in property tax payable – which brings the tax down to 0.75-1.25% of the purchase price per-annum, on average.

Unfortunately, the exact property tax cannot be calculated in advance, as it varies based on the factors mentioned above, and also based on market conditions, which in turn affect value estimates, official and otherwise – the last evaluation and property tax paid on any particular property is normally made available to buyers close to settlement day, as the property’s complete information package is provided by the seller.

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Purchase Tax

Property purchase tax is, again, based on the official evaluation of the property – but generally averages approximately 2.6% of the property purchase price as a one-time payment. Purchase tax statements are received and paid anywhere from 6-24 months post-settlement.

Capital Gains Tax

(Please note: capital gains tax is calculated based on the NET income on the difference between the property’s purchase and sale prices – purchase and sale costs can and should be deducted from the gross difference between these prices)

For residents of Japan (those working and living in Japan):

  • If held less than 5 years: 30% income tax + 9% municipal tax + 2.1% Tohoku reconstruction tax
  • If held for more than 5 years: 15% income tax + 5% municipal tax + 2.1% Tohoku reconstruction tax

For non-residents (those living overseas):

  • If held less than 5 years: 30% income tax + 2.1% Tohoku reconstruction tax
  • If held for more than 5 years: 15% income tax + 2.1% Tohoku reconstruction tax

Consumption Tax

Consumption tax, or goods and services tax (GST)/value added tax (VAT), as it is known in other countries, while not directly related to property investments, is included in all quotes and invoices received from Japanese shops, companies, or service providers. The tax has gone up from 5% to current 8% on 1 April, 2014, and is scheduled to rise again, to 10%, by the end of 2019. Any quote or invoice issued by a business (as opposed to a private individual) for goods or services rendered in Japan includes this tax, even if it is not mentioned specifically.

Other Japanese taxes, which are mostly corporate or prefectural/municipal in nature, do not apply to individuals who are non-residents of Japan. For detailed tax information, advantages, disadvantage, and specific planning regarding Japanese or foreign corporate entities, please consult with a Japanese accountant.

Gift/Inheritance Tax

Inheritance tax in Japan is calculated per person, and is levied based on all assets the ancestor had at the time of bequeathing. For foreign residents, only Japanese assets are taxable. The tax is based on the value of the assets, and not on the income derived from them.

Inheritance tax rates vary between 15-55%, depending on taxable amount.

(Inheritance tax in Japan – video)

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

Should I Incorporate in Japan for Investing in Real Estate

30 July, 2019 –

Japan Properties

Japan Real Estate

Should you register your Japanese investment property under your own name, or under a corporate structure? What are the advantages or disadvantages of both options? How about tax implications? Accessibility to financing?

Below is the transcript of an interview we conducted on our PodCast (iPhone/iPad users click here) with Mr Sadaysu Ito of “Sadywell Accounting” – a corporate accounting firm from Tokyo, Japan, who answers all of these questions, and more.

(To listen to the original episode click here)

(Transcript follows) –

Z: “Sadaysu sama, thank you very much for taking the time to join us today, we know you’re very busy, so we’re going to dive right in. We’ve touched briefly upon taxes in a previous episode, and we know that here in Japan, real estate property investment income tax is charged as part of the normal income tax payable by individuals, which is quite low in comparison with other developed countries. Also, we know that there are no special taxes that apply to non-residents who purchase investment properties here.

Actually, and I think you’re going to talk about this in a moment, non-resident investors are exempt from some local taxes, such as inhabitant tax, municipal taxes, etc – so, generally speaking, it looks as if it’s always beneficial for people to be buying their investment properties as individuals, and not through a corporate entity.

Is this always the case, or are there other advantages in purchasing as an incorporated entity? Could you maybe give us a short explanation about the differences in taxation, and when it becomes more beneficial to switch from individual ownership to corporate, if that’s ever the case at all?”

S: “That’s correct, in Japan, tax rates for individuals on real estate investment income isn’t really high. The biggest difference between an individual and a corporation is that, for individuals, we adapt a progressive taxation system – the lowest tax rate is just 5%, and the highest is 40%. For corporations, on the other hand, the basic tax rate is fixed at 34%. If your taxable income is less than around 70,000 USD annually, for example, your effective tax rate as an individual will be around 23% – but corporate tax rate will be fixed at 34%.

However, if your revenue from real estate and other income increases, eventually the individual tax rate will exceed the corporate tax rate. If taxable income exceeds 350,000 USD annually, the corporate tax rate will be lower than the individual tax rate.

Another advantage of investing under a Japanese incorporated company is that Japanese incorporated companies can carry losses forward up to 9 years, whereas individuals can only carry them forward for 3 years. In reality, when you start investing, it’s difficult to turn a profit in the first year, because there are many costs, and it may take time to tenant the property. In these cases, you will have a loss during the first years. If you’re an incorporate entity, you will be able to carry those losses forward for 9 years, and offset them against your future income, to reduce your tax obligations. This is one of the biggest advantages for corporations.”

 

Z: “I see. Are there any other advantages? Any other expenses that one can claim?”

S: “Yes, as far as expenses go, and compared with individuals, an incorporated entity can have more expenses recognized. For instance, an individual owning investment property can’t pay themselves a salary. You could pay your spouse a salary if they’re doing work related to the investment operations, but that’s limited only to your spouse. Corporations, on the other hand, can issue a salary to you as well, as directors, and also to other family members and relatives who are supporting the company – those salaries are then regarded as company expenses, and so forth – so there are more recognizable expenses for companies, compared with individual owners of investment real-estate, which is another advantage.”

Z: “Ok, so it’s really a matter of how high your income or projected income is going to be, and how much tax you’re going to be paying on it as an individual, as opposed to a company – and also whether you’ve got any unusual expenses that you’re going to be able to claim as deductions – is that right?”

S: “Yes, that’s correct. The most important point to consider is the scale of your profits.”

Z: “Right. And, obviously, everyone’s circumstances are different, so it’s always best to consult either with Sadaysu san himself, or any other professional and certified accountant here in Japan, as well as in the investor’s country of residence – because there are some issues regarding double taxation, tax treaties, which will depend on whatever your income level is in your country of residence. So, these will all help you determine the best course of action in your particular case.

Now, Sada san, aside from everything else that you’ve just explained, are there any other advantages for property investors in setting up a local Japanese company, or, in case of non-residents, maybe a branch of subsidiary of a foreign corporation? What are the main differences between all of these possible structures?”

S: “Well, investing as a foreign individual gives you some advantages, because you don’t need to pay the local inhabitant tax, which you’re exempt from if your residency isn’t in Japan. And the local inhabitant tax rate for individuals is quite high – 10% of your taxable income. We’ve just mentioned that the minimum income tax rate for individuals is 5% – but if you’re living in Japan, you have to pay an additional 10% in inhabitant tax. Which effectively turns the lowest tax rate for individuals to 15%, and the highest is actually 55% – which I think is quite high…”

Z: “Very high, yes!”

S: “If you establish a corporation, as well, that company is then regarded as a Japanese resident, which means that if it’s established in Japan you then also need to pay that same inhabitant tax. The same goes for a branch of a foreign company, that’s also considered a Japanese entity, so subject to the same local taxes.

So, to summarize the different structures, there are three ways to invest in property in Japan. The first is as an individual, the second is to establish a subsidiary company in Japan, and the third is a branch office…”

Z: “By that you mean a subsidiary or branch of a foreign company, which establishes an office in Japan?”

S: “Well, it doesn’t have to be a subsidiary of a foreign company. You can also establish a company in Japan if you, as the major share holder, are living overseas, that’s also possible. Taxation will be the same in both cases.

The third option is to establish a branch of a foreign company in Japan. The biggest difference between the subsidiary and the branch is in legal liabilities for Japanese entities – if it’s a branch, the branch and the head office are regarded as the same legal entity. So if someone, for example, sues the branch in Japan, and the branch bears liability to that party, the foreign head office carries these liabilities on behalf the Japanese branch, since they are the same entity. On the other hand, if the sued entity is a subsidiary company, and they have a parent company or individual owner overseas, the two are regarded as separate entities, so the foreign investor isn’t in risk. If the subsidiary company goes bankrupt, that’s as far as the damage goes.

The other main difference between the subsidiary and the branch from a taxation point of view is that the branch and the head office, as I’ve mentioned, are the same legal entity. So, if you’re making a loss in the Japanese branch and a profit at the head office, you can offset the loss in Japan against the profit overseas…”

Z: “Oh, that’s very handy!”

S: “…which means you have a lower tax liability in your country of residence.”

Z: “I see. And what about money transfers? Is it easier, harder?”

S: “Money transfers for branches is much easier in comparison with subsidiary companies or individual owners. Because, in the case of a branch, transferring money within the same company is very simple – you just transfer the money, that’s it. However, in the case of a subsidiary company, which is a separate entity, there are two ways to transfer the money overseas – by dividend or interest payment. Both ways are subject to withholding income tax in Japan. If your country and Japan have a tax treaty you may be exempt from withholding income tax, or be entitled to a lower rate – but you’ll need to submit some documents to the tax office before making the payment, which means there will be additional accounting costs.”

Z: “Right. And that’s all included in your services, as an accounting company for foreigners?”

S: “Yes, of course, I provide those services. Another problem is that, in Japan, taxation for branch offices is a bit complicated, it’s a very specialized area in Japanese taxation law, so not all accountants can do that – but we can support that, yes.”

Z: “Understood. Ok, that’s great, that makes things much clearer and easier to understand, thank you.

Now one more question for you – one of the things that most people always inquire about when they want to kick off their Japanese property investment portfolio is the possibility of financing from local banks, or other ending institutions. Unfortunately, it seems as if there are very few options available for non-residents. Could you maybe explain a bit, I know it’s not your area of expertise, but could you explain a bit about bank lending criteria here in Japan, and what people can do, if they even can, to try and secure financing for their property purchases here?”

S: “Yes, sure. Actually I receive the same type of questions from my clients and potential clients, they want to get financing from Japanese banks, because interest rates are low. But, in general, Japanese banks are reluctant to offer loans to non-residents, because in case investors can’t pay back the loan, there’s no way for the Japanese bank to chase you and collect that money. So usually they only provide loans to Japanese residents. You can be a foreigner, but you need a longer term visa, such as a spouse visa sponsored by a Japanese spouse – but if you’re overseas, not many banks will offer you a loan. And usually, before getting the loan there’s a face to face interview, which is usually conducted in Japanese, during which you’ll need to explain how your business will be making enough profit to pay back the loan.

But, I think, because recently incoming investments from overseas into Japan are increasing, and I know some banks and “non-banks” – meaning, institutions that don’t provide bank accounts, just loans – some of these can offer loans, but they set a mortgage on the property. So, for example, if the value of the property is, let’s say, 500,000 US dollars, they can probably offer you 50-60% of the property’s value, and the rest of the funds have to be in cash. The criteria varies a lot, depending on the investor’s financial situation.”

Z: “Ok, so, again, that makes it much clearer, thank you. So, generally speaking, you have to have a long term presence in Japan, either as a resident or as a company, right?”

S: “Yes, that’s basically right. I also want to talk about whether having a company in Japan will help you obtain a loan. It will, actually. But, if you just register the company but, in reality, no one is working there, the bank won’t trust you. But if you have a physical office, and establish a company with an actual office and employees, the bank may trust you. And, in general, getting a loan in Japan means submitting the tax return and financial statements for the past three years, which both need to show you’re making a profit.”

Z: “And we do that using the tax statements, is that right?”

S: “Yes, that’s the official document submitted to the tax office.”

Z: “Ok, so you have to have long term residency of some sort, an income tax payment history for a few years, and if you’re a company, you also have to employ local Japanese staff, right?”

S: “Yes, or at least staff who are in Japan…”

Z: “Well, that helps, right?”

S: “Yes, you need to have a presence here. Because, if it’s a branch office, and suddenly they go away, or back to their country, the Japanese bank, again, won’t be able to chase them overseas to collect.”

Z: “Understood. Great, thank you very much for your time, Sada san, I’m sure our listeners will find this information very helpful. And again, folks, we can’t stress this enough – unless you’re just going to be buying a few cheap apartments, in which case you may be under the income tax reporting threshold, which is about 3,600 US dollars net annually – if you’re anywhere above that, the best way to maximize your profits and minimize your expenses is to take the time and the effort to consult with an accountant here in Japan. Now, obviously, we think “Sadywell Accounting” is your best bet, but in any case, consult with someone, and get your infrastructure and business plans set up properly BEFORE purchasing your first property, this strategy is bound to save you a lot of money, and a lot of potential headaches in the future, as your portfolio grows.”

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

Is Tokyo Real-Estate Crazy Expensive?

16 July, 2019 –

The Paradox

Japan Real Estate

Japan Investment Property

Let’s talk Tokyo, and more specifically the Tokyo affordability paradox, which is this – how is it possible that Tokyo is simultaneously known as one of the world’s most expensive cities, while at the same time being constantly ranked as one of the world’s most livable cities?

Which is it? Crazy expensive, or comfortably affordable? Well, both, really – and there are a few reasons for this.

The Eighties are history, dude…

The first and most straightforward reason is, that a large part of Tokyo’s “crazy expensive” reputation is a thing of the past, leftover from the eighties when the city – and the rest of Japan as well – was indeed insanely expensive.

Those days are long gone, however. Japan’s last big economic bubble burst in the early nineties, and since then, all the way up until late 2012, prices of everything – from the cost of goods and foods and properties, and cost of living generally – have been sliding down – with Japan real-estate property, specifically, more than halved during that period. Now, it’s true that central Tokyo property prices have seen a revival between 2012-2016, and are now almost at that peak again – but A), that’s only in the most central and heavily populated areas, and B) these prices are now not nearly as expensive for those residing overseas, since the rest of the world has moved on, inflation and cost of living have brought prices and salaries at least slightly up in the rest of the developed world – which means that those prices aren’t nearly as bad as they seemed back in the eighties, at least for those of us residing overseas.

Comparing Apples & Oranges

The other reason this stigma of “one of the world’s most expensive cities” lasted, is that a lot of the industry publications which rate the price of global property, and tend to include Tokyo in its top five or ten priciest cities regularly, don’t actually take into account the serious lack of space and average size of Japanese apartments – which is quite different to many other cities in the world. So, to be comparing apples with apples, we need to look at what it is that we’re actually comparing.

Japan is increasingly turning into a singles’ society – with far more singles than couples or families renting apartments in the country’s major cities these days – and the typical Japanese apartment, which is where most people live, is a lot smaller than a typical apartment anywhere else in the world, aside from perhaps Hong-Kong, and a few similar cities, where space is also a highly expensive commodity. So, if we’re comparing properties that are 200 or 300 square meters in size – yes, Tokyo is very expensive, most definitely – but, while a 100 or 200 square meter apartment in Sydney or New York is not a rare thing – in Tokyo it’s exceptionally rare and up-market – and so is priced accordingly.

The vast majority of singles and couples actually live in apartments that are somewhere between 20-60 square meters, in most large cities in Japan, and definitely in Tokyo – and when comparing THESE types of spaces with their counterparts in other major cities around the world, you’ll find that there’s a huge difference in price. The property prices graph in Japan shoots up very dramatically in the case of properties that are larger than, say, 70 or 80 square meters, or where the layout is larger than 2 bedrooms and a living area.

So again – if comparing price per square meter or foot – yes, Tokyo can be quite expensive, since space is strictly limited and population density is very, very high – but the Japanese are experts at making the most of smaller spaces, and are absolute wizards when it comes to space utilization, compartmental and practical interior design, like sliding and re-arrangeable doors and even walls, retractable furniture that can be tucked away into alcoves and panels, minimalist furnishing, super-functional multi-purpose rooms, and so forth – which means that a Japanese studio or one bedroom unit that is 45 square meters in size, actually feels and looks a lot larger and more comfortable when compared to the same living space anywhere else.

Out with the Old, In with the New

Another reason is that the Japanese are obsessed with the new and modern, the latest and greatest, in all things – and homes are definitely included – if you’ll recall, we’ve spoken about building standards and materials here, and how things are generally not built to last as long as in other countries – for this reason, prices tend to trend downwards very sharply after any structure reaches about 15 years of age – rental prices, incidentally, also trend down as a property gets older, but not nearly as sharply – so again, if you’re comparing large, brand new residences, yes, Tokyo is up there with most of the world’s most expensive cities – but as soon as you look at smaller, older properties, it’s quite a different picture.

Practical Examples

So, here are some examples that demonstrate this. First, let’s look at a 16 square meter studio unit, in Edogawa – that’s in the Eastern suburbs of Tokyo – 15 minutes by train to the city center, so quite convenient – 16 meters may sound small, but it’s actually quite normal for a Japanese studio apartment – so, suburban, small and relatively old apartment – priced at JPY 5.5 million, approximately USD 50,000 – hardly expensive, is it? If you were to renovate this place up to the latest and greatest modern design standards, including everything discussed earlier as far as minimalist furnishing and compartmentalizing go – you’d be adding 20-30,000 dollars to this price tag at most.

How about rent? Well, you’d be leasing this unit out – as is, before any such renovation – at only JPY 50,000 – that’s about USD 450 per month (not per week, mind you – per month). With a proper and modern renovation, you can probably bring that price up by a further USD 150-200 per month, if you so wished.

Now let’s look at a newer, bigger structure, for example, an entire building in Tokyo’s Western suburb, of Suginami – again, only about 15 minutes by train to the city center – but this building is just one year old, with 9 units of various sizes, from studios of 20-30 square meters, and up to 3 bedroom apartments of about 90 square meters – built on 127 sqm of land, and totaling about 250 cubic meters all up in structured property. This building is priced at JPY 220 million, which is approximately USD 2 million – now, that comes up to an average of about USD 220,000 per unit, on average, which is probably closer to what you’d expect from a city with Tokyo’s reputation – not as bad as central properties, since this is still the suburbs, but definitely not cheap – an average of 32 USD per cubic meter.

Now, these units are very different to that smaller, older studio we were looking at just before – they’re spacious, full of light, and are already up to the latest building and design standards – hence the huge difference. And the average rent for these units is about USD 900 per month, so again – more than the smaller, older units – BUT – not even close in cash flow difference to the huge gap in the purchase price – which is 3 or 4 times higher than that older, smaller studio, in price per meter or foot.

If you look at houses, as opposed to condo or apartment units, the differences become even more evident, since you’re now talking about owning your own private bit of land, and are using a lot of space, which, again, is in high demand – the larger and newer, the more you’ll spend. Brand new residences, while not the most expensive in the world, are definitely on par with New York, London or Sydney – suburban homes will normally start from USD 220 to 350,000 – central ones will start at about half a million dollars, and, of course, the sky is the limit.

So Which IS It? Both.

So, to summarize – yes, Tokyo CAN be expensive – but can also be very affordable – it’s really a matter of what you’re buying. For investment purposes, though, one thing is true in all cases – monthly rental yields are, percentage-wise, the lowest in Japan. The city has huge international appeal, and prices shoot up whenever the economy does even remotely well, due to its reputation as one of the world’s most livable cities and a global tourism and business hot-spot.

So, be aware – if you’re buying in Tokyo – yes, 2012-2016 were good for speculators, and prices may still inch up ahead of the 2020 Olympics – but we’re still talking about Japan, where economic growth is always tampered with caution, due to the fast decreasing population and the huge debt to GDP ratio. As a result of this economic climate, speculating on Tokyo properties with low rental yields is still very much a gamble – and, as an investor, you may be better placed to consider other cities, as we’ve discussed here in the past.

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

How Robustly Populated Tokyo Makes Affordable Housing Possible

Japan Properties

Japan Real Estate

25 Aug, 2019 –

Japan is leading the way in affordable housing. Anthony Breach of the Centre for Cities did a report on Japan and its housing policies. The British based think tank found that Japan still maintains affordable housing despite its robust economic growth. London’s average mean rent is quite steep at around £2,000. On the other hand, average rents in Tokyo are at about £1,300.

How such a large city like Tokyo maintains relatively affordable housing isn’t necessarily because it has more public housing nor because of population shrinkage. For example, danchi (public housing) makes up less than 5 percent of housing in Japan, while in England they make up 17 percent of housing. Japan’s population isn’t shrinking either, Tokyo’s population has stillwitnessed growth due to migrants coming from other parts of Japan and abroad.

The Centre for Cities article notes that instead Tokyo has taken a more hands-off approach to how housing is built in the city. For example, 194,000 houses were constructed in the U.K. last year, whereas Japan had 942,000 housing units built. Alex Tabarrok also highlights how Tokyo had a very robust growth in its housing sector despite having no empty land. Tokyo, a city of 13.3 million people in 2014, had 142,417 housing units built, whereas California (population of 38.7 million) had 83,657 housing permits issued and England (population 54.3 million) had only 137,010 houses started.

Tokyo’s zoning framework operates under a simple zoning system that enables by-right development, instead of the traditional model where each individual site relies on planning permission. Japan’s zoning regime consists of 12 zones, which are defined by the maximum nuisance level they allow. This ranges from residential areas to polluting industrial uses. The point to consider is that there is tremendous flexibility in building homes in Tokyo provided that they do not exceed the zones’ nuisance levels. In other words, areas in zones designed for high street usages can have houses converted into a hotel and vice versa. Anthony Breach of the Centre for Cities notes how markets, not city planners, still determine how houses in Tokyo are built under these zoning schemes.

This allows market supply to respond quickly as market demand changes and ensures development and density is driven by land values. If the demand to live in a city grows, older houses can be knocked down by landowners to provide more and better quality homes. In the case of apartment buildings, 80 per cent of the apartment owners need to agree to demolition and redevelopment. This is why Japan’s higher rate of demolition isn’t wasteful, as it enables an efficient supply of more and better-quality housing.

The laws of economics know no boundaries. They apply everywhere. When housing supply is restricted by central planners, do not be shocked when prices remain high and other unintended consequences that negatively affect the quality of housing start to surface. At a more fundamental level, what we see in the current housing dilemma across the globe is a matter of property freedom. Land developers should be free to build their housing units, without any form of government restriction, so long as they don’t infringe on the rights of others. Expensive urban centers in America like San Francisco and New York could also learn a lesson or two from Tokyo’s housing experience. What these places need is more freedom to build housing and less bureaucratic rigmarole getting in the way.

(Source – “The Advocates“, Pic – World Trade Centre at Minato City / “Guilhem Vellut“)

Deal Analysis – Beach-Side Holiday Home

Deal Analysis – Itoshima Beach Condo

In this article, we will review and analyse a sample deal facilitated on behalf of one of our clients, in Itoshima city. A beach-side community, located approximately 30 minutes by train to the West of Fukuoka city, the metropolitan centre of the Kyushu landmass and Western Japan’s unofficial capital.

Although it covers approximately 212 square kilometres of total area, Itoshima’s population is tiny – less than 100,000 people – and enjoys a reputation of a peaceful, holiday-centric area and retirement destination.

Dotted throughout with beach-side restaurants, galleries and gems such as Futamigaura Bay, where the sun sets over 2 rocky outcrops known as Meoto Iwa – “the Married Couple Rocks” – or the “singing” sands of Anego-no-hama Beach, southwest along the coast.

To the east, archaeological finds are on display at the Itokoku History Museum, and in the southern mountains, Shiraito Falls is surrounded by maple trees, while magical forested mountain hiking trails snake upwards to the West, concealing magnificent country-side mossy shrines and graveyards in their midst.

In recent years, the area has been booming with holiday makers and second-home buyers, who have built and renovated some truly majestic properties, well into the millions of dollars per home – but there are still plenty of older homes, condominiums and land parcels for purchase at ridiculously lower prices, all throughout this area.

Case in point –

34 sqm Studio unit + 5.5 sqm Balcony

3.2 mil JPY (app. 30,000 USD) – Itoshima

Our client in this case, a successful entrepreneur from mid-land USA, has specifically targeted a holiday property for his family’s personal use, which he aimed to try and lease out on a monthly basis throughout the rest of the year.

For this purpose, the property would of course need to be furnished, with appliances installed, and have some attraction for short term tenants/guests.

Pre-Purchase: Research & Due Diligence

After a few weeks of research, we came up with the following gem, located on the top floor of a 9-storey building from 1991, located on the main beach road, only 1 minute walking to the sand and 5 to the nearest train station & convenience store.

The property even came with some furniture, kindly donated by the seller, who used to live in the property himself. And just check out this view!

As the property is vacant, there are no tenant details to look into, so due diligence mainly consisted of reviewing the building’s reserve funds pool status, and correlate this with its recent renovation history.

Said history revealed a well-maintained building, with the last large renovation performed 11 years ago. The reserve funds pool contains approximately 54 mil JPY – approximately 0.5 mil USD – which, while not a huge amount for a reinforced concrete block with about 100 condo units, was an acceptable risk factor for the buyer.

Should another large renovation be required in the next 5-6 years, the collected funds should suffice – so barring any emergencies, it’s unlikely that building fees will go up in the near future.

Monthly maintenance and reserve fund contribution fees are approximately 11,000 JPY (100 USD), which also include usage of a small gym and exercise room, swimming pool and sauna – not a huge yearly amount considering the fact that an average 2-week hotel room stay would cost about the same for a couple – but definitely put pressure on us to try and make the property “work” for its upkeep.

Post-Purchases: Monthly Leasing

Having concluded settlement and collected the new title deed & ownership registration documentation from the legal affairs bureau, it was now time to try and lease the property out.

Long term leases were out of the question, as the owner requested the property be available for their own use if and when they choose to come for a holiday.

“Real” short term stays, such as AirBnb, which would mean advertising and leasing the property out on a daily or weekly basis, were also not an option, since the new legislation enacted in June 2018 requires more stringent compliance, licensing and reporting, and has also placed the final right of refusal for this practice in the hands of co-owned buildings unit owners and their representatives in the owners’ co-op and the building management companies appointed by those.

This left us with the option of monthly leasing, or “monthly mansion” arrangement, as it’s known here in Japan – which means that, as long as the property is leased out for a minimum of one month per tenant, and with a standard tenancy lease in place, the practice does not fall under the “minpaku” (short-term stay) legislation, and is classified as a standard lease for all practical and legal purposes.

Building management and other owners/tenants in the building may not like the idea, but cannot prohibit it legally, and all it required was a bit more furniture, some additional electric appliances, bed linen, kitchen utensils, etc – which, all together, cost approximately 1,000 USD.

A bit of new wallpaper and some flooring section replacements gave the place a brand new look, and a monthly lease property manager was put in place for advertising and handling all check-ins, check-outs, cleaning, and financials: security deposit and rent collection in advance, provision of utilities (power/water/internet) and charging of guests for said utilities, as well as for the cleaning fee, all well ahead of their stay.

Summary

While we’ve initially assumed the property will only be occupied during the hot summer months, considering its’ location, the past two years have been pleasantly surprising – potential guests/tenants have been ample, even during the winter and autumn months, during which the Japanese are notoriously beach-shy – and with the latest booking, which has been for a period of an entire consecutive year, from the Spring of 2019 to 2020, the property is actually yielding a spectacular 12-13% net pre-tax annually!

Several maintenance items, mainly related to minor plumbing issues, have put a small dent in this return, but the property still more than compensates for those repairs, and yielding double the amount it would have generated with a standard, long-term lease – while leaving the owner free to enjoy it whenever they come to Japan, as long as they make sure to “book” their own apartment with enough advance notice.

And, even in cases when the property IS booked, the income it generates then pays for most of the owners’ hotel stay in any case, which they’re more than happy to oblige with.

(Back to Deals Analysis Page)

Enticing Returns on Japanese Properties Catch the Attention of Overseas Investment Firms

Real Estate Investment in Japan

Japan Real Estate

19 August, 2019 –

TOKYO — Overseas investment firms are diving into the Japanese real estate market, with major British and American funds joining the fray as ultralow borrowing costs offer enticing returns. U.K. asset manager Aberdeen Standard Investments is looking to develop housing for seniors, while U.S. private equity firm KKR plans to combine private equity and real estate investments. The influx of deep-pocketed foreign players, enticed by the Bank of Japan’s ultralow interest rates that allow for fundraising on the cheap, indicates that the property boom here is unlikely to lose steam anytime soon.

ASI, mainly known as an asset manager, also holds a global real estate portfolio worth roughly $60 billion, centering on Europe. Having been cleared to set up a real estate investment fund in Japan, it plans to work with the Japan team of Orion Partners, a Hong Kong-based firm whose purchase it announced in February. As a first step, the British firm plans as early as this year to start investing in housing for the elderly — a field expected to see stable demand as Japan’s population ages. Options include acquiring existing properties and developing new ones. Sumitomo Mitsui Trust Bank announced in June that it will team up with ASI to establish a rental housing investment fund. ASI expects to manage a portfolio worth as much as 100 billion yen ($940 million).

KKR, meanwhile, is recruiting specialists from major real estate investment funds ahead of its full plunge into the Japanese property market. It has dabbled in real estate via sales of the idle properties of companies it has invested in. Having its own real estate department will enable KKR to redevelop properties and sell them at higher prices. “We aim to tap our wealth of knowledge in corporate investment in order to invest from a unique perspective,” said KKR investment representative Daisuke Hiramoto. In recent years, KKR has made a number of major real estate investments in such Asian markets as Hong Kong and South Korea. In Japan, on top of standard targets like office and residential buildings, it will also focus on investing in major companies’ real estate arms.

Major property deals are taking place across the globe, with the total value of deals rising 4% from the previous quarter to $174 billion worldwide for April to June, according to real estate services firm JLL. As the U.S.-China trade war clouds outlooks, real estate has been drawing more attention for stable and relatively high yields. Japan’s property market is drawing particular interest because of the BOJ’s negative-rate policy. Even if investment returns decline, investors can generate profit if they can procure funds at low costs. Prime Tokyo office buildings offer a 2.9 percentage point yield spread — the investment yield minus long-term interest rates — compared with the mid-2 range in London and 1-something in New York, according to JLL.

A wave of property sales by Japanese companies has also drawn overseas investment firms’ attention. In March, Takeda Pharmaceutical sold 21 assets including its Osaka headquarters for about 50 billion yen to U.S. real estate investment firm GreenOak. In July, Japan Tobacco said it would sell its headquarters in Tokyo’s Minato Ward. The property is expected to fetch more than 100 billion yen, and a number of investment funds have expressed interest.

Norway’s Government Pension Fund Global, one of the world’s largest sovereign wealth funds, purchased five Tokyo commercial properties in late 2017. After a lull in 2018, foreign funds’ Japan purchases have resurged this year, with Blackstone acquiring 100 billion yen of logistics facilities this July. Concerns over overheating are on the rise, however. The price per 3.3 sq. meters of office space in prime Tokyo buildings reached 10.08 million yen in the April-June quarter, according to Daiwa Real Estate Appraisal — the highest since before the 2008 financial crisis.

(Source – “BloombergBusiness“, Pic – Tokyo / “Business Destinations“)

Due Diligence is Key to Resort Apartment Shopping

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“)