The Uncertain Dollar and the Increased Attraction to Japanese Properties

Japan Properties

Japan Real Estate

04 Aug, 2020 –

While the Federal Reserve enacts a loose monetary policy, cash does not hold the position of king. Instead investors prefer to park their money anywhere rather than in deposits that provide minimal returns or take a potential hit. For this reason, real estate tends to do well as interest rates drop allowing investors to take advantage of low mortgage rates and buy properties.

Investors ask, “Where do we go from here?”

The Unsettling Situation

First, let’s put this situation into perspective.

In mid-2019, the Fed signaled a readiness to cut interest rates as uncertainty around the impact of the U.S. trade battles clouded its outlook. The rally gathered pace in early 2020 as US-China tensions rose, and China enacted security legislation in Hong Kong followed by a blame war over who is responsible for the corona virus outbreak. Not knowing if the Fed is going to keep its dovish monetary policy for an extended period of time signaled weak economic growth and weak dollar. Furthermore, there is no realistic expectation that a vaccine for the corona virus will be available before 2021, which means local shutdowns globally and limited economic recovery. And just when you think you can catch your breath, the flu season will be ready to kick in, only to worsen the already complex situation.

Japan Properties – Real Estate Safe Haven Asset

As the pandemic upends economies worldwide, heightening investors’ anxiety, many, including those who have not deployed their full capital in the equity markets, are looking for a vehicle to hedge their risk. Some have turned to Gold Exchange Traded Funds (ETF), others to alternative currencies. We see similar trends in the Japanese property market, the second largest real estate market in the world. Here’s why: Properties are affordable allowing investors to deploy funds in multiple investments with no restrictions to foreigners; high yield of 6% to 10% net pre-tax generating a lucrative monthly return from rental income; impact of the exchange value of the yen against the dollar when the timing is right.

Until a timeline is established for the development of a vaccine is clear, and until geopolitical clashes between the world’s two biggest economies are more or less resolved, the world will continue to be impacted by economic turmoil and the health crisis. How long it will take to restore confidence is uncertain. What we have learnt from 2020 so far, is to expect the unexpected, and more importantly be prepared for the unexpected.

(Source – Priti Donnelly, “Nippon Tradings International” Pic – Tokyo Skyline / “Marc Buehler“)

Japan’s Newest Tokaido-Shinkansen Line Bullet Train Designed for Long-Haul Comfort and Safety

29  Jul, 2020  –

Japan Properties

Japan Real Estate

(CNN) — Japan’s latest record-breaking bullet train doesn’t only run faster and smoother — it’s also able to transport passengers to safety in the event of an earthquake. The N700S — the ‘S’ stands for ‘Supreme’ — entered into service July 1 and serves the Tokaido Shinkansen line, which links Tokyo Station and Shin-Osaka Station in Osaka.

It can run up to 360 kilometers per hour, a new record set during a test run in 2019, making it one of the fastest trains in the world. The operating speed, however, will be capped at 285 kilometers per hour. It’s the first new bullet train model to be added to the Tokaido Shinkansen line by the Central Japan Railway (JR Central) in 13 years, a launch that was originally timed to coincide with the Tokyo Olympics in 2020 — now postponed to 2021.

 Coincidentally, Japan inaugurated the Tokaido Shinkansen line in 1964, connecting Tokyo and Osaka, just in time for the Summer Olympics in Tokyo that same year. It was the world’s first high speed railway line.

Cutting-edge technology

Appearance-wise, the N700S doesn’t look too different from the older N700 or N700A models, apart from its elegant golden logo. But look closer and you’ll see the brand-new train has a more angular nose, chubbier “cheeks” and sleeker headlight design. On the inside, newly designed seats allow passengers to recline further, offering more comfort, especially for long-haul riders. Each seat has an individual power outlet. Interior lighting has been designed to create a softer, more relaxing atmosphere. The overhead baggage racks will be lit up at each stop to remind passengers of their belongings. More reservation-only storage areas for extra-large luggage have been added to this model as well. The actual ride will be a lot quieter and smoother, too, thanks to a new active suspension system that helps absorb train movements.

In addition to a focus on increased comfort, designers behind the new model put great emphasis on safety. The train has an upgraded automatic control and braking system that allows it to halt faster in case of an emergency. It’s also fitted with lithium-ion battery self-propulsion system — the first of its kind in the world. This system allows the train to run for a short distance on its own during a power outage and will make it possible for it to move to a safer location at low speed if stranded in a high-risk area — on a bridge or in a tunnel, for example — during an earthquake. More cameras have also been installed inside car compartments — an increase from two cameras to up to six in each train car.

The upgraded components will take up less space under the train floor compared to the old model, making it possible for a more flexible configuration, from four to 16 cars. This also decreases energy consumption while speeding up production times, making it a more appealing option for operators internationally.

“By making the mechanisms under the floor of the N700S lighter and more compact, we created a new standard,” Masayuki Ueno, deputy head of JR Central’s bullet train business department, told Japanese broadcaster NHK in an interview in 2019. “This new standard will also help when it comes to expanding our business overseas.”

(Source – CNN, Pic – Japan Bullet Train / “foundin_a_attic“)

Mobility Devices to Replace Push Wheelchairs at Tokyo’s Haneda Airport

13 Jul, 2020 –

Japan Business News

Japan Properties

TOKYO (Reuters) – Personal mobility devices to transport passengers with limited mobility are rolling at Tokyo’s Haneda Airport, in an automation play for labour shortage-hit Japan that has taken on new urgency as the coronavirus outbreak compels social distancing.

The initial three devices, which replace push wheelchairs, are from Yokohama-headquartered startup Whill and run between security and passenger gates, equipped with cameras, lidar and other tech to autonomously navigate the environment.

Whill aims to expand the number of devices at Haneda and into other airports, with the pandemic giving a boost to the startup, which also has a consumer-facing business for devices without autonomy. “Due to COVID-19 this business will accelerate,” said Whill co-founder and Chief Executive Satoshi Sugie, a former product designer at automaker Nissan Motor Co Ltd.

Haneda is currently emptied out as the pandemic halts air travel. The startup ran trials at airports last year under normal conditions. Whill, whose other co-founders came from tech groups Sony Corp and Olympus Corp has found a foothold in Japan, where strict regulation has held back the growth of new mobility options like ride-hailing and electric scooters.

As a service for users with mobility problems “there is already regulation,” said Sugie. “It’s not only fun it’s a necessity.” The startup has taken advantage of Japan’s supply chain and the affordable pool of engineers coming from the big firms that have traditionally dominated innovation there, Sugie said. The device’s production is located in Taiwan.

Whill has raised more than $100 million, with investors including Fidelity’s Eight Roads Ventures. The fundraising environment in Japan for startups is improving, Sugie said.

 

(Source – WHTC, Pic – Haneda Airport / “Dennis Amith“)

What to Do if I Can’t Find a Tenant?

06 Jul, 2020 –

The Income Stream Paradigm

Investment properties are, generally, only as good as the rental income they generate.

Sure, there are speculative markets and strategies out there – buying cheap for later resale at a profit, land banking, flipping, wholesaling and so forth – but the traditional, reliable and (hopefully!) stable model of buy-to-hold or build-to-hold stipulates recurring monthly rental income from a constantly occupied property, generating a sort of “paycheck” for the landlord.

If and when a property becomes vacant, the owner would normally aim to have it cleaned up, renovated or repaired if required, then re-leased as soon as humanly possible, to allow the steady income-stream to resume ASAP.

There are, however, certain periods of time, locations and property profiles which make re-populating a property a bit more challenging – and these events can require some creative thinking and solutions, if one is to tackle the vacancy and related expenses as quickly and efficiently as they possibly can.

It’s also important to understand the difference between structure and strata ownership as it relates to vacancies – if one owns the entire structure, whether it’s a house or multi-family/commercial building – a vacancy merely means lost income. If, however, one owns a unit or multiple units in co-owned buildings, which are being managed by a building management company on behalf of the owners’ co-op, monthly building fees are still payable, regardless of whether the unit is vacant or occupied – and in older and other higher maintenance buildings (think serviced apartments, blocks surrounded by gardens, or with gyms, swimming pools and other resort facilities) – these monthly fees can amount to significant expense, with no income to cover it if the unit is vacant – so re-populating it as swiftly as possible, even at potentially lower rent or higher expense, becomes a much higher priority.

How to Handle the Problem?

In Japan, like most other countries, the same generic solutions to the extended vacancy problem exist –

Buy in Popular, Accessible Areas

The best way to minimize vacancy periods is, of course, to purchase central city properties, or properties in high-occupancy, highly desirable areas to begin with. Locations featuring growing or stable population numbers exist on both ends of the affordability scales – even in Japan – and there are particular areas in each and every city which will always be in demand – whether the property in question is a luxurious high-rise penthouse, a mid-income family home, or a low income blue collar studio/1-bedroom condominium unit. Regardless of the purchase and rental price level, there are popular areas where low, medium and high income tenants prefer to live, respectively – and purchasing in these areas specifically will of course all but guarantee relatively short vacancies, and a steady supply of potential tenants at any given point in time.

Accessibility is of course also a major issue, and generally speaking, smaller properties without attached parking, which would mean potential tenants wouldn’t own a car, also need to be within convenient distance to popular public transit options such as train, subway or tram stations. Bus stations, while far more numerous, are a remote second place option, for most potential tenants.

It IS important, regardless, to make sure the pre-purchase due diligence includes not only the current rent paid by the tenant (if purchasing a tenanted property), but also comparable vacant properties in the same area (and in the case of condo units, in the same building if possible) – to give ourselves a rough idea of what rent we can expect to achieve when the current tenant moves out, and also how many vacant listings are advertised in our area and price bracket at any given time – since more vacancies often mean we’ll be facing tougher competition for the same tenant base, and will have to get more creative when it’s time for us to look for a new tenant to populate the property.

Understand the Reason for the Extended Vacancy

Regardless of area, however, extended vacancies can occur for a variety of reasons – and if a few weeks or months have passed since the property has been advertised for leasing, and there are still no applicants, it’s important to first understand why this is the case – as this will influence the approach and solution we will choose to try and amend the situation.

Different problems call for different solutions, so the first step is to understand whether the extended vacancy is due to –

No alt text provided for this image

* Seasonal reasons – In Japan, high moving season is generally between January and April, once everyone has returned home from visiting their relatives for the new year festivities, students and faculty begin to prepare for the approaching new academic year (starting in April in Japan), which may include them having to move closer to campus – and companies begin to prepare for recruiting fresh university graduates, and re-shuffling existing staffers to new positions in new locations.

(The exception to this rule is Hokkaido and other snow-country Northern locations – in Sapporo, for instance, where it’s very likely to be snowing between October to April, high moving season is normally in the late spring and early summer, between June to September – since no one likes to move and go shopping for new home essentials during the harsh winter).

The lowest moving seasons in Japan are during the three major public holidays, each of which is about a week or ten days long – “Golden Week” at the start of May, “Obon” in August, and the Christmas/New Year period at the end of December – during these times, most Japanese will be travelling home to visit their elderly parents and other relatives, and will not make plans for any major life changes – moving included – in the few weeks leading into and out of these periods.

* Rent is Higher / Competition is Fierce – even during high moving seasons, and even in popular areas, supply and demand issues may still apply – if the property is aimed at medium/high income earners (such as family sized or more luxurious properties), it’s possible that, regardless of season, owners/occupiers have recently moved out or re-sized, families have re-structured due to marriage, divorce or being forced to move in with their elderly parents to support them (common practice in Japan, particularly for women) – or elderly folks have been forced to move into aged care facilities. All of these events can and do occur regardless of season, and create an extra supply of available rental properties in a particular area.

A similar thing happens when a popular area becomes over-developed, and there are now plenty of available brand new or near new properties for rent, at prices that are only slightly higher than older comparable properties in that same area.

In all of these cases, the extra supply creates severe pressure on rents, and you may find that whatever you and your property manager have first assumed would be a reasonable price is now actually too high, compared with other available properties in the area.

* Inferior Interior / Lack of Features – even in cases and periods of time where there are only a few alternatives for potential tenants, the rent amount is on par with other properties of the same profile and size, and demand is higher than supply, your property may still be lacking in comparison with other properties. In Japan specifically, a modern interior design is significant for many potential tenants, particularly of a younger profile, and the following features make a major difference in which property they’ll prefer to go for –

  1. East or South-East facing balcony or corner unit (in case of condos) – ideal for sunlight all through the day
  2. Separate toilet and bathroom – considering the generally small size of these rooms, having the toilet (dirty place) in close proximity to the bath (cleaning place) is a major disadvantage. In larger properties, or those built from 1990 or later, these rooms will normally be separate.
  3. Fresh wallpaper (preferably with modern design – walls in Japan are usually wall-papered rather than painted) and new or renovated flooring (preferably wood, tatami straw mats for bedrooms – linoleum is considered cheap and unpleasant)
  4. Laundry bay area, with dedicated water supply and drainage
  5. Built-in closets/cupboards
  6. Modern kitchens
  7. For condo blocks without elevators, no higher than 3rd floor – for condo blocks WITH elevators, the higher the better.

* Unattractive Building Features (for condos) – while the building features and services are normally out of our control in cases of co-owned blocks, it’s important to recognize that any building which has the following features, will also be far more attractive for potential tenants –

  1. Secure keypad/auto-lock entry to building lobby
  2. Video intercom system
  3. Onsite management personnel (part or full time)
  4. Laundry room (particularly if the unit doesn’t have a laundry bay)
  5. Walled/fenced – no street access, and preferably no direct view to first floor windows/balconies
  6. Well-maintained exterior and public areas (greenery around the building is always attractive as well)
  7. Delivery lockers
  8. Security cameras and automatic floodlights

Choose the Right Solution

No alt text provided for this image

There are multiple possible solutions to extended vacancies, which differ mainly in their immediate out of pocket costs VS their longer potential effect on income. Different approaches would also yield different results, depending on the reason or combination of reasons leading to the extended vacancy.

For instance – if there are already plenty of cheap properties available for rent in your area, reducing the rent will only take you so far – it may be better to offer a furnished apartment, to stand out from the competition. Another example – if there are already plenty of nicely renovated properties in your area, adding additional renovation features will not differentiate it significantly from other comparable potentials – in this case, offering some bonuses to potential tenants may be the way to go. Be sure to work with a proactive, savvy PM or portfolio manager who can conduct the appropriate research, and tailor the best solution for your unique scenario, out of the following options or combination of them –

* Rent Reduction is the easiest solution to implement, and doesn’t cost the owner anything in the immediate term – however, since rents are normally not raised when a lease is renewed in Japan (commercial rents are more flexible, but residential rents normally remain the same for the entire tenancy period, barring periods of exceptional economic growth, which are rare), one must take into account the total loss of income over an average lease period – which, for studios/1 bedroom units is usually 4.5 years, and for family sized properties is usually 7.5 years. Calculate the total amount of income reduction over this typical lease period to find out the real cost, then compare to the other potential solutions (listed below).

It is also important to try and avoid a “race to the bottom” scenario – if comparable supply in the area is very high, it’s possible that other landlords are similarly constantly reducing their asking rents, resulting in yields that can become too compressed for comfort, particularly for co-owned strata type condo units with high monthly building fees. In these cases, other solutions should be considered instead.

* Increased Advertising – this is the solution most property managers will tend to lean towards, as it means more money in their pockets – and what this means is that the standard 1-2 months gross rent commission, payable to the property manager upon sourcing a tenant, is expanded to anywhere from 3-5 months instead – this gives them more leeway to cooperate with other property managers who may have access to more tenants, put up bigger and more prominent ads online or in local publications, and promise a higher commission to anyone who can source a tenant on their behalf – thereby increasing your property’s exposure to a wider tenant-base.

Note – When considering this option, as well as the other options which translate into an immediate expense or loss of income – it’s important to ensure that the new tenancy lease will include a penalty for early vacating by the new tenant – to avoid a situation where a tenant moves in, then leaves several months afterwards, mid-lease, without paying any compensation (tenancy laws in Japan are highly tenant-oriented, and it can be quite difficult to obtain any compensation for lease terminations if not enshrined in the lease itself). If this clause is not included, you may face a situation where you’ve paid 4 months’ worth of rent in tenanting/placement related fees, only to have a wayward tenant abscond or leave 2-3 months later – those early vacating fees will cover you for all or some of that period at least.

* Free Rent or Discounted Move-In Fees – this option can also cost an additional 1-3 months of rental income, and is used to offer a financial “bonus” to tenants who choose your property over others. It can be anything – usually the first 1-2 months rent-free, or owner participation in move-in fees, reducing the significant bulk expense that tenants need to fork out in cash – things such as a guarantee company’s sign-up fee, the fee for replacing the lock and keys, the initial cleaning deposit, or all of the above. Savvy, pro-active property managers will often suggest to advertise these bonus options as a “pack plan” on all of their rental listings, giving tenants an option to choose between a standard rental plan, and one with a slightly increased monthly rent amount, which includes these discount bonuses – the idea being that giving tenants the choice to reduce their move-in fees is always an attractive feature.

* Fancy Renovation / Furnishing – this last option obviously costs the most in immediate out-of-pocket expenses for the landlord – anywhere from a few hundred dollars in electric appliances, through a few thousands for full furnishing, and all the way up to tens of thousands in attractive feature installations and upgrades (things like decorative/accented wallpaper, floating/sound-proof ceilings and flooring, laundry bay installations in case none exist, and even completely new bathrooms, and separation of the bathroom from the toilet) – the advantage of choosing this path, if one is willing to pay for it and can afford it, is that is raises the attractivity factor of the property far above the average properties “competing” for tenants in the area – and, in the case of renovations or complete furnishing operations, can also raise its potential rent income (ask your PM to run a quick check on average rent amounts for units with and without these features, if any exist in the area, to verify this last assumption though – as it won’t always be the case).

Renovations, as opposed to simple furnishing, can also raise the value of the property for resale purposes – although the fancier feature installation usually won’t raise the value far beyond the cost of the renovation itself, unless you’ve got the connections or DIY skills to significantly reduce the cost of labor and/or materials involved.

An added advantage of furnishing is that it also gives you the option to lease the property on a monthly basis, as opposed to standard long term leases – which, in attractive locations and depending on occupancy, can also significantly increase rental income – in the best case scenarios perhaps even double it. If you do choose to go this route, though, you’ll need to make sure your PM can provide monthly lease advertising and placement services – most companies will specialize in either long OR short term rentals, not both – and if you work with a PM who only handles short term leasing, you won’t be able to try and advertise for both lease options.

When All Else Fails

No alt text provided for this image

Of course, in some severe cases, there’s simply not much that can be done – a particular area or property, previously popular with a wide variety of tenants, may have simply gone “downhill” for reasons out of our control, usually socio-economic or city-planning related – in which case it may be best to simply let the property go, and put it back on market – cut our losses and re-invest our funds in something which yields better and easier income. Hopefully you would have made back at least some of the potential gap between your original purchase and subsequent sale prices while it was still tenanted – so consult with your realtor or buyers’ agent as to what would be the best and most cost-efficient strategy to selling the property (tenanted at a huge discount VS vacant, renovated VS “as is”), and let it go – there’s always the next deal!

————————————————————————————————————-

Are you interested in Japan’s real-estate property 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

Japan’s Millions of Unwanted Properties Could be Renovated into Profitable Apartments

Japan Properties

Japan Real Estate

TOKYO – Thanks in part to its aging population and the general preference for new houses, Japan has literally millions of empty, old properties. Ten million of the 60.6 million homes in Japan are considered to be vacant or abandoned and the problem is only getting worse. It’s estimated that by 2033, 30 percent of all homes will be empty.

Empty houses, or akiya, dot the landscape all over Japan. They are most common in isolated mountain villages in rural prefectures like Okayama on the Inland Sea and Kumamoto in Kyushu, at the southern end of the Japanese archipelago. But even Tokyo is not immune to the blight. In the apartment-dominated capital, one in 10 homes has been abandoned to the elements.

Putting akiya to good use is no easy task. In many cases, the heirs to the properties have moved to big cities like Tokyo, Osaka and Fukuoka to find work. Particularly in rural areas where demand for homes is already weak, empty houses are worth so little that local estate agents don’t want to take them on. They can’t make money from fees, which are calculated as a percentage of the property value.

Another factor in explaining the number of akiya in Japan is that the heirs to these properties often abandon them because they don’t want to pay the property tax. Many heirs don’t even want to admit ownership of akiya, and this creates problems for local municipalities, which eventually have to pay to have them demolished.

One municipality trying to address the problem is Fukuroi in Shizuoka Prefecture. On the face of it, Fukuroi is a prosperous town. It has grown over the last 50 years, going from 48,000 inhabitants in 1960 to 88,000 today. Yet in spite of population growth, signs of the town’s eventual decline can be seen in the abandoned houses dotted around its suburbs.

But the situation is far from hopeless. Determined to stop the blight of akiya, the authorities in Fukuroi have established a “counselling center” for homeowners worried about what to do with their unwanted property. As of April 2nd, owners of unoccupied houses can get free advice and guidance from a dedicated team of experts from Fukuroi’s Vacant House Countermeasures Council, a body made up of , builders and legal experts.

The authorities in Fukuroi are hoping that owners of akiya will either renovate and refurbish their properties or have them demolished. Homeowners who would like to keep their properties can get advice on how to renovate them with a view to selling or renting. The authorities say that with appropriate renovation, many of the town’s empty properties could be rented out to young couples or converted into studio apartments.

Homeowners can also find out how to check their properties for structural damage caused by earthquakes and how to carry out the remedial works needed to minimize earthquake damage in the future. If all else fails, the team at the Fukuoi-Sumai consultation centre can also give advice on how to have the property pulled down.

(Source – JapanToday, Pic – Home/ “Shawn Harquail“)

High Number of Tokyo Residents Keen on Moving to Regional Areas

Japan Properties

Japan Real Estate

22 Jun, 2020 –

Around half of residents of Tokyo and its neighboring prefectures expressed interest in moving out of the capital, according to a recent survey. A Cabinet Office survey has found that around half of Tokyo area residents show some interest in living in regional areas. It targeted 10,000 people aged from 20 to 59 living in Tokyo and its neighboring prefectures of Kanagawa, Saitama, and Chiba.

Overall, those who had some degree of interest accounted for 49.8%, but this rose to 61.7% for those who were born outside the Tokyo area. Of those who responded that they were definitely interested in living in regional areas, the most popular reason, with 54.8%, was due to the rich natural environment. Notably, 61.1% of people born in the Tokyo area gave that as their response. On the other hand, among the most popular responses from those originally from outside Tokyo, 38.4% said they were interested because they wanted to live in the place they had grown up in and 19.9% expected it would be so they could take care of family members.

When asked what positive views people had of living in the countryside, the most popular response with 40.1% was of relaxing surrounded by nature after retirement, followed by a good work-life balance with 23.6%. The most popular negative impression was of inconvenient public transport (55.5%) and lower incomes compared with the capital (50.2%).

 

 

(Source – Nippon.com, Pic – World Trade Centre at Minato City / “Guilhem Vellut“)

Japan Provides Vacation Incentives through Discounts at Shops and Restaurants

09 Jun, 2020 –

Japan Properties

Japan Real Estate

TOKYO – The Japanese government is looking to revive the tourism industry, a key driver of the economy that has been battered by the novel coronavirus pandemic, by paying for people to go on vacation in the country.

Under its Go To Travel initiative, the government will provide subsidies worth up to 20,000 yen ($185) per day for people going on leisure trips.

The subsidies will cover half the cost of trips, distributed through a combination of steep discounts and vouchers to be used at nearby restaurants and shops. The initiative is expected to begin as early as late July, applying to bookings made through Japanese travel agencies or directly with hotels or “ryokan” traditional Japanese inns, though the cost of traveling to Japan will not be covered in any part.

The government is eager to jump-start the world’s third-largest economy, which was already flagging following a consumption tax hike last year before the coronavirus and emergency brought business activity to a halt.

The tourism industry has been among the hardest hit as many Japanese have stopped going to the office, much less on vacation. Hopes for an influx of foreign visitors this summer were dashed as the Tokyo Olympics were postponed and Japan imposed an entry ban on more than 100 countries and regions.

According to a survey by Tokyo Shoko Research, 31 companies in the accommodation business either declared or were preparing to file for bankruptcy in April because of the pandemic.

Prime Minister Shinzo Abe on Monday lifted the state of emergency in Tokyo and the surrounding area as well as Hokkaido, having done so for the rest of the country earlier this month, signaling the start of the return to normal life.

Some 1.35 trillion yen has been earmarked for the Go To Travel initiative, part of an emergency package that Abe has said will exceed 200 trillion yen.
(Source – Kyodo News, Pic – Tokyo/ “Luca Sartoni“)

Japan’s Shared Offices a Growing Cost-Saving Trend as Businesses Adapt to Teleworking

Japan Office Properties

Japan Office Space

05 Jun, 2020 –

Tokyo-based Overflow Inc.’s commercial lease was set to expire in July and founder Yuto Suzuki had made plans to move to a larger property. But as cases of the new coronavirus began to rise in March, the 34-year-old made a drastic decision: He took the startup and its 270 workers completely — and permanently — remote. Overflow operates an online financial planning service along with a job-matching platform for IT engineers. Most of Suzuki’s employees are freelancers who were already teleworking, so a physical office space made little practical and economical sense.

“Think about the millions of yen in upfront deposit and the monthly rent we would have had to pay,” says Suzuki, who now works from the company’s unofficial headquarters — his family’s apartment. “It’s safer to eliminate fixed costs, and minimize the financial and health risks.” The company is among those at the forefront of a wave of coronavirus-driven workplace reform sweeping across a nation known for an archaic corporate culture that values long office hours and face-to-face meetings.

While technology firms such as Overflow may have an inherent advantage when it comes to working remotely, the pandemic is prompting companies and employees of all stripes to adopt teleworking and flexible commutes to reduce contagion risks — accelerating the digital shift of the workspace while creating new business opportunities. “We’re seeing a process that would have taken four to five years, maybe even a decade, being rapidly implemented in the past two months,” says Suzuki, who communicates with his staff via online chat rooms and video conferencing, his tools of choice being Slack and Google Hangouts.

“Obviously, companies that rely on face-to-face contact with clients and customers for business can’t risk going remote,” he says, “but I think we’ve already seen that a lot of back office tasks and routine operations can be done at home.” How can a manager make sure people are working if they can’t see them? Suzuki has a simple answer: “The point is to measure output, not the number of hours clocked up.”

Growing acceptance

The government has been pushing teleworking for years. Not only would it ease the notoriously congested rush-hour commutes in Japan’s major urban centers, the argument goes, but it could also offer a better work-life balance and encourage more women and elderly citizens to enter the workforce.

Efforts to raise awareness have so far met limited success. According to a survey conducted by the transport ministry in October and November last year, 32.7 percent of a sample of 40,000 workers said they knew what teleworking was, up 14 percent from three years earlier. Still, the rest of the respondents said they either weren’t aware of the work arrangement or had only a vague idea of what it meant. When the COVID-19 pandemic began to pick up speed, it injected a sense of urgency into experimenting with any idea that could slow its spread, and telework emerged as a key measure to ensure employee safety and convey corporate social responsibility.

In a survey taken by The Japan Business Federation between April 14 to 17, 97.8 percent of its 406 member firms responded that they had instituted teleworking measures. That was up 29.2 percent from a previous survey taken only six weeks prior. Based on those results, the business lobby, better known as Keidanren, estimated that roughly 66 percent of employees of respondent companies had begun working from home. Train ridership has also fallen, with the number of passengers going through Tokyo station on May 18, for example, down 73 percent compared to a year earlier.

Hirokazu Yamaguchi, a manager at the corporate accounting and tax planning office of NEC Corp., began telecommuting in early April, a few days before Prime Minister Shinzo Abe declared a state of emergency that has now been lifted in most prefectures. Since February, the electronics giant had been urging some 60,000 of its workers nationwide to take advantage of teleworking and staggered work hours in order to avoid traveling on crowded trains and spreading infection. In late March, the company made it mandatory with a few exceptions that included plant and system maintenance workers. “We’ve had trial teleworking runs in the past as a team, so the infrastructure was in place,” Yamaguchi says, adding that, despite the trials, he still needed to spend some money on improving his home office setup.

“I bought two new monitors and upgraded my internet speed to 1 gigabit per second from 100 megabits — and I splurged on a Herman Miller office chair so I wouldn’t kill my back from sitting all day,” he says, referring to the American manufacturer of ergonomic furniture. Establishing a stable virtual private network connection, or VPN, was crucial for Yamaguchi, who needs access to sensitive internal data to compile corporate earnings. Once everything was up to speed, though, working from home became a relatively smooth ride.

The 40-year-old bachelor begins work at around 7:30 a.m., corresponding with co-workers using communication platform Microsoft Teams. During the day he takes a one-hour break for a stroll. He either cooks his own meals in his apartment or buys takeout meals from local restaurants. On weekends, he winds down with a bottle of Champagne, occasionally attending virtual Zoom parties with friends. “I think we need to remember that teleworking under normal circumstances wouldn’t require this level of seclusion,” he says. “There needs to be a certain amount of face-to-face communication among colleagues to establish a sense of trust, and teleworking can be difficult for those with small children,” he says. “However, the lack of commuting is attractive — I’m inclined to maintain a portion of this lifestyle even after the pandemic subsides.”

Physical obstacles

As teleworking spreads among the corporate ranks, some long-standing obstacles are being addressed. Last month, Prime Minister Shinzo Abe ordered ministries to review the practice of requiring official documents to be stamped with hanko (personal seals), an act that necessitates commuting to the office.

Businesses are also moving to eliminate unnecessary physical transactions. For example, NEC Networks & System Integration Corp., an NEC group company, announced earlier this month that it is offering U.S.-based DocuSign Inc.’s cloud-based electronic agreement platform for companies interested in paperless transactions using e-signatures. While businesses have been implementing policies, not everyone is taking advantage and remote work still remains off-limits for many. A transport ministry survey taken in March showed that only 12.6 percent of a sample of 4,325 workers were telecommuting.

“Prior to the pandemic, teleworking was being instituted in large corporations but ignored by small and midsized businesses or firms outside the big cities,” says Mika Togashi, a researcher at the Japan Telework Association. “Now that all sectors are being asked to consider the option, many companies are struggling to adapt.” Togashi says some firms have trouble learning how to use online communication tools, while others are not sure how to manage or allocate work to employees working remotely. “These companies are being asked to hit the ground running without any on-the-job training and, yes, that’s creating a lot of stress, but the pandemic is definitely a trigger,” she says. “Economically efficient business practices like online meetings and electronic signatures will eventually gain mass acceptance.”

Avoiding rush hour

People working in occupations requiring their physical presence, including those in the service industry and blue-collar workers, don’t have the luxury to stay home like their white-collar counterparts. Still, many of them are trying to avoid public transit to be safe, and choosing to bike or walk to work instead, a trend that could be here to stay. Yasuyuki Uchida, a 55-year-old sewer maintenance and repair engineer, jogs a total of 10 kilometers commuting to and from his company’s headquarters in northern Tokyo. From there, he is dispatched to various sites.

A veteran trail runner who has participated in overseas competitions, Uchida says he decided to use his daily commute during the capital’s state of emergency to practice the Maffetone method, a training style that focuses on aerobic running developed by Phillip Maffetone, a kinesiologist and athletic coach. “My sports gym is closed and trail running events have been canceled this year,” Uchida says. “To stay in shape, I’ve been working out at home and running to work. I’ve never felt better. I’m going to stick with this routine for a while, as it takes at least three months for results of the method to show.”

Uchida points out that stay-at-home requests appear to have boosted sales of certain physical fitness-related items. “Dumbbells and jump ropes are hard to get now,” he says. Indeed, sales of weight-training equipment and home fitness goods such as yoga mats and stretch balls have reportedly soared while most gyms and fitness centers have been closed to prevent the spread of COVID-19. Bicycles are also in demand as commuters are reluctant to take public transportation, according to Masanori Hashimoto, general manager of Tokyobike, a bicycle brand headquartered in Taito Ward.

“There was a rush on orders in late March and April from people wanting to purchase our bicycles for commuting,” Hashimoto says. “Now the trend has shifted to children’s bikes, for kids to exercise while schools are closed.” Hashimoto says the current situation reminds him of the 2011 Great East Japan Earthquake when the world’s busiest rail system shut down and Tokyoites flocked to bicycle stores. “We plan on boosting production as we expect to see more customers once the state of emergency is lifted and stay-at-home requests are eased,” he says. “Major European and American bicycle makers are seeing the pandemic as an opportunity. For Japan to ride on that wave requires improving its cycling infrastructure, which is currently lagging behind cities like London.”

Home comfort

The freedom to work remotely is also impacting ways people think about real estate. Public broadcaster NHK has reported a spike in cancellations of office leases in central Tokyo as corporations downsize workspaces and opt for more flexible options such as shared offices to cut costs. In March, Nippon Steel Kowa Real Estate Co. began selling contracts for a new residential apartment complex that is being constructed in Kachidoki, a bayside area in central Tokyo. The company is collaborating with furniture maker Okamura Corp. and furniture rental startup Subsclife Inc. to create a shared workspace for inhabitants. After six years, the workspace will be refurbished to reflect the newest office trends.

“I believe this concept of ‘updating’ a residential workspace is new in the industry,” says Hiroaki Wada, the project’s organizer. Wada says that a survey Nippon Steel Kowa Real Estate conducted with Okamura on workplace environments for single-person households revealed that, among telecommuters, there was strong demand for a so-called third place. That’s a space outside home and office where an individual can work. “For ¥500 a month, residents can have access to a workspace in their apartment building equipped with Wi-Fi, a coffee machine and high-quality office furniture,” Wada says.

And since furniture is susceptible to wear and tear, and technology and personal tastes change over time, the shared office will eventually receive a makeover with furniture provided by Subsclife, which currently offers around 100,000 types of furniture from 400 brands for monthly rentals. “We’ve been doing a lot of business with large corporations that want to provide rental furniture for their employees working from home,” says Ken Machino, the founder of Subsclife. “Foreign firms are also subscribing to our service to improve cash flow. I think the trend to rent, rather than own, is going to accelerate as a result of the pandemic.”

As teleworking takes root, it may fundamentally alter how the Japanese perceive workspaces, Machino adds. The physical office may become a place to encourage communication and teamwork building, rather than a place to sit down and clock up hours. “The workplace is being redefined,” Machino says.

(Source – The Japan Times, Pic – Japan Co-Working Space / “Rama Mamuaya“)

Why Japan? The Yen Keeps its Value During Global Uncertainties

01 Jun, 2020 –

Japan Properties

Japan Real Estate

The Japanese yen is among the world’s most traded currencies, and it accounts for 5.7% of global foreign exchange reserves. As the third largest share after the dollar and the euro, it’s garnered a reputation as being one of the world’s “safe-haven” of assets known for keeping its value during international crises or market turmoil.

This global status means institutional investors, retail day traders, and foreign governments all closely watch Tokyo’s official pronouncements regarding the yen. Typically, when financial markets are running smoothly, officials do not have much to say. But when events see panicked investors looking to buy yen, or foreign governments pressure the Japanese government on its broader currency policy, Japanese officialdom inevitably responds.

The government’s sensitivity to the yens movements is not immediately obvious. But an important component to the finance ministry’s currency policy is monitoring and influencing the value of the yen.

The yen is a free-floating currency and finance ministry officials are usually content to let markets determine its worth. But due to its safe haven status, the yen can rapidly appreciate during periods of uncertainty. When that happens officials give signs to market participants that they are watching the trend, and are prepared to intervene if necessary.

But why worry about a strong yen anyway? To some degree the textbook argument that a cheaper currency makes a country’s exports more competitive holds true. Many Japanese companies have offshored production, however, so this link is not as strong as it once was.

On the other hand, a weaker yen still benefits Japanese firms. A Nikkei analysis found that since 2000 a weaker yen has correlated with higher stock prices for major sectors of the Japanese economy like autos and electronics. With a cheaper yen these companies receive more bang for their buck, when repatriating profits from overseas operations. The weaker yen brought on Bank of Japan’s monetary easing under Governor Kuroda Haruhiko also contributed to the profits of large Japanese companies through the most recent economic expansion.

Japanese consumers do not benefit as much from a strong yen as their overseas counterparts. A stronger yen makes imports more affordable, but there are fewer imports for Japanese shoppers to buy compared to other developed countries. In 2018 Japan’s imported goods and services were 18% of GDP, compared to an OECD average of 30%.

The government’s official currency policy complies with the G-20 communique in refraining from competitive devaluations. Beyond this it reserves the right to intervene in foreign exchange markets to address movements that officials believe to be speculative or do not reflect the underlying strength of the Japanese economy.

In practice, the government has not intervened since 2011 in the aftermath of the Tohoku earthquake and tsunami, and the following nuclear meltdown. Alternatively the finance ministry sends signals to currency traders through the financial press and news wires in a hierarchy of increasingly serious verbal warnings. As the Finance ministry grows more alarmed over FX movements, the tone of officials media statements transition from “We are watching currency movements closely,” to “Movements are rough,” eventually culminating in “We are seeing speculative moves that do not reflect economic fundamentals.” With each step the theoretical risk of an intervention grows larger.

Currency has been among the most nagging issues in Japan’s economic relationship with the U.S. The friction between them runs back through the 1985 Plaza Accord, and even today Japan remains on the U.S. Treasury’s currency manipulator monitoring list. The issue comes up when trade is on the bilateral agenda. Japanese officials were active in ensuring that currency was not a part of the “phase one” trade deal the two countries signed in October 2019, and it has not attracted much attention since then. But if leaders want to craft a more robust agreement, the U.S. will almost certainly want to include currency provisions. That would put Washington squarely on a collision course with Tokyo, which has shown no willingness to budge on the issue.

U.S. frustrations with Japanese currency policy generally stems from lawmakers who represent districts and states which suffered job losses in industries competitive with Japan. Lawmakers from Ohio and Michigan, both of which lost jobs in the auto sector, have regularly call for stiffer currency measures against Japan.

Inversely, Japanese officials are frustrated at American lawmakers who seem to still be living in the 1980s. When it comes to U.S. policy, one Japanese official lamented that “every member of Congress thinks they’re America’s currency regulator”. They point out that the country’s current-account surplus, which lands it on the U.S. Treasury’s monitoring list, is due primarily to income from Japanese companies’ overseas investments and not a massive trade surplus. Therefore, any attempts made by U.S. negotiators for future agreements to go beyond the currency side letter agreed to by the original Trans-Pacific Partnership countries – a document that contains the same commitments as those of the G-20 communique – will meet stiff resistance from one of Japan’s most powerful bureaucratic institutions.

Japan’s currency policy is of course more than simply monitoring and influencing the value of the yen. Japan participates in currency swaps, particularly with other Asian countries, and finance ministry officials have been gradually making the yen easier to use internationally to help Japanese businesses operating abroad.

The yen’s movements are important to the prosperity of both large companies and the country’s nearly 800,000 retail FX traders. It is a responsibility they take seriously and guard cautiously. When deemed appropriate, nudging the direction of the yen in one direction or another remains one of the finance ministry’s most important roles.

(Source – Tokyo Review, Pic – Yen Bills/ “Japanexperterna.se“)

Deal Analysis – Takamatsu City, Kagawa

28 May, 2020 –

In developing a Japanese real estate portfolio, we recommend starting with safer tier 1 and 2 investments – those with more moderate income, younger builds — which tend to be more profitable and stable over time. We would recommend getting more “adventurous” with higher yielding properties outside of metropolitan areas once a more stable baseline of 60% to 70% of the portfolio is established.

One of our clients was ready to step into slightly higher yields with a property in the city of Takamatsu, albeit still central in Kagawa prefecture on the island of Shikoku in Japan. It is the capital city of the prefectural government. The area’s occupancy rate is generated through the large concentration of nationwide companies’ branch offices, which play a large role in its economy, and contains most of the national government’s branch offices for Shikoku.

Japan Properties

Japan Real Estate

Description

We are pleased at what the property has to offer –

  • Conveniently located, only a 5 minute walk to the nearest train station
  • Small studio unit, (most easily tenanted) 18.10 sqm on the 1st floor of a 12 storey building
  • Built in 1992 after changes to the Building Standards Act (1981) for earthquake resistant construction methods
  • Asking Price: ¥2,250,000 (approx. USD $21,000) with Monthly Income of 18,429 jpy (USD $171)
  • 8.40% yield net pre-tax, higher if lower price negotiated

Due Diligence

The main things we look at during the course of due diligence is the accumulations pool and renovations/repairs. We would like to see either healthy funds to cover the costs of renovations, or renovations to justify the lack of such funds.

This property shows Accumulated (Reserve) Funds of approximately ¥16,098,000 (approx. USD$150,000) at the time of our due diligence, and major renovations conducted in December of 2005. Funds are accumulated through approximately 30% of the purchase price per unit owner. We were quite satisfied with the management of the funds and the building. Although there have been no major renovations in the last 15 years, the reserve funds are sufficient for the next big renovation required. Since this building is not too old (1992), it would likely be another five to ten years before major renovations are required.

Next, we looked at the background of the tenant to ensure income stability and minimal risk on our client’s investment. The tenant is a pensioner in his seventies and in residence since Jan 2016. A reliable tenant with no late payments. He provided a security deposit and pays his own water bill.

Elderly tenants are common in Japan because of the aging population. Because of the risk of death in the property, we include a “death in property” insurance clause to cover expenses (up to app. ¥1 million (approx. USD $9,300) for cleaning, renovation and repairs). The insurance will also cover two years of lost or reduced rental income following the death. The caveat is that the next tenant in line will need to be informed of the death, which could potentially mean a slightly reduced income.

The Offer

Our client was keen on the property, but willing to take a risk by offering a lower price. The asking price was ¥2,250,000 (approx. USD $21,000). At her request, we negotiated down to ¥2,100,000 (approx. USD $19,500).

Offer accepted bringing the yield from 8.40% net pre-tax to 9.01%!!!! Low price, high yield, an excellent addition to the portfolio!

Another happy client!

 

(Back to Deals Analysis Page)

 

Olympics Officials Anticipate Tokyo Games “Greatest Ever”

27 May, 2020 –

Japan Properties

Japan Real Estate

SYDNEY (Reuters) – Senior international Olympics official John Coates said on Saturday the delayed Tokyo Olympics could end up being the greatest Games ever, coming next year as the world emerges from COVID-19 crisis.

Coates, Australia’s Olympic chief and head of the International Olympic Committee’s inspectorate for the Games, cited the examples of positive Summer Games that followed the two world wars of the 20th century.

The Tokyo Games were postponed for a year to 2021 in the aftermath of the new coronavirus outbreak. Coates said he thought Tokyo could surpass even the reputation of the 2000 Sydney Games, which he helped organise and were described by then IOC chief Juan Antonio Samaranch as “the best Olympic Games ever“.

“Because we all must wait longer than the already-long wait for an Olympics, the Games of Tokyo will gently but perceptibly echo the sheer joy and relief of the other delayed Olympics of Antwerp in 1920 and London in 1948,” he told the annual general meeting of the Australian Olympic Committee.

“I believe the Tokyo Olympics may ultimately be amongst the greatest Games ever, if not the greatest. And putting the parochialism of a proud Sydney boy aside … I certainly hope Tokyo will be.” Turning to future “opportunity“, Coates told the meeting, which was held online, that the proposal for Australia to host the Summer Olympics for the third time in 2032 was gathering pace.

The bid, centred on South East Queensland around Brisbane, had been given the official backing of the AOC in January, he said, and was now in the phase of “continuous dialogue” with the IOC’s Future Host Commission. Planning for venues, mostly already existing or temporary, and the siting of athletes villages were progressing and the necessary buy-in of local, state and national government was largely in place.

Coates, who ran a failed bid to host the Games in Brisbane in 1992, said an Olympics could provide an economic catalyst to help Queensland and Australia out of the expected post-coronavirus recession. “I have always believed in making necessity a virtue. There is already a need for jobs and growth in the Queensland economy arising from the impact of COVID-19,” he told his online audience. “Our (government partners) recognise a potential 2032… games as a critical part of the state and nation’s economic recovery in the short term, quite apart from all of the long-term health, well-being, economic and sporting legacies.”

A decision over which city or region would host the 2032 Olympics could be made as early as 2022, he added. Bids from India, Indonesia and a joint proposal from North and South Korea have also been mooted. Coates, who has been president of the AOC since 1990, also said he was confident the body was financially in “good order” to come through “this time of some chaos” after a raft of cost-cutting measures.

(Source – The Japan Times, Pic – Olympic Games/ “Takeshi“)

My Tenant Died in My Property!!!

22 May, 2020 –

When Tenants Become Sick or Die

While Japanese tenants, from a landlord perspective, are normally extremely docile and headache free, and while tenancies are generally long and stable as a rule – there is one issue that, while not unique only to Japan, is more common here due to the country’s status as the world’s fastest ageing society – as landlords in Japan, our tenants are often elderly – which means that the likelihood of them becoming severely ill or passing away during their tenancy is higher than in most other countries.

Studios & 1 Bedroom Apartments = Solitary Tenants

As most experienced investors in Japan’s property market are well aware, smaller and older condo units are Japan’s “cash-cows”, which generate the highest rental yields in the vast majority of cases, due to their extremely affordable purchase prices, and due to the fact that – in a country where birth rates are extremely low – these types of properties tend to attract the widest possible tenant-base – low to medium income earning singles, students, childless couples and single mothers – and, of course, an ever increasing number of retirees and pensioners.

In the case of elderly tenants, however, the fact that they can only afford these extremely small, old and cheap rental units, most likely means that they have little, if any, family to lean on – and in many cases are either childless, enstranged from any living relatives, and extremely close to being destitute.

What this sad fact means in practice is that, their (and your, as their landlord) main body of support are local government welfare programs and support centres. These provide them with a rent allowance, other essential services, and are supposed to routinely check on their wellbeing by calling or visiting them regularly – although, if the welfare recipient tends to prefer to be left alone, government officials, who are already over-swamped with work in a rapidly ageing society, tend to respect their wishes – which means that, in many cases, the only people to have any visual or spoken contact with these lonely old folks are their neighbours – and even their contact may be limited to a brief glance if and when they happen to cross paths coming into or out of their respective apartments.

No alt text provided for this image

Landlord Securities

Similar to other countries, in Japan as well, tenants are required to provide some form of landlord security when they move into a property. These securities can take three forms, all of which are limited by their scope and capacity, but provide the “first line of defence” in case a tenant becomes ill or passes away during their tenancy –

1. Personal guarantors

Personal guarantors are family members or acquaintances – and in cases of long tenancies, which began while the tenant was still in gainful employment, can be employers as well – who are, by virtue of co-signing the tenancy lease, legally responsible for any damages or expenes caused by the tenant and incurred by the landlord, which the tenant for any reason does not or cannot pay for.

Personal guarantors are traditionally the weakest form of security, since, particularly in the case of elderly tenants, may no longer be able to live up to their obligations due to their age (parents, siblings, etc, who may be of similar or even older age – if still alive at all) – and in any case, with Japan’s laws being tenant-oriented, their obligations are difficult to enforce.

2. Security deposits

“Money in the bank”, in a very literal sense – but normally limited to only 1-2 months of rental income/expenses.

3. Rent insurance / Guarantee company

The best type of security, which covers 3 months of rental income/expenses, or more, depending on individual policies and circumstances.

(Additionally to the above securities, if and when a tenant becomes hospitalised for an extended period of time and cannot physically deposit their rent (many elderly tenants are unaware of the option or unable to setup automatic payments via their bank accounts) – the local government welfare department will normally contact the tenant’s property manager to inform them of the hospitalisation, and pay the rent out of the tenant’s monthly allowance on their behalf).

Indefinite Hospitalisation

In case a tenant is hospitalised with no end date in sight, or is hospitalised and then passes away in the hospital, the landlord may unilateraly cancel the tenancy lease, and begin work to renovate, repair and re-populate the property – while simultaneously taking action, if required, to try and retreive the highest possible amount of compensation from the securities detailed above.

However, sometimes the unthinkable (if not uncommon) happens –

No alt text provided for this image

The Tenant Dies In the Property

If and when a tenant passes away in a property they are occupying, the following procedures, all of which can be quite costly, must take place –

* Removal of the body and cause of death investigation (performed by local police force)

* Death scene & remains cleaning (performed by special purpose companies)

* Buddhist purification ceremony (performed by local shrine monks)

* Removal and disposal of personal belongings

* Initial “standard” cleaning & odors removal

* Renovations & repairs

* Final “standard” cleaning & odors removal

Following the above procedures, the property can now be re-tenanted – however, the next tenant in line must, by law, be informed that a death has occurred in the property – and a notice to this effect (“Special circumstances notice”) must be included in the advertisement of the vacant property.

In Japan, which, while not overly religious, is a deeply traditional and somewhat superstitious environment, most potential tenants would tend to avoid properties where a death has occurred – and, while accidental or natural deaths aren’t avoided quite as stingently as properties where a murder or suicide has occurred – it would still be quite difficult to source the next tenant under these circumstances.

This results in most of these properties being advertised at significantly lower rent amounts – which, naturally, tends to draw lower quality tenants (by definition, anyone who is simply looking for the cheapest possible property, regardless of circumstances).

Mitigating Risk & Minimising Damages

What, then, is a landlord to do, in a country where such a large percentage of potential tenants are elderly destitute pensioners and retirees? Not only would one deny one’s self of a huge tenants database, but there’s also a point to be made as to avoiding age discriminiation practices and general cold-heartedness on behalf of landlords – these tenants well and truly need a break, mainly due to the fact that so many landlords shun them, for the exact reasons discussed above. Fortunately –

There’s an Insurance Policy for Everything

Insurance companies in Japan, which, like insurance companies anywhere in the world, have quickly realised the opportunities the rapidly ageing population presents, have risen to the challenge, and have come up with a “Death in Property” coverage clause, which can be added to any rental property. For a relatively low premium of only $20-30 annually (as of the date of this article being published), landlords can receive the following benefits if and when a tenant passes in the property –

  1. Up to 1 mil JPY (app. $10,000 in cleaning, repairs & renovation expenses)

and, more significantly –

2. Up to 2 years of lost or reduced rental income as a result of the death (including both an extended vacancy AND re-population of the property at a lower rent amount).

As long as invoices are presented for the first list of items, and an advertisement is placed for new tenants (at the previous rent amount – so no need to reduce the asking rent) – the landlord will be eligible for full compensation as per the two clauses above – with the cleaning/repairs/renovation compensation distributed once the expenses have been incurred – and the two year rental income compensation distributed either at the end of the 2 year period, or at 1 year intervals (50% after one year, with the rest payable at the end of the period).

This type of policy does not discriminate between causes and circumstances of tenant death – and is therefore highly recommended, regarded of the actual age of the tenants – as younger tenants can also suffer accidental or health-related deaths – and at such a low premium, there’s absolutely no reason not to apply for such coverage – the amount of headaches and expenses which it can help landlords avoid cannot be overstated.

————————————————————————————————————-

Are you interested in Japan’s real-estate property 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

Beware of Old Condos!!! (But not for the Reason you Think)

22 May, 2020 –

The Attraction

Individual condominium units in co-owned buildings are the most popular asset class in Japan’s real-estate property investment market – particularly for smaller private investors – for the following reasons –

1.     Affordability

Condo units, which come with a smaller land footprint (the building’s entire land footprint is distributed between the owners, proportionate to their units’ floorplan sizes), are usually the cheapest way to enter the market, and provide immediate turnkey profitability potential. The only cheaper asset type out there is rural land, with or without old, mostly abandoned houses built on it – but these types of properties rarely turn any profit upon purchase, and would require significant renovation and/or marketing work before they can be tenanted and start generating income – if at all. 

Well located condo units, on the other hand, either generate income from the moment of purchase (if tenanted) or alternatively, can be easily tenanted, with perhaps only a relatively low extra investment required, for minor renovations or improvements.

2.     Stability

The monthly contributions made by unit owners to the co-owned building’s reserve funds pool, as well as the monthly management fees, would generally cover most or all structural and common area maintenance expenses (including individual balconies). Although these fees tend to rise over time, as the building gets older and requires more regular maintenance and renovation – there are very few surprises in store for unit owners, who can generally rest assured that they will not be asked for any unexpected bulk payments for structural or common area maintenance and renovation. Both planned and unplanned repairs and renovations will normally be taken care of by the building management company, with the funds required for them taken out of these reserve funds pools.

One-off payments would only be required in cases where severe unexpected damage has occurred (such as in the case of a major earthquake or other natural disaster) – and even in those cases, if the reserve funds accumulated aren’t sufficient, the owners’ co-op would normally prefer to take out a loan for this purpose – and raise monthly fees to compensate over time – as opposed to charging unit owners a bulk fee for the repairs.

 

3.     “Tenantability”

Condo units are the preferred living arrangement for singles, childless couples and small, granular families – and these tenant profiles compose the largest portion of the available tenant base in Japan, due to the country’s demographics and fast-declining/ageing population trend. Larger families, while they certainly do exist, are more rare – and would in any case normally prefer to take out a mortgage and purchase their own, larger condo or house, whenever possible.

As a result, smaller units (studios, 1-2 bedrooms) in popular residential areas of medium and large cities, rarely experience long vacancies – particularly if the building is well maintained – which, of course, helps to maintain a healthy and stable income stream.

4.     Profitability

In Japan, and particularly in Japan’s medium and large cities, which are densely populated metropolitan centres located in a country which, topographically, consists mainly of mountainous ranges – space is a premium. Building upwards, in tall building format, even in suburban areas – as opposed to the sprawling house format more common in most Western countries – and small units floorspaces, utilising compact and versatile interior design, is the norm here – and larger floorspace properties come at a far higher price – a price which rises far more sharply than the achievable rent amounts for these larger units (rents also rise with the increase in space, but not nearly as sharply as the purchase price does).

As a result, condos with smaller floorplans – designed for the minimal living space which Japanese singles, couples and small families are used to – tend to generate far higher yields than larger condo units (which are considered luxurious in Japan) or houses.

No alt text provided for this image

The Age Factor

Another unique aspect of Japan’s property market, which is derived from the Japanese obsession with everything new and modern, means that buildings, and in particular smaller buildings that are not reinforced concrete based, are made of materials that are generally not built to last much beyond 3 decades. And so, it is very rare to see the typical Western brick or stone homes that can withstand the test of time, and/or constant battering of the elements over an extended period of time. As a result, older buildings, and particularly smaller, wood or steel-framed wood structures, tend to drop in price sharply during their life spans – and again, while rent achievable for these older builds also decreases with age, it doesn’t decrease nearly as sharply as the purchase price graph does – resulting in significantly higher rental yields for smaller, older condo units. These smaller units can be purchased for as low as 20-30,000 USD, generating rental yields as high as 8-10% net pre-tax annually, in many attractive locations all around Japan.

 

The Danger Inherent in Cash-Cows

Due to all of the factors laid out above, the highest yielding and most predictable/stable asset class in Japan are smaller, older condo units in co-owned blocks – and as such, these tend to be very popular with investors – particularly private, smaller scale investors who are operating in this arena for the very first time, and are naturally looking for the highest possible yield (which makes sense, considering Japan’s lack of stable, long term capital growth since the early 1990’s – a trend halted, albeit only partially, since late 2012).

However, there is one unique risk inherent in these “cash-cows”, which, while not insurmountable, should be taken into account before one pours their entire capital or savings into a large portfolio consisting only, or mostly, of this asset class – and this particular risk may not be obvious to many first time buyers – namely –

Shady Developers

While Japan, as a rule, is an honest and law-abiding society – there are rotten apples everywhere, and Japan is no exception. In the real-estate sector, these rotten apples are often found in the residential development area – and these firms would not hesitate to use any means at their disposal to “nab” an under-priced or under-evaluated asset, completely disregarding the norms – or even the laws, written and unwritten alike – of fair business negotiation and deal-making. And, considering the vast majority of individual unit owners are normally small-time investors, with far less experience, or even owners-occupiers, who have purchased a unit for their own use and have been living in it for decades – it is quite easy for these shady developers to use scare tactics and aggressive negotiation techniques, which would be considered unfair, immoral or outright illegal, in their quest to obtain the best possible land parcel, for the cheapest possible price – and politeness, kindness and consideration be damned.

In practice, this means that, as a building gets older and maintenance, renovation requirements and monthly fees start creeping upwards, these unscrupulous practitioners would often swoop in, and begin to apply pressure on owner co-ops to sell the building to them at a ridiculously low price. To achieve this, they’ll quote inaccurate figures and statistics meant to pressure the owners into selling, under the stated threat of potential loss if they refuse or try to postpone the sale. This tactic involves such things as equating a building’s tax depreciation life-span with its actual life-span – two evaluation methods that often have nothing to do with each other, since buildings, and in particular reinforced concrete buildings, can be practically and profitably renovated and brought up to speed with current liveable and rentable standards, far beyond their official tax depreciation life-span of 47 years – maintaining their market value, or even increasing it, if land prices have gone up significantly over a period of a few years.

Since a majority of 80% agreement is all that is required for major decisions such as selling a building, it is possible for these developers to often convince enough of the individual unit owners to sell the building to them – and even though the remaining 20% would still be officially and legally in possession of their individual units – all common areas, utilities and facilities in the building would now belong to the developer, who, in most cases, is seeking to demolish the property and re-build, or otherwise re-purpose the attractive land parcel. As the sole owner of the building’s common facilities, the new owners of the structure are now at liberty to stop the provision of power, water and structural maintenance and repairs to those unit owners, rendering their units unliveable and unrentable in the process. They can also increase monthly fees to those unit owners at the same time, until these owners are no longer able to financially hold on to their properties, and are then forced to forego them, or to finally agree to sell them to the developer, at an even lower price than that which was originally offered.

No alt text provided for this image

To achieve this 80% agreement, some of these shady operators will resort to illegal means such as lying (telling unit owners they contact that agreement is already very close to 80%, and threatening them with being the only remaining unit owners in the building in a matter of weeks), as well to bribing owner co-op representatives, promising them increased compensation upon sale of the building, and otherwise coercing them into exerting pressure on other unit owners, until they reach their 80% agreement goal.

A more straight forward tactic which often helps the developers achieve this goal – and this one is often practiced by even the less corrupt among them – is to first purchase a small percentage of the units in the building from some of the owners, at average market prices – which then provides them with entry and participation in owner co-op meetings, as well as voting rights on any owner co-op decisions – which of course further helps to increase their chances of achieving the necessary agreement, when the time comes to put their end-game plan into action, and attempt to achieve agreement to sell the entire structure, a year or two down the track.

In this way, owners are often pressured and convinced to sell buildings which, while older, may be completely profitable, maintainable and attractive for tenants, at an extremely low price – and, while some investors may have purchased their units a decade or two prior to this sale, and have profited enough from their rental income streams to still be well in the green – others, and especially those who have purchased their units when the building was already 35-45 years old, may find that this happens soon after their purchase, and that they haven’t yet accrued enough profits from their unit to make their bottom line attractive enough – but are still forced to sell regardless – even though they should have been able to extract at least another decade of profitable rental income from their properties.

 

Mitigating the Risk

All of the above is not meant to scare potential investors off these older cash-cow condo units, not by any means – as they CAN BE profitable and worthy investments – but simply to point out that the risk does exist, and that one would do well to be aware of it prior to pulling the trigger on any particular purchase.

Specifically, would-be investors would do well to implement one or more of the following strategies –

1)    Stick to buildings that are no older than 35 years at the time of purchase (which would normally provide owners with at least a decade of stable rental income before anyone considers buying or selling it).

 

2)    When purchasing units in older buildings, try to stick to the huge reinforced concrete monsters, located in extremely attractive locations – buildings with 100-200 units, which are always in demand, cost far more for developers to demolish and dispose of – and also take the total compensation payable to existing unit owners to a far higher level – which in turn makes the capital outlay and efforts involved in the exercise not worth it for most smaller developers. The only ones interested in these projects tend to be the few nationally acclaimed mega-developers, who are under constant scrutiny and tend to be less dubious in their purchase tactics.

 

3)    Review the building’s renovation history carefully, to make sure the building management company appointed by the owners’ co-op has been doing a good, or at least a reasonable job, in keeping the building liveable and profitable over the past decade or so – as unit owners who are turning a neat profit and are satisfied with the performance of their property are far less likely to be easily convinced to sell.

 

4)    Naturally, the best risk mitigation strategy, if you can afford it, is to simply purchase and own the entire structure yourself – in which case you’d be the only one “calling the shots” on all potential purchase offers down the track. And with Japan offering a multitude of smaller, well located and profitable condo blocks for as low as 30 mil JPY (less than 300,000 USD) – there are plenty of options available – AND, you’ll enjoy the added value of having the flexibility to do as you wish with your property, and not be subject to owner co-op regulations and bylaws – regulations which normally prohibit commercial or storage purpose rentals, short term rentals such as monthly leases or AirBnb type guest accommodation, and so forth. Additionally, if and when the building DOES become less profitable, you’ll always have the option to demolish and dispose of it yourself (not too expensive for wooden or steel-framed wood structures), then re-purpose the land parcel for more creative and cost-efficient uses, even if you’re short on capital – such as constructing warehouses and other logistics facilities (an asset class that is in very high demand with today’s e-commerce oriented culture), or even parking lots (which are very low on maintenance and upkeep, and can be very profitable if several stories high and in high-demand metropolitan areas).

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

Coronavirus Causes Modernized Shift in Work Culture in Japan

18 May, 2020 –

Japan Properties

Japan Real Estate

For a nation that prides itself on technological innovation, Japanese companies have for too long relied on outdated technology such as the fax machine. But that is finally changing. Julian Ryall reports.

The coronavirus pandemic is changing many aspects of the ways in which Japan works, with analysts suggesting that the crisis offers a chance for companies that still hold deeply traditional views of what work entails to ditch the old ways and catch up with their leaner and more nimble rivals overseas.

There are arguably two most glaring symbols of just how old-fashioned and conservative the average Japanese company is: the fax machine and the “hanko,” or carved official seal.

A study by the government last year determined that virtually every Japanese company and one-third of all households still use fax machines — technology that dates from the 1980s — for a good proportion of their communications. Equally, the hanko is an unshakable requirement for every piece of official paperwork and the imprint has to be physically applied in tandem with or in place of a personal signature.

Technologically advanced

And while the drawbacks in an era of instant communication are evident, the fax and the hanko have endured in Japan — ironically, a nation that prides itself on its technological prowess.

“We are seeing the coronavirus ushering in a new way of working in Japan, and I think it’s about time,” said Ivan Tselichtchev, a professor at the Niigata University of Management, who says the nation’s attachment to the fax machine is particularly difficult to fathom, but is probably rooted in older employees’ reluctance to trust modern technology.

Criticism of the reliance on faxes has risen after a doctor used Twitter to criticize the legal requirement that hospitals and clinics complete pages of paperwork on new cases of coronavirus by hand and then send it all to public health centers — where the data is input by hand into a computer so authorities can monitor the spread of the disease.

“Come on, let’s stop this,” tweeted the doctor, a specialist in respiratory medicine at a hospital. “Reporting cases in handwriting? Even with the coronavirus, we are writing by hand and faxing.”

He added that the system is a throwback to the Showa period, the era that coincides with the reign of Emperor Hirohito, from 1926 until 1989. The doctor’s tweet generated echoes of support, with one message reading, “This is 2020. Please stop this nonsense, Japan.”

Changes coming

Professor Tselichtchev agrees that it is time for the office fax machine to be abolished, and he is confident that time is coming.

“I think companies have been hanging on to their fax machines because of the perception that they are secure,” he told DW. “Some people, especially those in their 50s and 60s, have a very deep apprehension about computer hacking, data leaks and the web in general, so they see the fax as safe.

“But I already see a change happening,” he added. “Older workers are beginning to retire and the new generation coming through are more comfortable with modern technologies. The fear of not having a physical paper document that can actually be held is fading.”

The government appears to be paying heed to calls for modernization, with Masaaki Taira, the minister who oversees Japan’s information technology policy, announcing that from May 10, doctors will be able to send data on coronavirus infection cases to public health centers by electronic mail.

Similarly, Prime Minister Shinzo Abe himself has instructed a review of the custom that requires official documents to be stamped with a “hanko” seal. He pointed out that insistence on applying a seal to paperwork flew in the face of official government guidelines for people to keep their distance from everyone else and avoid being in an office environment as much as possible.

The evolution has been swift, with a number of companies coming up with ideas for “virtual hanko” that can be applied to online paperwork.

‘More flexible and resilient’

Another change in the work environment has been working from home, another inevitable innovation as the authorities called on companies to reduce the number of people in offices by 80%. Achieving that would also dramatically cut the number of people crammed into commuter trains and buses and potentially sharing the virus.

Makoto Hosomura works in a business that has traditionally required a lot of face-to-face time with customers, but he says he is adapting to a new way of working. “I am an importer of wines and I used to spend a lot of my time traveling to different restaurants and shops in and around Tokyo to meet customers and tell them about new arrivals or what would be arriving soon,” he said.

“We cannot do that any more, so I’m working from home and I spend most of my day on the computer or on the phone speaking with clients,” Hosomura said. “At first it was difficult. I’ve been doing this job for nearly 40 years and you get used to a certain way of doing things, and customers are the same. But that’s just no longer possible.

“I’m looking forward to being able to see my customers again once the government does relax the restrictions, but I’ve also got used to working from home and I’m probably more efficient than I used to be,” he admitted. “I don’t think I’ll completely go back to the way we used to work.”

Jeff Kingston, director of Asian Studies at the Tokyo campus of Temple University, said he believes that Japanese workers — many of whom detested their congested commutes, long hours in the office and the inefficiencies of their organizations — will want to continue their new way of working once the lockdown is eased.

“I feel that the pandemic will see all the arguments that were put forward in the past for not changing work habits simply fade into the rear-view mirror,” he said.

“It has already demonstrated that antiquated systems can be injurious to public health and the national interest, while the generation that is wedded to fax machines and so on is also fading away,” he added. “I see Japanese work culture slowly but surely becoming more flexible and resilient.”

(Source – DW, Pic – Post Boxes and Fax Machine/ “Jisc infoNet“)

Japan’s Gaming Industry Accepting Operator Applications for its Integrated Resorts

Japan Properties

Japan Real Estate

12 May, 2020 –

The world continues to change and evolve at a rapid pace with the outbreak of COVID-19.  It began to hit the gaming industry in a meaningful way with the shutdown of the casinos in Macau back in February. The effects have now spread throughout the industry, just as the disease has, to encompass almost every corner of the gaming world – from Cambodia to the United States and from the Philippines to Europe, including online operations as well as casinos. The industry continues to face challenges regarding how and when to reopen, while operators also look at future development opportunities that may still exist, with the bullseye of opportunity first and foremost centered on Japan.

Japan has faced its own challenges over the last few months as COVID-19 has gripped the nation. Despite a difficult series of events that have dominated headlines in recent months, namely the controversial Diamond Princess cruise ship docked in Yokohama Bay, the postponement of the Olympics until 2021 and the recent quarantine orders enacted by Prime Minister Shinzo Abe in certain prefectures, Japan continues to ask the question of how its integrated resort process will move forward.

As of the date of this article, the Central Government continues to stay on pace, with the acceptance of applications set to occur between January 2021 and July 2021. Even as the industry faces its greatest challenge, prefectures have announced the details of their processes as they continue to move forward to meet this Central Government deadline.

As the process unfolds, one of the key questions that will be answered is how interested operators are in new markets given the fact they are burning through cash to keep their properties open around the globe. The current environment is impacting their overall liquidity and balance sheets, affecting each potential bidder’s ability to commit to a project. Every prefecture that plans to submit to the Central Government will look into the financial suitability of these organizations as well as their long-term ability to finance a project that may in some cases reach US$10 billion or more in investment.

In these unprecedented and uncertain times, one certainty is that operators will continue to draw down on debt to keep their operations functional. In some markets like Macau, where every one of the concessionaires has shown an interest in Japan, there is less control over operations as the “people quotient” is not as variable as in other markets. In other words, some of these companies in other markets such as the United States have furloughed their workers, while others have remained committed to paying their workforce during the Great Shutdown.

These operators also face challenges as they try to reemerge and ramp up operations in a prudent fashion to meet market demand. Evaluation of balance sheets and operations during this time can only help, providing Japan with further insights for selecting the type of operators it will want in the market.

Japan continues to remain a strong opportunity for the next iteration of integrated resorts, but if they build it, will operators come? There are several factors that could decide whether Japan will allow the market to reach its full potential, which would bring a full complement of those bidders willing to invest billions of dollars into one of the three available licenses.

While many of the major operators continue to adjust their balance sheets to weather this storm, the duration of the situation might challenge those same operators’ previous interests as they struggle to keep current assets viable. This may lead to an abandonment of the chase in Japan that some have been undergoing for 20 years.

Japan, like any major country impacted by this pandemic, will be looking for major investment in economic development projects that spur job creation, and integrated resorts will help fill that gap while diversifying the tourism product.  However, Japan needs to be mindful of the companies that would be the ideal partners for these large-scale developments. Slowing down the Central Government timeline by six months to a year can only help, allowing these major operators to regain the foothold they held just a few months ago.

Finalizing the fundamental policy and the framework for integrated resorts should be the top priority. Delaying the timeline as they did the Olympics will enhance the potential ability for long-term viability of IRs in Japan. Given this is an opportunity that very seldom comes around in the gaming industry, it is better to build it right so that the preferred operators will come to the market and fulfill Japan’s goals of setting the new standard in IRs.

(Source – IAG, Pic – The Venetian Casino/ “Nick Amoscato“)