How Long Term Foreign Residents can Benefit from Japan’s Tax Incentives

Japan Real Estate

Japan Properties

27 Nov, 2020 –

TOKYO – Japan plans to implement tax incentives for long-term foreign residents as part of efforts to turn the country into a major international financial hub, government sources said Wednesday. Under the current system, Japan imposes an inheritance tax on foreigners’ overseas assets if they live in the country for more than 10 years, but the special measure to be introduced will allow them to be exempted from the imposition, according to the sources.

The government also plans to allow unlisted firms including investment funds to add remuneration of executives to business expenses to help reduce their corporate taxes, the sources said. The incentives will be included in the tax reform package for fiscal 2021 to be compiled by the ruling Liberal Democratic Party and its junior coalition Komeito. The Cabinet is expected to approve the scheme by the end of the year, with related bills to be submitted to the parliament early next year, according to the sources.

Behind the introduction of the new tax breaks is the fact that many highly skilled financial professionals from abroad leave Japan within 10 years partly due to the current taxation system, a ruling party source said. Foreigners who have resided here for 10 years or less only pay taxes on domestic properties. “The tax incentive will deliver a message that we want them to live longer and work longer in Japan,” the source said.

Prime Minister Yoshihide Suga pledged last month in his first policy speech in parliament since he succeeded Shinzo Abe in September that Japan hopes to be home to a global financial center. The cities of Tokyo, Osaka and Fukuoka have emerged as candidates, with the aim of replacing Hong Kong as an Asian financial hub amid threats to the territory’s semi-autonomy posed by China’s imposition of a national security law this summer.

In October, Tokyo said that it had set up a liaison office in Hong Kong, while Fukuoka, which has drawn a number of IT firms of late, opened a consultation center in the southwestern Japan city targeting foreign financial institutions. Financial firm SBI Holdings Inc. is pushing for a plan to create, in cooperation with the local governments, an international financial center in the western Japan prefectures of Hyogo and Osaka, which has Japan’s first integrated bourse for stocks and commodity futures.

According to the latest Global Financial Centers Index from London-based think tank Z/Yen Group and the China Development Institute released in September, New York and London dominated the top two spots, followed by Shanghai, Tokyo, Hong Kong and Singapore. Osaka came in 39th, and Fukuoka was outside the ranking covering more than 100 locations. Higher taxes and language barriers are often cited as making Japan less attractive than other Asian rivals in the race to become an international financial hub.

To prepare to accept more foreign financial institutions and investment funds trying to expand their operations into the world’s third-largest economy, the Japanese Finance Ministry and the Financial Services Agency have said they will set up an office next January to give them advice in English.

 

 

(Source – Kyodo News, Pic – Marunouchi/ “CLF“)

“Gaijin to Gaijin”​ – Investing in US Army & Navy Rentals

19 Nov, 2020 –

The Premise

Japan Properties

Japan Real Estate

At any given time, there are over 50,000 US army & navy troops stationed all around Japan, in 24 different bases & related military facilities – from the tropical islands of Okinawa in the South-West, and all the way up to Aomori, in the North-East.

Taking into account dependents, such as spouses and children, and another 5-6,000 non-enlisted US expat civilians working at the bases, this amounts to approximately 100,000 foreigners, spread all around the country, who all need a place to live.

The Opportunity

The vast majority of these tenants are extremely well behaved, and take good care of the properties they reside in – they have to, since any misbehavior on their part would be reported to the base’s housing office, which is in charge of approving their rent allowance – and any “monkey business” they’d get up to would reflect badly on them and endanger said allowance, as well as their continued stationing here in Japan.

Furthermore, said housing office’s rent allowances are extremely generous in Japanese standards – often twice or even three times the average rent obtainable from a “standard” Japanese tenant for those same properties – and since the recipients cannot use any of these funds for any other purpose aside from paying their rents, they will of course choose to get the best property they can get for said allowance – which is why the few Japanese landlords who do not have an issue leasing their properties to foreigners (who are still a rarity in Japan’s highly ethno-centric environment), are making a killing on these rentals.

The Challenges

A few challenges, however, are facing foreigner landlords who also wish to cash in on this opportunity – all of them easy to mitigate, but ones which would-be investors should be aware of –

1. With most bases located in small to medium sized towns, and with Japan’s less-than-ideal capital gains trend – or lack thereof – as it is, there is very little incentive to purchase properties in the vast majority of these locations – ASIDE from cashing in on said generous rent allowance – which means, essentially, that you’ll always want base personnel to be renting these properties from you. Otherwise, and considering that the average rent for local Japanese tenants would be half or a third of said allowance, there’s really no justification for purchasing in these areas, barring a spectacular deal indeed. Such spectacular deals wouldn’t be the norm, with the exception being, perhaps, a run-down property, sold at a heavily discounted price, which a buyer who is DIY inclined may be able to renovate on their own.

In all other cases, you’d want that cashflow to kick in from day one, and set the rent as high as that rent allowance would allow, in order to mitigate the potential risk of the base moving away or shutting down – which would leave you with average rents, an older property requiring frequent maintenance, and a location which does not stand to gain in value in the vast majority of cases. You should aim to reimburse your investment capital through the bloated rental income as quickly as possible, so that any further income would be pure profit – which isn’t too difficult, considering these bloated rent amounts could easily slip into double digit yield territory, as opposed to most other Japanese property investments, which would rarely net anything above 7-8% at best, and usually even less than that.

2. Each base’s housing office would have its own criteria and stipulation for which properties qualify for which amount of rent allowance – and you’d want to review said criteria ahead of any purchase, to make sure you’re buying a property that DOES, in fact, qualify and would attract those base personnel wanting to rent it from you. In the case of some bases, these criteria are rather easy to satisfy (“maximum X kilometers from the base”, “minimum Y square metres in size”, etc) – and in other cases, they’re a bit more stringent (“minimum doors width must accommodate standard issue US military appliances”, “must have a designated car parking space”), and so forth – so best be prepared before pulling the trigger.

3. Lastly, while the large number of base personnel looking for rentals around these towns has led to foreigner-oriented solutions, either in the form of local property management companies who can provide some level of English services, or native Japanese base staffers who can assist in dealing with non-English speaking property management agencies– for some reason the vast majority of US army & navy personnel in Japan have no real interest in buying and owning real estate in the land of the rising sun (most likely because they’re mainly focused on saving up for their existing or future mortgage payments back home). For this reason, and because almost all landlords in these areas are native Japanese, there are no real estate agencies in these locations who can provide purchase-related services to interested non-Japanese buyers. The solution to this challenge is to either find a reliable, English speaking realtor in one of Japan’s bigger metropolitan centres (Tokyo is usually your best bet, but not all Tokyo realtors will be interested in facilitating sales of these cheaper properties around the bases, since their commission in these cases would be rather low as well) – or, alternatively, to hire the services of a buyers’ agent and proxy such as ourselves, who can provide you with access to the entire national market.

No alt text provided for this image

In any case, the upside of this potential market – which is, as of yet, almost 100% unknown to and untapped by non-Japanese investors – is phenomenal. Japan is closely linked to the US, both economically and militarily, a relationship which isn’t going anywhere – and neither are the US’ army & navy bases all around the country.

So far, it’s been strictly the locals – savvy Japanese investors – who have been cashing in on the “gaijins” – it may be high time for a bit of “gaijin to gaijin” business in the land of the rising sun – at least as far as these bases, their personnel, and the generous rent allowance they come with is concerned. To watch/listen to an informative business call with two entrepreneurial young investors who are themselves serving in the army & in the process of capitalizing on this business plan, and are also planning to scale it to other investors, click here.

 

(Source – Nippon Tradings, Pic – Gaijin to Gaijin / “Ziv Nakjima-Magen“)

Japan Proposes “Las Vegas” Type Nightlife with Development of Casino Resorts

Japan Properties

Japan Real Estate

15 Nov, 2020 –

When party or stag destinations are thought of, Amsterdam, Barcelona, Las Vegas or Prague, the most recent favorite, is typically mentioned due to comparably low booze prices as well as having vibrant, flashy casinos. However, Japan is hardly ever one of those destinations.

Could this all be set to change? A bill was passed in July 2018 which made the operation of casinos legal. Gambling in Japan has been all but illegal since the early 20th century. The majority of people interested in gambling only able to play on pachinko machines, bet on the national lottery and bet on public sports. The changes are going to be brought on by the construction of three integrated resorts which will each be built in different cities in Japan. There is currently a bid for which cities the integrated resorts will be built in however the COVID-19 pandemic has caused a delay in the process of construction more than once.

The biggest question that arises from this development is; will this create an increase in the existing nightlife in Japan and will it potentially be a destination for partygoers?

What Exactly Is Going To Change?

The most likely candidates for the integrated resorts at the current time are the cities of Osaka, Yokohama and Nagasaki, with the prefectures of Wakayama and Hokkaido also having expressed interest. This has all come to fruition as Japanese leaders had hoped to increase the number of international tourists by 67% by 2020. These resorts will include a hotel with a casino, luxury retail, fine dining, entertainment shows and potential theme parks. The development has not come without difficulties though as some backers have been left uncertain in the wake of COVID-19, with Las Vegas Sands abruptly withdrawing from the process to secure one of Japan’s integrated resort licenses. MGM recently decided to only take a minority role, claiming a 40-45% stake. Prime Minister, Yoshihide Suga, said that despite delays, the construction of these resorts will continue as planned as they will have international exhibition facilities, convention facilities, and large hotels to entertain whole families.

Why this is a huge deal for Japan

In 1907 gambling was made illegal in Japan due to chapter 23 of the Criminal Code, although this does not mean that all forms of gambling are illegal. The national lottery has had an interesting history. It too was not an ongoing legal activity until the Japan Lottery Association was established in 1964 and is strictly regulated. The most common form of gambling in Japan is pachinko machines, which is played by 7.5% of the population and makes an estimate of $200 billion per year. In less than 10 years, Japan has seen an increase of 22.9 million in the number of tourists the country receives. This makes it the third most visited country in the Asia-Pacific region, more popular than Malaysia and Macau, of which both countries have casinos. Macau reached an all-time high of 36.2 million tourists in 2019 with Las Vegas attracting 49.5 million. The introduction of the integrated resorts in Japan could be a huge deal for the country. Japan has already received around 30 million tourists over the last few years, the potential presence of integrated resorts could significantly boost that number.

Will this make Japan the nightlife destination of Asia

The introduction of integrated resorts could significantly impact not only the economy of Japan, but nightlife as well. The country already has a very vibrant and diverse nightlife scene with hundreds of hostess clubs, bars, restaurants and nightclubs in cities such as Tokyo. Tourists who don’t want alcohol included in their activities could also visit the many karaoke and bowling venues as well as gaming arcades. Osaka is another city with a very active nightlife although mainly centered around bars, nightclubs and pubs. These resorts could highlight a void in the market that some cities have which many new businesses such as hotels and entertainment venues could fill, by opening around the integrated resorts to accommodate the potential influx of tourists. The Prime Minster said that these resorts will cause Japan to become a greater attraction for international tourists and bring in a larger segment of travelers that will help the country’s economy expand.

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

The Pandemic and Managerial Equality for Women in Japan

Japan Business News

Japan Properties

04 Nov, 2020 –

Japan’s work culture is in many ways a legacy of decades past, a time when most women got married, quit their jobs and raised a family, while their husbands became the sole breadwinner with long work hours. Unfortunately, raising a family and caring for elderly family members has stereotyped women as the lesser valued gender in the eyes of an employer. The coronavirus is giving this inequality a shake-up. What is surprising is that this is not the first time this need for equality has taken the spotlight. The end of the 1990s Lost Decade was the final decade where the country’s birth rate would exceed the death rate and salaried men alone were no longer adequate in the labour market elevating the need for temporary workers and women’s participation. But, not enough was done.

This time, as a result of the pandemic, the widespread “work from home” necessity became the alternative to Japan’s typical long office hours and time-consuming travel. Suddenly, an employee could balance work and home life. Companies found themselves reforming conventional time-based working styles to a Western-style results-based system that rewards productivity. This meant women who traditionally were caring for children or elderly family members ‘could’ flexibly enter or re-enter the workforce with work and family balance.

“Could” is the operative word. But, is Japan ready to allow women into the workforce with equal status to men? To put the severity of gender inequality gap into perspective let’s look at the statistics. In 2019, Japan ranked low on the World Economic Forum’s gender-gap rankings –121st among 153 countries. And in 2018, in last place among major advanced economies. Women held only 15 percent of senior and leadership positions in the business field. Earnings have been much less than men with many women working without permanent positions. In 2018, men in Japan earned 5.45 million yen (USD $52,000) on average, nearly twice as much as women who made 2.93 million yen ($28,000). Part of the reason is that the majority of women who worked in temporary and part-time positions, left the labor force out of guilt, feeling compelled to sacrifice their career or professional life for domestic duties as per the old-fashioned mindset that child-rearing is a woman’s job.

An IMF Working Paper found women rather than men often face greater responsibility and guilt than men toward family obligations such as cooking and elderly caregiving. Because they are willing to sacrifice pay to avoid overtime, men are quite simply the preferred employee over women. Service sector jobs like retail, restaurants and tourism were the hardest hit with positions largely held by women. And to add insult to injury, many of those positions were non-regular jobs that didn’t offer the same benefits and job security of regular jobs.

For the progress of equality, the government needs to have a far greater sense over the degree of which women’s incomes and labor participation rates have dropped. Former Prime Minister Shinzo Abe recognized the need for women in the workplace. However, his call for better utilization of the country’s female population and promise to fill 30% of leadership positions nationwide and plans to increase jobs with benefits for security as well as positions of power by 2020 fell by the wayside with the coronavirus pandemic.

Prime Minister Yoshihide Suga took office on Sept. 16, 2020. He said one of his key policy goals is to establish an agency to promote digitalization to support the work from home transition. Digital transformation minister Takuya Hirai said he thinks a woman should head this government agency stating on a satellite television program by Nippon Television Network Corp., “In the digital world, meetings held overseas are dominated by women. At digital-related meetings in Japan, all I see are men in black.” His recognition of the inequality is certainly a start. But, actions speak louder than words.

The pandemic has knocked down the stiff office door for flexible work hours bringing both men and women at an even keel to work from home. Next, if the new government can bring awareness to women’s struggles with intimidation during the hiring process, and limited participation of women in science and other college/university programs catered toward managerial occupations, Japan just might move in the right direction of managerial equality for the next generation.

 

(Source – Nippon Tradings International, Pic – Japan Co-Working Space / “Ray_Lac“)

The Effect of the Postponed Tokyo Olympic Games on Japan’s Property Market

Japan Real Estate

Japan Properties

(As featured in Asian Property Review)

03 Nov, 2020 –

In 2013 Tokyo won the bid to host the 2020 Olympics. An opportunity to prove to the world its resilience after skepticism over the leak of radioactive water from the Fukushima nuclear plant. The Games would raise economic activity by boosting inbound tourism and associated consumption, and also trigger construction in the years leading up to the event. But, where Prime Minister, Shinzo Abe gave assurances for keeping the games safe, in a strange twist of fate, was faced with a pandemic and postponement of the Olympics.  Japan is determined to set itself on a path of economic recovery with the onset of the Games in 2021. Ambitious, perhaps, but a country known for its clear and efficient tax systems can only continue to render as an attractive safe haven investment destination.

Olympic Venues

Prior to the pandemic, the two primary venues in preparation of the Tokyo 2020 Olympic and Paralympic Games were: the Tokyo Bay Zone, and the Heritage Zone. Despite the pandemic and postponement of the games to 2021, some expect a transformation of not just the city, but the future of Japan; others not so optimistic.

The “Tokyo Bay Zone” was intended to stand as a model of innovative urban development to symbolize the city’s future. Masa Takaya, a spokesperson for the games, expressed high expectations for the area anticipating that the revitalized Tokyo Bay would create a zone with strong appeal for Tokyo’s future development with green spaces, as well as sports and education facilities. The zone would have eight new permanent venues which, after the Games, would be used for staging major sporting events, exhibitions, and other leisure activities. In this way, the village would ideally become a waterfront showpiece for sustainable urban living for many years to come after the Olympic Games.

The Heritage Zone was intended to bring together iconic sites used during the 1964 Tokyo Games and pass on the legacy to the new generation, of the 1964 Games and the role they played in post-war Japan. Seth Sulkin, co-chair of the American Chamber of Commerce in the Japan Real Estate Committee has not been so optimistic about profitability for the development of this area into a commercial zone. His concern has been that Tokyo lacks accessibility. Taking for example, Harumi Island Triton Square in Chuo Ward, this approximately 25 year old major mixed-used development failed due to poor access and distant subway stations. Today, the area is troubled with vacancies in large-scale office buildings and a deteriorating retail component, which would be compounded by the pandemic and reduction in tourism.

The intersection between the Tokyo Bay Zone and the Heritage Zone was designed to be the athletes’ village, an area to facilitate the daily life of the athletes. The area occupies 13.4 hectares, which the Tokyo government sold to 11 private developers for around ¥13 billion (USD $122 million) at a considerable discount from the land prices in adjacent areas. Of the 5,600 units in the athletes’ village near Harumi on Tokyo Bay, approximately 940 have been presold with a move-in date of March 2023. Because of the postponement of the Games, buyers might seek compensation. Furthermore, as Koji Moriyama, an authority on construction pointed out, if the units don’t sell, the already discounted property values could drop further, potentially prompting fear that land prices throughout the metropolitan area will plummet.

 Retail

Investors from Hong Kong and China see opportunities not only in unsold properties of the Olympic venues, but also shop prices in prime locations in Tokyo and Osaka. They held firm for more than a decade, but fell by nearly 30 percent, making it a buyers’ market with more choices and more bargaining power. Entry-level investments for retail units in high traffic areas in Japan can be purchased for approximately USD $129K to $258K vs nearly USD $1.3 million in Hong Kong. Plus in Japan, there is the added benefit of high yield and affordable management fees. Some shop owners are even willing to cash-out in the face of growing uncertainties at approximately 30 percent below market price, attracting both Hong Kong buyers as well as Japanese locals.

Rural and Hotel

Under the anticipation and speculation of the soon-to-return influx of inbound tourism to benefit both hotel and retail, and with access to low interest bank capital, rural areas, long neglected by foreign investors and domestic homebuyers alike, became particularly attractive to small and mid-size developers because of the abundance of land. According to JLL real estate, Japan continues to be amongst the most active hotel investment markets in Asia Pacific, due to its underlying demand prospects. JLL anticipates the bankruptcy of a limited number of hotel owners/operators could lead to pricing reassessments or conversions of hotel assets to alternative uses in markets with supply and demand imbalances.

Japan was notably the 11th most visited country in the world in 2019. The numbers slumped 58.3 percent to 1.09 million in February 2020, according to Japan National Tourism Organisation data, as the coronavirus pandemic deterred many visitors. For this reason, while prices may be attractive, some investors believe the coronavirus outbreak may affect consumption, which could in turn affect the leasing market. The effect of the global travel ban has also had a hard impact on ‘minpaku’ (small to mid-sized hotels and traditional Japanese inns). Sotheby’s Realty reported larger discounts on these distressed assets around Osaka, Kyoto, Fukuoka and Sapporo.

Where Tokyo once stole the show, the spotlight seems to be turning to less crowded investment destinations for commercial, residential or industrial locations within a 90-minute drive or train ride from Tokyo,  for example Hakone in the Kanagawa prefecture, Atami in Shizuoka prefecture. These types of locations have taken the limelight as places that can comfortably accommodate social distancing in this new world.

With one year to go, it is a mammoth task for the country to recover from its ailing tourism industry and plan the Olympic Games to the requirements of the global crisis. Clearly, it’s not just the athletes remaining resilient – Japan has its game on as well.

(Source – Priti Donnelly, Pic – Tokyo Olympic National Stadium Construction Site/ “Toshihiro Gamo“)

Student Residence Japan’s Thriving Alternative Asset Class

Japan Real Estate

Japan Properties

03 Nov, 2020 –

Residence for college students in Japan have certainly evolved. Once cramped and shabby, the newer residences have quality global standards with secure entrances, co-working space, living space, shared kitchens, common entertainment areas and perhaps even a rooftop balcony. While such residences appeal to foreign students, they often face the battle of securing a dwelling as the country can be unwelcoming and resistant to opening their doors to foreigners. Some landlords are concerned about the language barrier, following rules such as property disposing garbage, and making too much noise.

This reluctance to accept non-Japanese nationals is in fact the catalyst for change in the Japanese property market, attracting more foreign business operators. Koji Naito, who heads the capital market research arm in Japan at Jones Lang LaSalle KK (JLL) believes the trend of this mainstream office class and share-houses can be a solid investment as investors seek a wider variety of alternative asset classes such as data centers, nursing homes and student accommodations. He adds that, rent is covered by parents in many cases, so owners can expect a stable cash flow, too. In Tokyo, student residence prices can range from ¥70,000 to ¥140,000 (USD $660 to $1,321) per month.

Currently Star Asia KK, a joint venture between U.K. and Tokyo-based GSA, which specializes in providing student accommodations, operates 47 student accommodations globally, aims to provide 5,000 to 7,000 beds in Japan in the next several years. Similarly, Tokyu Land Corp., a group firm of railway operator Tokyu Corp. and Itochu Property Development Ltd., a real estate and developer unit of trading house giant Itochu Corp., have started building student accommodations in the past several years.

With the investment boom and growing number of foreign students, the outlook for the student accommodation market had appeared quite promising. Foreign residences are not restricted to just foreigners. It also attracts Japanese students from various colleges including the University of Tokyo, Waseda University, Temple University, and those attending Japanese language schools. The diversity is key to cultural development and a community experience. Students also gain the opportunity to practice their Japanese language skills, beneficial to entering the workforce.

It is undeniable that the coronavirus outbreak drastically changed the educational landscape. In early April 2020, the Japanese government implemented tighter controls that effectively froze cross-border movement. Many foreign students had to cancel their scheduled accommodations. Although it’s still not known when people can freely start traveling again, industry players and experts believe that the health crisis is just a short-term setback. Global real estate firm, JLL believes the economic fallout this time has not severely damaged financial institutions like it did when during the 2008 global financial crisis. It’s likely to take some time before international traveling returns to normal, but will not affect investments in student housing.

Housing operators believe that the field of education is “resilient” to economic downturns and Japan will still be a popular destination for foreign students with its prestigious colleges and universities. The last decade has shown phenomenal growth. In 2011, Japan saw just 163,697 foreign students. But that number had nearly doubled just eight years later, reaching 312,214 by May of 2019. With this level of growth the Japan Student Services Organization, an independent agency supporting students studying in higher education institutions expects the trend of increasing foreign students wanting to study in Japan will return once the COVID-19 pandemic calms down. It is only a matter of time.

With the current buyers’ market and soft pricing brought on by the pandemic, investors are positioning themselves accordingly, buying premium residential assets in strategic locations around major universities, which could easily be converted into student housing once entry bans are relaxed. And, of course, at reduced prices!

 

(Source – Priti Donnelly, “Foreign Students”, Pic – Japan Student Services Organization)

The Safe Haven of the Japanese Yen

Japan Properties

Japan Real Estate

03 Nov, 2020 –

During times of political and economic uncertainties, markets can become volatile and cause panic. At such time investors look for “safe-haven” alternatives. Let’s look at why Japan is their preferred choice.

 

First, what are some of the other safe-havens?

Switzerland has a long history of low inflation and political financial stability. In comparison, the yen is more liquid, and therefore readily available to trade. Germany’s bonds are popular, but the country does not have its own currency and the euro is not yet considered a safe-haven. That brings us to the US dollar. Although treasury bills are by far the most frequently used example of a “risk-free” asset, in reality, in a crisis, traders and investors buy yen over other currencies as we have seen in the aftermath of the 9/11 attacks in 2001, the Madrid train bombings of 2004, the Lehman collapse in 2008, the eurozone crisis in 2010 and the Brussels bombings in 2016.

During a crisis situation, the yen can quickly become very crowded during times of refuge and this is what sends the value soaring, thereby holding on to its value.

 

Reasons Behind the Safe Haven

Japan has not always been a safe haven. At the time of the Japanese banking crisis during the late 1990s and the stock market collapse, we saw a much weaker yen. The perception of the yen changed after the crisis. Here are a couple of reasons why –

First, Japan has held the position as the world’s top creditor nation for nearly three decades. The value of foreign assets held by Japanese investors is substantially higher than the value of Japanese assets owned by foreign investors. Putting it in perspective, these “net foreign assets” stood at 339 trillion yen at the end of 2015, based on data from the Finance Ministry, placing Japan as the largest creditor nation, a title it’s held since the mid 1990s.

Second, generally, when markets become risk-averse, money tends to move back home. As the largest creditor nation, Japan’s repatriation of capital during a crisis, together with other currencies flowing into the yen, cause it to strengthen. As quoted in the New York Times, “The Japanese government is in deep debt, but the rest of Japan has ample money to spare.”

 

Relationship Between Real Estate and the Yen

Investors turn to Japanese properties for their low price (as low as USD$30K) and high yield (5% to 11% net pre-tax.) This is not a market for speculative capital gain, but for rental income cash flow. Japanese properties that we facilitate are occupied, unless an investor is specifically seeking a vacant property for personal use, and therefore generate immediate rental income. As an additional benefit to price and high yield, investors who keep their income in Japan and transfer it when the yen peaks against their currency also benefit from the exchange value. Investments in Japan are particularly attractive during times of uncertainty.

 

(Source – Priti Donnelly, “Nippon Tradings International”, Pic – Bing.com)

Investors See Shift in Demand from Tokyo Properties to Japan’s Suburbs

Japan Real Estate

Japan Properties

03 Nov, 2020 –

TOKYO (Reuters) – Signs that people are moving away from Tokyo, as telecommuting becomes the norm for many business amid the COVID-19 pandemic, have put property investors on edge and pushed Japan’s real estate investment trust (REIT) index to five-month lows.

Although Japan’s total population has been dropping since 2009, capital Tokyo has defied the trend, attracting young workers from all over the country. But data from the Tokyo metropolitan government shows the city’s population dropped by around 10,700 in October to 13.971 million, its fourth decline in five months. “We have expected Tokyo’s daytime population to shrink over time but we did not think such a change would take place that quickly,” said Kazufumi Takeuchi, senior analyst at UBS.

Tokyo population shock

Reuters Graphic

Tokyo’s population had reached 14 million this year, from about 12 million in 2000, spurring property demand. But signs of a drop in population is putting pressure on REITs, researcher Makoto Sakuma from NLI Research Institute said. Pricey properties in Tokyo make up the core part of portfolio for many REITs. Japan’s main REIT index .TREIT fell to a five-month low last Thursday. It is down 23.5% for the year, while the broader index .N225 has recovered its pandemic losses.

Analysts say people are moving to suburbs instead of staying near office as they work from home amid virus-related curbs. House prices have not come down yet “but as more people work from home, the demand is weakening especially for a tiny one-room residence where you just go back to sleep”, Sakuma said. Advance Residence Investment 3269.T, a residential REIT, said its occupancy rate dropped in September, a month that typically sees a rise as Japanese companies tend to move staff ahead of the start of the financial half year in October. Signs of exodus from Tokyo could put pressure on offices, key assets of Japan’s 12 trillion yen ($115 billion) REITs.

“Now that companies have realised people can work outside the office, if they are forced to choose between cutting costs on office or labour, I think most … will cut office first,” said Akihiko Murai, portfolio manager, Fidelity International. “So if there is an economic downturn of the same magnitude as the previous one, the damage on the office sector would be larger. The financial industry may be a bit too optimistic because it isn’t the worst affected sector this time.”

(Source – Reuters, Pic – Tokyo 756 / “Dutch Blythe Fashion“)

Japan Takes Cars to New Heights

Japan Business News

Japan Properties

08 Oct, 2020 –

The future of travel may be coming — and sooner than you think! On Aug. 25, the first flying car was successfully tested by SkyDrive Inc., a Japanese company that develops urban air mobility solutions, at a Toyota Test Field in Japan, according to a press release on SkyDrive’s website.

The public demonstration flight lasted a total of four minutes, as the SD-03 flying car model — which measures two meters high, four meters wide and four meters long, and takes up as much ground as two parked cars — circled the 10,000-square-meter (approximately 2.5-acre) field with a pilot at the wheel.

“We are extremely excited to have achieved Japan’s first-ever manned flight of a flying car in the two years since we founded SkyDrive in 2018 with the goal of commercializing such aircraft,” SkyDrive CEO, Tomohiro Fukuzawa, said in a statement. “We aim to take our social experiment to the next level in 2023 and to that end we will be accelerating our technological development and our business development,” Fukuzawa added. “We want to realize a society where flying cars are an accessible and convenient means of transportation in the skies and people are able to experience a safe, secure, and comfortable new way of life.”

According to SkyDrive, the pearl white aircraft was “designed to be the world’s smallest electric Vertical Take-Off and Landing (eVTOL) model as a new means of transportation for the near future.”Though the pilot was at the controls and technical staff at the field helped monitor flight conditions and aircraft performance, SkyDrive said the aircraft was also operated by a computer-assisted control system that “helped ensure flight stability and safety.”

The model features a total of eight electric motors in four locations to “ensure safety in emergency situations” and “to address compliance standards and allay potential regulatory concerns,” the company explained. It also includes a pair of propellers and two white lights in front, as well as a red light on the bottom of the body — features that are unique to flying cars and designed to act as indicators for which way the vehicle is traveling while floating in the sky.

“In designing an unexplored, new genre of transportation known as the flying car, we chose the keyword ‘progressive’ for inspiration,” explained SkyDrive design director, Takumi Yamamot. “We wanted this vehicle to be futuristic, charismatic and desirable for all future customers, while fully incorporating the high technology of SkyDrive.”

According to the press release, the company plans on continuing test flights under various conditions to make sure they meet safety and technology standards. They are aiming to obtain approval for flights outside of the Toyota Test Field before the end of 2020, and hope to launch the flying car by 2023, though no price has been announced yet. “SkyDrive’s flying car has been designed to be a coupe embodying dreams and exuding charisma, such that it will be welcomed into people’s lives and used naturally,” the company wrote in the press release.

“The company hopes that its aircraft will become people’s partner in the sky rather than merely a commodity and it will continue working to design a safe sky for the future as a partner in the sky,” they added.

(Source – People, Pic – World debut SkyDrive Manned Flight by SD-03 / “Sky Drive Inc.“)

Government Offering Grant for Shifts to Rural Satellite and Shared Offices

30 Sept, 2020 –

The central government plans to begin offering grants to municipalities that promote teleworking as a regional revitalization measure from fiscal 2021. The Cabinet Office and the Cabinet Secretariat are expected to earmark ¥15 billion for the subsidy in their budget requests for the fiscal year from April, informed sources said Friday.

The increase in the number of people working from home and other remote locations amid the coronavirus pandemic has led to a rise of interest in living in rural areas away from densely populated urban centers. The government hopes to support the shift to working from rural areas as a way to correct the concentration of industry and population in Tokyo, the sources said.

The new grant will be available to all municipalities except Tokyo and the prefectures of Saitama, Chiba and Kanagawa, which make up the greater Tokyo metropolis. Under the government’s plan, it will cover 75 percent of expenses borne by municipalities for setting up systems to accept satellite offices of companies and shared office spaces. The agencies will also ask for ¥400 million for a project to match businesses with municipalities looking to accept branch offices.

They are also planning to boost a subsidy program that awards up to ¥1 million to people who lived or worked in central Tokyo’s 23 wards and have moved and found work in regional areas. People who continued their jobs were previously unable to apply for the aid. The government plans to offer the grant to those who move to rural areas for raising their children or taking care of elderly family members, while continuing to work for their employers in Tokyo through remote work.

(Source – “The Japan Times“, Pic – Solarium / “Nippon Tradings“)

Japan Attempts to Establish Global Standards to Co-exist with Robots

22 Sept, 2020

Most of us are familiar with robotics in manufacturing related to industrial safety and performance. These robotics have been, for the most part, tucked away in factory lines and other industrial settings. But now, since the coronavirus, things have been changing. Real-time statistics website, “Worldometer,” states, “894,024 deaths as of September 7, 2020 worldwide.” The coronavirus outbreak put the spotlight on the weaknesses and vulnerabilities in the global human workforce, the risk to frontline workers, and the need for automation to reduce contact between humans to prevent the spread of the virus.

No alt text provided for this image

Japan has had to be ahead of the game because of its rapidly aging society with fewer children. The country is already equipped with a ‘national’ standardization JIS Y1001for robot-to-human interactions because of its labour shortages affecting all industries. Taking it one step further, Japan opened a consultation with the International Organization for Standardization (ISO) in a bid to establish ‘international’ standards for human-assisting robots. ISO’s existing TC 299 for “standardization in the field of robotics, excluding toys and military applications” does not consider the best practices for various settings which Japan’s standard does. For this reason, TC 299’s new working group is being headed by Japan to help ensure that the global standards for human-assisting robots is at least as robust as Japan’s national version.

Here’s a recap of the history of ISO/TC 299 as quoted from iso.org reflecting the increasing and broadening standardization activities in the field of robotics. “In 1983, the committee started as subcommittee SC 2 “Robots for manufacturing environment” under the Technical Committee ISO/TC 184 “Industrial Automation.” The initial efforts were primarily related to industrial safety with some activity in vocabulary and performance. As a result, the title was updated as “Robots for Industrial Environments.” The title was again updated to “Robots and Robotic Devices” to include not only industrial robots, but also non-industrial robots, which were defined as service robots in 2006. With increased robotic activity, greater visibility was needed for better coordination. This resulted in the upgrade to ISO/TC 299 with the title of “Robotics” in 2016.

No alt text provided for this image

What will robot-human smart cities of the future look like? With the partnership of Japan Post with Yamato, one of Japan’s door-to-door delivery services, robots and autonomous cars will soon be on the streets of Tokyo. This robot still needs to learn how to use elevators. But, that may not be too long a wait as world leading elevator company, ThyssenKrupp recently unveiled a communication interface to assist with robot delivery services. Also, in restaurants, your hot, steaming bowl of ramen will soon be served by a robot waiter as ramen chain, Kourakuen in Fukushima is initiating. The more familiar 4 foot tall Pepper robots designed by Softbank Robotics are humanoids designed to identify and react to human emotions, laughing at a joke, offering comfort or giving reminders. Patients quarantined at hotels in Tokyo found themselves comforted by Pepper saying, “I hope you recover as quickly as possible.” Or, “Please wear a mask inside.” They are also already used in banks, shops and hotels. The more time the system spends interacting with a person, the more natural the conversation becomes. These robots will be scaled up when better artificial intelligence is developed.

No alt text provided for this image

If Japan’s bid is successful in establishing international standards for human-assisting robots, it will be instrumental in exporting its standard to the rest of the world. It will be ahead of its global competitors in the cultivation of Japan-oriented collaborative robots or ‘cobots’ designed for direct interaction with humans to perform tasks outside of industrial automation applications such as customer service, cleaning, delivery, guide robots, nursing-care robots, assisting robots designed to help the elderly, or even to assist with surgery. With expansion overseas for industries to take advantage of, if we thought life adjustments after the pandemic were “the new world,” we ain’t seen nothing yet.

 

(Source – Priti Donnelly, “Nippon Tradings International”, Pic – Bing.com)

Japan Offers Income Incentive to Newlyweds to Boost Ultra Low Birth Rates

Japan Real Estate

Japan Properties

21 Sept, 2020 –

Couples who get married from next April can receive up to ¥600,000 to cover their rent and other costs as they start a new life, provided they live in a municipality adopting Japan’s newlywed support program, government sources said Sunday. As the nation’s ultralow birth rate is attributed mainly to the tendency that people marry late or stay unmarried, the government will try to boost the number of marriages in the nation by enhancing the program to provide a larger sum and cover more couples, said the sources at the Cabinet Office.

To be eligible, both husband and wife will have to be under age 40 as of the registered date of marriage and have a combined income of less than ¥5.4 million, up from age 35 and ¥4.8 million under the current conditions for aid of up to ¥300,000. Only 281 municipalities, or 15 percent of all cities, towns and villages in Japan, had adopted the program as of July as they must shoulder half the expenses, but in a bid to increase that number, the central government will bear two-thirds of the costs from fiscal 2021, the sources said.

The program is part of government efforts to address the low birth rate. Married couples tend to have two children, although the average number of children a woman will bear in her lifetime was only 1.36 last year. A record-low 865,000 babies were born in 2019. An economic incentive is deemed effective to encourage people to marry since 29.1 percent of single men age 25 to 34 and 17.8 percent of single women cited a lack of funds as a reason they stayed unmarried in a 2015 survey by the National Institute of Population and Social Security Research.
(Source – The Japan Times, Pic – Japan Wedding / “Yu Studio“)

Landlords Offer More Flexibility in Tenant-Favourable Office Market

Japan Real Estate

Japan Properties

15 Sept, 2020 –

The coronavirus pandemic has made working from home commonplace, and left many companies looking to reduce office space. The problem is, relocating in Japan can be crushingly expensive, even if you’re downsizing. But some innovators are offering a solution.

When a company in Japan relocates, they have traditionally paid to have their old office remodeled and restored to its original, unfurnished state. Carpets are replaced, walls are removed, lighting fixtures are torn down, and the painters turn the wall a spotless white. In central Tokyo, the average cost for this work is nearly $100,000. Landlords typically prefer to rent their rooms as empty shells because it means they won’t be responsible for repairs. Even the interior walls belong to the tenant. But this standard may be starting to change as the coronavirus pandemic reshapes the office rental market and puts pressure on the owners.

For eight years, Tokyo landlords had all the bargaining power as demand for land rose. But that trend reversed in March and analysts say the uptick in availability will only continue to grow in the coming months. This means that Tokyo-based Hitokara Media has been busier than ever. The company mediates between tenants and owners, and tries to minimize the costs of a relocation. Chief sales director Kohata Daichi says they’re getting more and more enquiries from companies looking to quit their leases and move into smaller digs. This would have been difficult in the past, when owners refused to renegotiate agreements. But with the current market favorable to tenants, Kohata says many are willing to discuss new terms as long as Hitokara Media can find a replacement.

Renovation fees aren’t the only hurdle for a relocation. Tenants usually have to give six months’ or even a full year’s notice and pay rent for that period. But a new company called Venture Property is trying to solve that issue. The firm takes over the office space, furnishings and all, from tenants who want to move out quickly. It then leases them “as-is” to other companies, with an agreement that the new tenants can also leave at short notice and without paying for any restoration work. CEO Udagawa Yoshihiro says many companies rent office space without thinking they will one day have to move out, and they are often astonished at how long and expensive the process is. He says his company offers other businesses an exit strategy.

For companies going through tough financial times, services such as those offered by Hitokara Media and Venture Property can be a lifeline, and even the landlords see the benefit, as they too worry about the future and how to fill their office space.

 

(Source – NHK World, Pic – Japan Co-Working Space / “Rama Mamuaya“)

Affordable Country Homes a Labour of Love

Japan Investment Properties

Japanese Real Estate

26 Aug, 2020 –

(CNN) — Kimberly and Paul Fradale were living in Tokyo, working at international schools, when they took the leap many an American expat dreams of: buying a large country house for a song and restoring it to its former glory. Both had been raised in the countryside: Kimberly, who is Japanese-American on her mother’s side, grew up in rural Alaska, and Paul’s childhood was spent in rural New York. In a country known for sky-high real estate prices, buying a large country home (or “kominka”) in Japan is still affordable.

“You can buy a home with a modest lot for as little as $20,000 USD, depending on location. Some towns even maintain lists of free or nearly free houses, in hopes of bringing in new families, ” Paul explains. There are no restrictions on foreigners buying land or property in the country, and no citizenship or resident visa is required. That said, without a work visa or permanent resident status, obtaining a loan can be difficult. Foreign buyers typically opt to pay cash for this reason. “With so many houses available for so little, however, cash should not be an issue, ” Paul says.

The Fradales, who live and work in Japan year-round, waited until they achieved Permanent Residence status before they purchased their home. They didn’t want to have to leave the country every three months to renew a tourist visa, in the event of an unforeseen job loss. They also spent a lot more money than they could have — roughly 250 thousand US dollars — but their 130-year-old home came with about three-quarters of an acre of land, a fully mature garden with a giant Japanese cherry tree, and ancillary buildings such as a “kura,” a type of earthen-walled storehouse.

Why old country houses are abandoned

The Fradales say most young Japanese people have little interest in an old house, particularly one far from the city, lacking modern conveniences. In Japan, they say, houses are considered disposable. But they reject that mindset.”Old, grand farmhouses like ours were built to endure, to shelter generations of families, and it shows,” Paul says. “Houses in Japan do not gain value over time; just the opposite is true. The value of our property is solely in the amount of land. The main house is valued at a few thousand dollars, despite it being made of materials that literally cannot be bought anymore,” Paul explains.

In particular, young families are not interested in living in a”‘kominka” (literally “old house”) because while they are spacious, they offer little in terms of privacy: all doors are either paper shoji or fusuma (a cloth-covered sliding door). “If anyone snores, for example, the whole house can hear it. If we had children, a kominka would not be an option,” says Kimberly. They can also be cold. “Even with the addition of a wood stove, we still have several winter mornings and evenings where we can see our breath in the house,” says Kimberly.

House hunting

The Fradales scoured real estate listings for years, with Paul even checking aerial views in Google maps every time they found a decent prospect. Then he’d look for the key features he wanted most.

Paul’s wish list:

-A river within cycling distance but not so close that flooding would be a risk

-A temple nearby so they could hear the bells

 -A local produce shop/farmers’ market

 -Hills or mountains nearby

 -Akura (storehouse) on property

 -A mature garden

 -Enough land so that neighbors would be a fair distance away

 -A town big enough to have a hospital, grocery stores, and a home improvement store

 -A town not so big that traffic would be an issue

 -A relatively flat town so cycling around it would be easy

 By comparison, Kimberly’s wish list — running water, electricity and plumbing — was extremely modest.

Finding their dream kominka

“We stayed away from the coast. As much as I love and miss the ocean, the 2011 quake/tsunami put paid to that notion,” Paul says. So instead they checked city and town hazard maps to see where there was a risk of mudslides, floods, and tornadoes. After looking at more than 30 homes in person, they finally came across the one they would buy.

The buying process

For Paul, their future home was love at first sight. “When we set foot on the property I fell in love with it. I could easily imagine what it would look like eventually. Kimberly was much less impressed. Her words to me as we went to meet the agent were, ‘Remember, poker face! Don’t look interested!'” But as soon as he entered the house, Paul spotted a ‘Kaidan Tansu,’ a chest of drawers that also function as stairs, a hidden trap door in the ceiling, and sliding doors made of a single solid slab of elm. That’s when, he says, he “squealed like a little girl.”

“We were told the seller had an offer from a developer to buy the property, raze the house, and build a dozen small houses on it, but he was hoping someone would want to keep the old house,” Paul says. One small shock for the Fradales: in Japan, the buyer, rather than the seller, typically bears all the closing costs. The owner, in turn, delivers an empty house, cleaned of its contents. “Usually, an owner is required to thoroughly clear the house, but I could see there were many interesting antiques mixed in among the endless amount of stuff, and so we got a price cut to account for that,” Paul says.

 A treasure trove (and a box of roaches)

Since the house came with all its contents, cleaning it up turned into a treasure hunt. “For us it meant that the first year of ownership was little more than sorting through a hundred years of history, as told through one family’s possessions, ” Paul says. One box had nothing but candy wrappers, all neatly flattened and stacked. “One box made a suspicious noise so I took it outside to open it. It was full of nothing except hundreds of cockroaches, that spilled out like something out of an Indiana Jones movie,” Paul says.

The next box, however, contained rare old photos and postcards from WWII. Another box was filled with old jewelry, including a string of pearls. There was even an old chest of drawers with vintage kimono in them.

Of most interest to the Fradales were the historical photos, documents, and antiques, which they offered to return to the owner on more than one occasion. “I have shared some of the newspapers and other war time artifacts with my history students. These items have helped make the events more personal and tangible,” says Kimberly. “There are extended family members in the next town we’re contacting them to see if they would like some of the photos; we’ve curated historical photos and documents we will keep,” the Fradales explain.

They have also considered donating the artifacts to a historical society or even turning part of their home into a miniature museum featuring a history of Japan in the early 20th century, as told through one family and their home.

War memories

“We found an old clock made in Nazi Germany, complete with a swastika stamped on it; we gave that to a clock maker in a neighboring town,” Paul says. There were also old Chinese coins, letters home, and a miniature Japanese flag to be carried by a soldier into battle for good luck, with encouraging messages on it. They also found WWII-era newspapers featuring stories of General Tojo laughing at the numbers of dead Allied forces.

“Some of the documents are not flattering (for example, the newspapers) to Japan, so we’re aware that not everyone would be happy to see them displayed anywhere. We believe history should never be whitewashed but neither should it be rubbed in anyone’s face,” Paul says.

 Holiday traditions

“Every traditional Japanese house has a ‘butsudan’ ” explains Kimberly. A ‘butsudan’ is an in-house Buddhist shrine for family members who have died. The Fradales’ shrine came with the names, letters, and photos of those in the previous owner’s family, going back several generations. The Fradales were told they should just get rid of it, but Kimberly couldn’t do it: “I still can’t evict them. Every major holiday I open up the doors and they hang out with us. Hopefully they approve of the attention we’ve given to the place.”

 Neighborly trades

The Fradales’ neighbors in the countryside, most of whom are retirees in their 70s, have welcomed the newcomers. “They have seen us come up every weekend and during all our holidays, working from dawn to dusk to clean up the house and yard. Like folks everywhere, the Japanese like rooting for an underdog, and seeing the two of us tackle this place … has made us the ‘welcome-if-mad’ newcomers to the neighborhood,” says Paul.

 Neighbors have donated stones and plants, including a 100-year-old fern and a bonsai tree, to help them spruce up their garden. In turn, the Fradales give away the bamboo they tear up from the yard each year. Since bamboo is something of a seasonal delicacy in Japan, neighbors welcome the treat.

“This year, for example, we had over 50 come up, and we dig them up and take them around to all the neighbors. Invariably, later in the week various neighbors will drop off beer, coffee, cabbages or other produce, or homemade rice dishes in thanks for the shoots,” he says. “We are so fortunate to have landed in a place where the neighbors are kind and open. In exchange we offer hours of endless entertainment,” Kimberly says.

 Honoring traditional crafts

Since people worldwide are struggling to find a way to lower their impact on the environment, the Fradales believe restoring countryside homes, along with embracing traditional folk arts and crafts, represents a way Japan — and indeed the world — could move forward.

“Japan was once known in the West as a source of cheap goods that worked well. Japan has now seen first South Korea, then China, rise and then equal that claim,” says Paul.

“The values that went into building this house are the same that still go into handmade paper umbrellas, hammered copper tea pots, lacquered chopsticks, or quality tatami mats. Each item is made with care and is meant to last more than one generation if maintained; they are made with deep respect for the materials from which they come, and made with deep consideration for those who will use them,” Paul says.

 Beauty amid the lockdown

The Fradales’ country retreat has been a welcome respite during the coronavirus. “As the Covid crisis has us all self-isolating, this house and the property have been a source of endless comfort in the form of hope…[right now] the frogs are about to start their evening songs and the azalea are giving way to the hydrangea. There is optimism in seeing nature grow,” Kimberly says.

 Paul agrees, and says buying their country home was the right decision. “All around the world there are historic homes in need of love. I highly recommend leaving your home country, really getting involved in a new culture, and taking on a challenge like this. Make no mistake, it can be backbreaking labor, but it is very rewarding,” he says.

(Source – CNN, Pic – Japan Investment Property / “Nippon Tradings“)

What are Investors Looking for?

2020, Aug 25 –

(The following is an excerpt from our “Japan Real Estate Podcast”, in which we interview NTI’s sales & marketing manager Priti Donnelly. The original episode can be streamed/downloaded for iphone/ipad/Mac listeners, or here for all other devices)

——————————————————————————————————-

Japan Real Estate

Japan Properties

ZM – Priti, thank you so much for joining us today, it’s great having you on the show.

PD – Thank you, Ziv, it’s great to be here!

ZM – So, what we normally like to do here on the podcast, before we actually dive into the practical part of the conversation, could you maybe tell us a bit about yourself? Your work experience before, and during your job here at NTI, stuff that interests you, maybe what actually drew you to this particular position?

PD – Sure! Like most of us, I’ve worn many hats, I have a background in commercial and residential mortgages in Canada and the US, I have a degree in English literature, I’ve studied advertising and marketing, as well as negotiation – and I say all that, because when I saw this position, I was just drawn to it, because this gave me an opportunity to tie all my skills together. That’s what I felt. I’ve even worked with the government which, as you know, means understanding contracts, and paperwork – I know that quite well too – so, I just loved how this position tied everything together.

But, there was only one thing – I have never been to Japan. That was the challenge. And I knew very little about the Japanese property market.

ZM – That’s right, you actually had no real exposure to Japan at all, or even any knowledge about the country before taking on this job, did you?

PD – So true! Not much at all. In fact, the idea of investing in a foreign country, to me, seemed risky, and not something I’ve opened my mind too. And I think many foreign investors probably feel the same way. What opened my mind actually was one of your videos on the NTI website – and it was at that point, when I watched it, that I realized – you know what, NTI is not a real estate agency. It’s actually a proxy service and a buyers’ agency. And that was something completely different. It was like, a niche. Not your typical real estate agency, and in that way, I felt, it was like a natural extension of anyone who wants to invest in Japanese real estate – there was the opening.

And there’s no question, we all know that we live in volatile times – the real estate markets around the world couldn’t be more speculative. Yet here, in Japan, here’s a market that focuses on steady cash flow and rental income. And it’s so affordable! Finally, real estate investing doesn’t have to be just for the rich, and doesn’t have to be as speculative as most of us understand it to be.

So this proxy service gives foreign investors that access.

ZM – And, I guess this frame of mind, that’s actually where many of these potential clients who contact you for the very first are in, isn’t it? I mean, there are just so many things that most people who haven’t been exposed to Japan, like yourself, or to Japan’s property market, or any Asian property market, probably wouldn’t know about, or might even have the wrong impression about certain things.

Can you maybe give us a few examples of these common misconceptions that you run across regularly?

PD – Sure, yeah, I do run across misconceptions. I think one of the most common ones is the effect of earthquakes on Japanese homes – plenty of misconceptions there. The fact is, properties built from 1981 and later would fall under the latest earthquake resistant construction methods (for reinforced concrete structures) under the building standards act. I always emphasize, however, that if you buy something built PRIOR to 1981, it wouldn’t blow away or crumble. If an older building has been well maintained, with a strong reserve funds pool utilized for renovations projects and repairs, it’s not necessarily a high-risk project.

So that’s one of the things. Another is that people also think that owning a property overseas would be a headache, and costly, and they’re going to have to do a lot of travel, and bear a lot of travel expenses. Again, not true. And that’s because of this proxy service, and that’s what I love about it – because we make things simple for foreign investors. So first of all, there’s no need to travel for the purchase. And since your wife and business partner, Chikako, is native Japanese, as is most of the staff over there in Japan, we can and do represent clients at meetings. Even though the seller is aware that the buyer is foreign, we send the documents for signing in English to the buyer, and the conduct all the meetings on their behalf, with the sellers and their representatives, in Japanese.  So it’s a turnkey experience for the investor, and there’s no travel required.

And in terms of managing the property, which is what many people ask me about – NTI communicates with the property manager, renovation and repair professionals, building management, tax authorities, insurance companies – as well as paying bills and receiving rental income. So anything and everything that’s associated with properties, we do. We also provide financial management, collecting and holding on to rent payments, remitting funds overseas on request – and should the time come to sell, we assist with that as well. All this, and you never need to travel – truly fantastic!

There’s another misconception as well that I want to talk about, which is the worry that tenants would be a hassle to manage. People think “oh, no, what if I’m far away, and something goes wrong, something happens, they’re having a party, and my property is destroyed”, etc.

What I have learned is that Japanese people are trouble and hassle free, honest, and by nature, do not want to tarnish their reputations, so for this reason, they’d never intentionally damage property. Rarely would there be any tenant headaches. Generally, the only repairs are from wear and tear.

ZM – That’s so true…And aside from that, what actually draws people to have an interest in this market – and when they ARE drawn to it, what are they worried about? And by that I mean not misconceptions, but stuff that they’re wondering about, will that work or not work, what do they expect?

PD – Well, everyone I meet, whether they’re new to investing or seasoned, and understand Japanese real estate or not – they’re all looking for the same thing. The best possible deal with the lowest possible risk. And in this cash flow market, low risk means steady occupancy and cash flow. They want to see the steady rental income. Yields range from 6% to 12% net pre-tax, depending on the location – try getting that anywhere else – I mean, that’s high.

So, say ,6% metropolitan VS 12% in the countryside. And property features such as the size of the property would make a difference, how close it is to public transportation, schools, hospitals, things like that. Once a person expresses interest in Japanese properties, I like to get a good understanding of their criteria, and then I send the relevant listings. Just those properties that they would be most interested in.

This is a huge market, the second largest real estate market in the world. So what I do is filter it down to the best suited properties, so that they can get the offer in as quickly as possible. Because, in this market, what people don’t realize, is that properties close within days. They don’t sit around for months like they will in the US, Canada and other parts of the world.

ZM – Right. And this is stuff we’ve talked about here in the podcast in the past, and we’re probably going to keep coming back to again and again…could you maybe tell us a bit about who your typical client, or potential client, is? Profile? The kind of people that regularly contact you – are they always from the same countries, similar socio-economic profiles, ages? Any common denominators at all?

PD – I’ve talked to people all over the world. I think it’s mainly people who are interested in real estate and understand it. So you’re looking at Australia, Canada, US, UK, Singapore, which are all on top of our list for popularity – but really all over. This market definitely appeals to the financially savvy investor, who is looking to develop a portfolio and who is very much at ease with international markets.

But at the same time, and this is another thing I really like – it also appeals to the new investor. Someone who’s always felt “Oh, I can’t invest in real estate, I just can’t afford it”. Japan’s property market gives them the opportunity because of the affordable prices in Japan. So for as little as 25-30,000 dollars, they’d be able to invest and take advantage of the high yield of properties.

ZM – And that’s 25-30 including all purchase costs, right?

PD – Yes. Including all purchase costs. Pretty unbelievable, right?

ZM – Yeah! So new investors who just maybe couldn’t afford, or were a bit weary of investing a lot of money in other places AND more seasoned investors, who just want to hedge their portfolio and get more exposure to different markets in other countries. Would that be about right?

PD – Yeah, that’s about right. And I think that the fear is mainly, people are worried about stepping out of their back yard, that is, if they’re from the United States, they just want to invest in the US, because everything else is scary or risky, and having a proxy service like we do gives everybody that opportunity to invest in Japan, because it’s literally like having their own arm in another country. So again, whether you’re savvy or new to the market, we’re here to do that and for anybody that is simply interested that isn’t able to travel, or just doesn’t speak the language.

ZM – I guess when you’re doing due diligence in your own back yard, as opposed to a remote location, the main difference is that, when you’re doing it back home, you mainly need to do your due diligence on the property, drive by, look at the inside, the outside, maybe a building inspection – whereas, when you’re investing remotely, and you can’t do all of that, due diligence really turns into researching the right kind of company and team that’s going to represent you on the ground – and then THEY do the actual due diligence for you, don’t they?

PD – Exactly.

ZM – Could you maybe give us an example of one potential client, someone who actually turned into an active client, so no names or personal details of course, but maybe just a general profile of the person or persons, what they ended up buying, the process, and how their investments are doing these days?

PD – Sure. Let me first explain how most clients familiarize themselves with the properties and become active clients. Most clients start by asking to receive our featured property listings and the monthly Japanese business and property news digests. And with this information, they’re able to compare prices, locations, yield, income and features, etc. Then, when they have a better idea of what they want, they contact me regarding a particular property that they might have seen on our featured list that may be available, or they’ll just send me their particular criteria, such as the budget they have in mind, the locations they’re interested, or any other criteria. Now, in this market, offers are made on properties within days, as I mentioned earlier, of hitting the market – so you have to be quick.

And so, going forward to the type of clients we have, I want to give you one example. So this client is from Canada – I won’t give you his name – but like most foreigners, he couldn’t speak Japanese to conduct the real estate transaction on his own. Now, his budget to start was about 30,000 US dollars – this was his first property and he didn’t want to take too much of a risk, which is perfectly understandable. So we recommended properties in metropolitan areas, close to transit, where occupancy is high, built in or after 1981 – and he was willing to accept the lower yields for lower risk, of about 6% net pre-tax, VS what he could have otherwise get, say 8-11% – and it was a very smooth purchase. And that’s what he was doing, he was testing the waters, to see how it goes. And it was very smooth and he felt very comfortable, so he stuck with it, and went on to start and build his portfolio – he increased his budget to 65,000 US dollars, and this time he was willing to take on a bit more of a risk, which meant more suburban properties, where you may not be so sure of how quickly a property will be rented out if it indeed does become vacant. So far we’ve had no occupancy challenges, and he’s a very happy client, and continuing to grow his portfolio.

ZM – And when we say suburbs, this could be less central suburbs of big metropolitan centers, or it could be maybe a smaller of middle sized town – but I think you always only recommend locations – unless someone has a specific request – that have a stable or increasing population, places that are not one-horse towns with a single industry – so even if it’s suburban, or smaller townships, it’s always at least stable and reliable. So maybe capital growth won’t occur as fast or as often, but it’s usually going to have at least the typical rental cash flow that we’re looking for, wouldn’t it?

PD – Right. We’re not doing anything that’s super high risk. So we are staying within areas where you’ll get 8-11% yield, which is still very high – but without that extreme risk of being far from public transportation, or properties that might be on the 4th or 5th floor without an elevator – things that would really deter people from wanting to rent. We don’t typically get involved with these types of properties. We do stay within, generally, areas and features that are marketable.

ZM – Ok, good stuff. And, maybe before we wrap up – where do you see interest from potential investors focusing these days? What types of investments are drawing more attention, what types of challenges are they looking at when they enter the market these days? Are things changing, improving, or getting worse as far as challenges go?

PD – Well, smaller apartments were always the asset class of choice, I would say. So small apartments, 25, 30, 35,000 investments – but there’s a growing interest in apartment buildings. Earning income from several properties instead of just one unit. And in this regard you’re looking at about 175,000 US dollars to a million, but the yield is excellent – you’re looking at about 5-11% net pre-tax, and the stability is there. The other thing also is that in Japan, the trend these days is the shared economy. So, because of that, people are purchasing older properties, demolishing them, and then re-building in a couple of different ways. So shared houses, and also shared offices. This is the latest trend.

Also, in Japan, as most people know, there’s an issue with the ageing population, so there are just not enough retirement homes – and that’s another blooming market. There need to be more of those, and that’s coming up pretty quickly. You’re not going to find any shortage of demand from Japan’s elderly, that’s for sure.

The other thing I wanted to mention is that we do have clients – most of our clients ARE cash investors – but they DO ask us about mortgages loans – unfortunately, financing is still a work in progress. It’s still a challenge for foreigners trying to get loans in Japan. So, at this time, I might have to say there’s still work to be done. But when we do see more of that, I’m sure that’s going to be a big hit. But right now, unfortunately, that’s not really available for non-resident foreigners

ZM – Yeah, that’s a bit of a pain, and we’ve spoken about this a few times here in the past. So just a reminder, folks – if you’ve got any funds saved, and you’re wondering what to invest them in, and you’re NOT interested in hands-on property ownership for any reason – Priti and the rest of us here at NTI, we’ve got loads of reliable investors, most of whom already HAVE purchased properties in Japan, in cash, and they’d be more than happy to expand their portfolios if they’ve got a bit of financing available for this purpose. So you stand to make really comfortable interest returns on any of these loans, which of course would be secured against any actual high yielding property assets – so, please don’t hesitate to contact us if you want to be a part of this program.

Edit – this interview was recorded in late 2018 – fortunately, at this time, there are actually a few lenders who CAN assist non-resident foreigners, although terms for their loans vary and can be quite stringent in most cases – listen to a podcast episode detailing current loans availability here (iOS users can tune in here).

Priti, I also wanted to add, when you were talking about buildings there – the reason that people often go for buildings, which tend to generate slightly lower return in comparison with the cheaper and older individual units, is for two main reasons – one is that you own the entire land parcel, so if the property gains in value, obviously anything that’s got more land attached to it stands to gain a lot more – and the other thing is that you’ve got a lot more flexibility – so if and when the time comes to tear the building down, or if you’d like to somehow increase the return from it, you can rent it out for short term stays, you can tear it down and turn it into a parking lot, you can build a small residential or commercial block in place of an older house, and all of those factors can have a really big impact on your return.

Those are all things that you CAN’T do with individual units, particularly ones that are in a co-owned building – on the other hand, the individual units obviously have less of a uncertainty factor to them – you pay your monthly building fees, and those cover all of structural issues, renovations and repairs that need to be done (in most cases).

So, fantastic info there, Priti, thank you so much for your time – it was great having you with us today.

PD – Thanks, Ziv, it was a pleasure. And I just want to give a huge shout-out to all the people that I’ve been speaking with, who are hopefully listening to this podcast – I’ve been in touch with many of you, and it’s been a pleasure working with you all.

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

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