Q&A – Japan Ticks All the Right Boxes for Real Estate Investment

25 Mar, 2016 –

Japan Investment Properties

Japan Real Estate

This Week in his Q&A column on “Asian Property Review” magazine, NTI’s Asia-Pacific Executive Manager, Mr. Ziv Nakajima-Magen discusses Japan’s recession and its effects on the property sector.

Q I have read that Japan is in recession now and no one knows when it would come out of it. Is now a good time to buy Japanese property for own stay and for rental?

 ZNM: It could be claimed that Japan has been in consecutive recessions for the vast majority of the last 25 years – since its economic bubble burst in the early 1990’s. And, while it has enjoyed a period of GDP expansion in the last few years, its shrinking population all but dictates that technical recession will hit again and again, whenever anything even slightly negative occurs in the economy – simply because it doesn’t have the rising population numbers to provide for an expansion of GDP (or, as Mathew Yglesias correctly postulates in his excellent piece in “VOX: Business and Finance” – “In the context of a working-age population that’s shrinking 1 % a year, an economy that is ‘only’ shrinking at 0.8% per year is actually doing okay”).

And the interesting thing is that, as far as almost all other indicators go, Japan is actually doing more than just ”ok” – it’s doing spectacularly well – unemployment is at an historic low of just under 3.5% – workforce participation by working age adults (15-64) is at a record high of just under 76% – the price index is constantly climbing since the introductions of “Abenomics” (PM Shinzo Abe’s economic policies, introduced in late 2012), and is now back to its mid-2010 levels – and perhaps most importantly, a healthy level of inflation, introduced for the first time in over two decades, actually put nominal GDP on the rise as well – which is key to maintaining all those positive trends on the long-term.

This is not to say that Japan doesn’t have its share of problems, not by a long-shot – it will absolutely have to deal with its declining population, either by increasing birth-rates or by allowing intensive immigration (preferably both), as well as with its gargantuan public debt to GDP ratio – if it is to reverse this trend and stop slipping into technical recession on a regular basis – however, this single indicator means very little for its intensely consumer-oriented culture and society, and for the fact that it remains Asia- Pacific’s largest property investment market, and second largest property investment market globally, right behind the USA.

If anything, temporary slumps in the economy, like anywhere in the world, normally spell good news for property investors, as it means the country becomes a buyers’ market, and fantastic deals are more likely to be found on a regular basis – when things improve again, it becomes time to sell and realise capital growth. This is not to say that we, as investors, should jump head-first into any stumbling, emerging, third-world economy only because it is cheap to buy – market fundamentals have to be favourable, the environment well-regulated and supportive of our investment goals, and legal recourse has to be an option, particularly for foreign investors like ourselves. Japan, being the world’s 3rd largest economy, more than ticks all of those boxes, and so remains a great long-term investment for anyone seeking high rental yields in a stable, hassle-free business environment.

(Source – “First Published in ‘Asian Property Review’”, Pic – Big Check / “Stock Monkeys“)

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