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“)

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