You Asked Us — Value and Yield, Ideal Properties, Hassle-Free Purchase and Management

22 May, 2019 –

Japan Investment PropertiesJapan is the world’s second biggest property investment market, very attractive to both foreign and local buyers with high yield properties available in abundance, and attractive properties sold almost as quickly as they are listed. When it comes to investing from abroad we know you have lots of questions about this market. We are always happy to talk shop. Thank you for sharing your questions.

 

Where is the value in Japanese properties?

What makes the Japanese property market unique is its high yield cash flow market, as opposed to the more speculative ‘invest for growth’ model more common to real estate. That being said, our customers still want to know, “Is it all about cash flow or is there value in Japanese properties?”

Officially, and as far as tax depreciation tables are concerned, Japanese structure value depreciates each year (with a tax depreciation term of 25 years for wooden or steel framed structures, and 47 years for reinforced concrete buildings). Where there may be value is in the land. Properties do tend to hold their land value as long as the economy does well, and provided the area still attracts quality tenants. In many cases this may even increase its value overall, albeit, the land portion is very small. In terms of appreciation, land has been gaining value in all central metro areas as of 2016, to various degrees, and this trend will most likely continue at least until the 2020 Tokyo Olympics.

 

How can I obtain both yield and value in this market?

The main reason investment properties depreciate is because of macro-economics related to rental income potential. When salaries and rents drop or remain stagnant, so does a property’s yield – which then makes the market value drop as well. However, because high-yielding Japanese investment properties tend to be smaller/older condo units in which owner-occupiers are rare, they’re priced solely on their rental income potential. And, in case of owner-occupied property profiles, which are bigger, fancier properties, market value drops mainly due to de-population of a particular area, or a more general overall economic downturn such as the 25 years of deflation up until 2012.

Therefore, if it is both yield and value you are looking for, the best option would be attractive locations,  avoiding overheated areas such as central Tokyo, Osaka and Niseko because of severely compressed rental yields due to price hikes. Instead, we advise to focus on market fundamentals such as population, industries and average rent and aim for the highest possible rental income yield in the most stable environment possible.

Although most of our clients are buy-and-hold investors for the long-term, we have assisted in selling about a dozen properties out of approximately 200 under management, and in all cases but two, clients sold at a profit, taking into account all purchase and sale costs, and rental income accrued between purchase and sale. As in all property investment scenarios, sales tend to generate higher profits when timed correctly, and when sellers aren’t in a rush.

 

How do I find the right property for me?

Our clients come from a variety of investment backgrounds all over the world with experience from novice to large portfolios. We tailor your criteria to find the right property for you. For example, we have been asked for highest yielding properties based on location, in this case, Kumamoto, an area which has been performing well, with good and solid price growth, and future growth potential. In Kumamoto, the local government support network for welfare recipients is more robust, and includes direct payments of rents to landlords, better subsidized employment and community volunteer opportunities for those who can afford it, as well as rehabilitation and housing services. Our listings showed a property for USD $14,000 at 8.26% yield net pre-tax with rental income of approx. USD $113/month.

We also have facilitated requests based on net income, in this case specifically, USD$350/month or more anywhere in Japan. You tell us what your criteria is (location, budget, age, size, type of property, such as residential, commercial, hospitality, logistics/warehouses, etc.) and we will find the investment property with the highest yield to suit you.

Our calculations are based on net pre-tax meaning after all known costs, but before taxes as individual income/corporate/property taxes can vary depending on personal circumstances. The yield does not include unknowns such as vacancies, maintenance/repairs or capital appreciation/depreciation. It does include known costs such as realtor fee, our fees, property management, purchase tax, insurance, and monthly building fees in case of individual units in co-owned blocks. We provide you with a deal analyzer spreadsheet for you to see the breakdown of numbers.

 

Will my overseas investment be hassle-free?

When investing in a property from abroad, the last thing you want to do is lose sleep over it. The idea of troublesome tenants and property repairs may sound like a nightmare. In truth, Japan is a landlord’s paradise with stable, reliable tenants who are docile by nature. Japanese hold their reputation high. Therefore, late payments are rare. Maintenance and repair tends to be of wear and tear rather than accidental or intentional damages. All of the properties we facilitate are occupied for immediate rental income, unless specifically requested otherwise. We keep you informed and manage the property on your behalf including collecting rent, paying bills, communicating with the building manager, insurance companies, tax authorities, etc, and transfer income to you when rates are profitable.

 

If I’m traveling to Japan, can I buy my own properties?

You can, but if you don’t speak Japanese you could face challenges. Real estate agents are foreigner shy and may not agree to meet. You could Google agents in the area you are interested in who do speak English, but the options will be few. Our team speaks English and Japanese and therefore, we could make inquiries with a wider area of local agents on your behalf and accompany you for far more productive meetings. So, go ahead — relax in the hot springs, savor the infamous foods of Osaka, hit the fluffiest ski slopes in Hokkaido or Nagano, and let us take care of your property business on your behalf.

 

Thanks for your interest in our services. Our Mailing List continues to grow for the popular featured property listings and business /property news from Japan and the region. If you would like to join and receive our free Ebook series, please contact us at info@nippontradings.com.

We are always excited to have motivated agents from around the world join our Agent Referral Program. If you have a strong presence on social media or active in marketing and interested in being part of our team, for more information contact us at info@nippontradings.com.

(Source – Priti Donnelly, Nippon Tradings International”)

 

 

 

 

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