Investing in Japan?

Hi Terry,

Thanks for the congratulations.

I know I can get better investment returns from OZ but I'm sort of looking way in to the future when the kids may want to come to Japan etc to live for a few years and somewhere for us to spend a few months of the year.  The property is central to Tokyo and the airport on major train lines so suits a few purposes.  If a miracle happens and Japan hits another bubble then who knows what the returns could be.

Let me know next time you are coming over so we can catch up.

How's Thailand coming along?

And why have you posted that here? This is forum not an advertising board and the topic of this thread is Japan anyway!

Thanks everybody for the comments. However, with global credit crisis and slowdown in property prices. Isn't now a good time to look at Japan, assuming the current govt has 10 years of managing recession?

Would appreciate any comments

Cheers
John

jcs099,

The Japanese govt is not managing their depression/recession but they are trying to control and maintain deflation.  The current economic situation is going to make Japan's situation a lot worse.  When fuel virtually doubled over the last 18 months prices stayed the same for just about everything from food to goods and services.  A few months back the govt supported an across the board rise in most things of around 15- 20%.   Although prices went up wages have stayed the same and more people are finding it difficult.  In the last 2 months 80% of major Japanese companies are not renewing temp workers or pt workers which can make up to 30-40% of staff in some places.  What makes this situation even worse is that unlike Australia Japan doesn't have a very good welfare system.  Most of these workers will not qualify for lost job insurance (unemployment benefit).  The govt has said it will try to help but didn't say how.  March is when most of these workers will be laid off and some companies laid off workers over Christmas or gave them extended holidays.  Extended holidays might sound good but you need to take into consideration that temp and pt workers do not get any holiday pay etc.  Job protection is virtually non existent in Japan and bosses make a habit of telling full time workers they are going to be pt workers.  This means working the same hours but losing all benefits, like holiday pay, sick pay, over time pay if paid ( most companies do not pay over time pay but expect workers to do over time).  When a worker hears that will change from FT to PT they normally quit and then look for another job.

The effect this is having on real estate is big.  In my area there is one of the largest Daihatsu plants.  They came to this area about 7 years ago and a whole new industry developed around support for Daihatsu both govt and civil.  Many realestate companies built small short term lease apartment blocks and a lot of agriculture land was turned into houses, apartments etc.  Previously there were about 5 of these short term lease apartments but that number has swelled to over 50.  The current economic situation has seen vacancy rates drop to 40%.  City hotels comprised of 3, 7 years ago but not there are 6 or7.  These hotels all have contracts with Daihatsu and support companies and most operated at around 65-70% and 1-2 at 80% or above.  Most of these hotels are struggling now to maintain 35-40% and a price cutting war has started.  5 Years ago a single room was $40-95 but now has dropped to $30-50.  Previously it was very hard to find any vacant commercial properties but not there are signs everywhere.  What compounds the situation is RE haven't dropped prices.  They still expect the exhorbiant prices charged previously and most will not negotiate.   Residential houses were also hard to find previously and  when I moved just over 3 years ago I had a limited choice of good quality houses although there were a few sub standard to rent.  Now there are quite a few good quality houses available and heaps of sub standard.  The RE haven't dropped the rents so some of these places have now been vacant for nearly 2 years and there are still most of the sub standard ones vacant from 3 years ago. 

The real estate industry is very protective and very hard to break into.  Areas that have opened up for foreign investors  around the snow fields are only a few and I'm still to find someone who is happy with the investment return they are getting.  Those that bought in the initial stages and sold quickly have made some money but most are losing.  There will be quite a few investors caught out later when they try to sell tax wise etc.  Another issue is death/inheritance taxes which are very steep.

The picture is quite gloomy but like everything there are still bargains around that can turn a profit and the biggest hurdle is language followed by no business ethics.  I'm yet to find any RE I would trust in Japan either Japanese or foreign and there are definitely some foreign sharks around.  I scrutinized everything they say and show.  Recently one major RE developer/company sold most of its real estate and stated that property had gone up 3% in an effort to attract more business.  What they didn't say is that they sold the properties to a sister company (basically themselves).  The newspapers all reported the rise in property values and this was then stated as a fact to cover all real estate.  Some cities even tried to say that sales showed an increase in prices in their areas of 1-3%.  All this was started by one very deceptive major company.

If you want to buy something in Japan then expect no CG, lots of taxes, language barriers and the complete opposite of anything done in OZ.  When looking at the foreclosure site pay particular attention to the condition of lot of these places filled with rubbish and personal effects of owners/tenants.  You have to pay for the removal and it is not cheap.  Japan has very high recycle and rubbish fees so be surprised if you get a bill for anywhere between 5-15K.  Even the second hand shops will charge you to take the stuff away that they will try to sell.

Doing due diligence is hard enough in OZ let alone trying to do it in Japan.  If you are determined to look for something then key areas are mainly around train stations and universities either a 10 minute walk or 20 minute cycle.  Make sure in you factor in no rent rises as it is virtually non existent.  I've rented 2 places in Japan one has had the same rent for 15 years and the other 3 years.  I'm going to ask for a reduction in rent as the house is now 3 years older.  If owner refuses then I give notice to move out but only have to pay a figure somewhere between current rent and what I wanted to pay.  There is no time limit on how long it takes to move out and the owner must ask the local court for permission and I think the current back log here is about 18 months.  Although this situation appears to be in the favor of the tenant most real estate companies have very close ties to crime groups who are quite happy to come knocking on your Relatives doors at all hours of the night demanding payment.  Another option is a visit to your work in front of co-workers or even asking your boss.

Japan has a saying called 'YONIGE' or midnight run.  This is when people leave everything behind and run off to another city and create anew identity as too avoid bankruptcy.  It is so popular it has created an industry of  'BENRIYASAN' people who will help co-ordinate your escape and even look after your possessions whilst on the run.  An estimated 500,000 people do this on New Years Eve when so called debts off the year are meant to be paid. 

One last thing to be careful of is that Japan has no lender liability laws.  If you get scammed there is no recourse.

In Japan buying a new house is like buying a new car. The value rapidly decreases once you have used them.

My family recently sold a house which was owned by my wife's grandmother since 1947. I think the price it was sold for was similar to what it cost in 1947!

We also have 2 terrace houses sitting empty in Osaka (the second biggest city). It would cost too much to tidy them up (new tatami mats, paint, repairs etc) for tenants compared to the rent to be received.

John

What about financing? I think that is the biggest hurdle. It is very hard to get finance in Japan, very hard if you are not working there. Not sure about the other countries, but I have a house in Thailand too and it is impossible to get finance there unless you have been working there for a few years and then you may get to 70% LVR.

Here is a bit from a newsletter on Japan that I subscribe to:

Terrie's Take 485 — Holiday Homes in the Mountains, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, September 15, 2008 Issue No. 485

+++ WHAT'S NEW

Some interesting things going on in real estate here in
Japan. Firstly the bad news. In Q2 this year, the value of
real estate transactions by REITs and listed companies
dropped by 51% over the same period last year. The main
reason for this was that the demand for condominiums by the
buying public have plunged dramatically, resulting in condo
sales being off by a remarkable 84%. We are now in the
midst of a severe credit crunch locally and many of the
recently listed REITs are having to sell off their assets
to foreign investors, who have picked their timing well. We
expect more REITs to go bust, or to get bought out.

Now, much of this news involves speculation and
institutions, and so is not entirely relevant for the man
in the street — other than the fact that people are
putting off buying somewhere new to live. But there is an
interesting new trend developing, that of foreigners
(individuals, not companies) who are independently
purchasing real estate here in Japan. This trend was kicked
off by the availability of loans to non-permanent foreign
residents by Shinsei and other banks about 4-5 years ago,
then reinforced by Australian interest in the Niseko ski
fields in Hokkaido, and has since started picking up steam
on a broader front.

Just last week a Japanese web site providing tourism
information for Russian visitors, started running real
estate listings also in Russian. The firm feels that as
with the Australians, as Russians become familiar with Japan
— they're visiting Otaru from the oil fields of Sakhalin
in droves, then they also start thinking about buying
land to put holiday homes on. No reports of an actual
purchases yet, but given the level of activity by Russian
property purchasers in Europe, we don't think it will take
long.
Australia's fascination with Niseko has provided the real
impetus for Japanese regional players to start realizing
that temporary foreign residents are desirable as land
owners and should be serviced. There are now more than
15,000 Australians traveling to Niseko every winter, to
ski on the dry powder snow that it is famous for. An
Australian-owned realtor, Hokkaido Tracks, whom we've
been following for some years, has announced that they plan
to construct 17 luxury condos at the Furano ski resort,
further north, selling the 58 sq. m. — 133 sq. m. units
for prices ranging between JPY40m (US$370k) — JPY125m
(US$1.16m).

Yes, these are Tokyo prices, and there is no way that
anyone in that area could have imagined it would ever get
this crazy. But, when you have a great concept (i.e.,
fantastic powder snow in a safe country just hours away), a
solid consumer demand (Asians are starting to join the
Australians), and an emerging internationalized
infrastructure which removes foreigners from the
inconveniences of Japanese language and Japanese
developers, then anything is possible — even in rural
Japan.

Buying land as a foreigner is not that hard, especially if
you're looking for a holiday home outside of the major
cities. There are no residency requirements, and so long as
you have cash, realtors are happy to deal with all-comers
— especially since in many rural areas the market for
spare land has been in a deep funk for 18 years or more.
The realtor fee is generally around 3% of the purchase
price. To be sure, there is paperwork involved and taxes,
utilities, and other fees to be paid, so you will need a
Japanese bilingual lawyer or representative. But this is
only as hard as a web search and some calls to bilingual
law offices, property managers, and/or translation
companies.

Once a non-resident has taken possession of the land, they
can come in on a tourist visa as often as they want, with
the excuse that they're here to check their investment.
They would typically come in on the standard 90-day (30
days for some countries) visa. Even though they are non-
resident, foreigners can open a bank account to autopay
taxes and bills, by going to the local city office and
asking them to validate that the fact that the person is a
property-owner.

There are a surprising number of homes and land plots for
sale in picturesque parts of the country, making them ideal
for holiday homes, and we imagine that it won't be long
before Korean and Chinese buyers start to realize what the
Australians have: fun, food, friends, fascination, and
'furo, all at reasonable prices. We can envisage a
situation where an inflow of foreign real estate
investors into rural and coastal areas will make up for the
ongoing exodus of young Japanese to the cities.

If you have the cash ready to go, the land is available.
But what if you have to borrow some of the money? Certainly
your hometown bank isn't going to have the ability nor the
tie-ups necessary to value land located somewhere deep in
the Japanese countryside. We know from personal experience
that even Tokyo City banks are generally unable to value
property outside the major populated areas.

One answer is the availability of yen-based home loans to
non-permanent resident foreigners living and working in
Japan. As we mentioned earlier, Shinsei was an early mover
in this space, and back in 2005 was offering 5-year fixed
loans at just 1% interest. But while there has been no
formal announcement from Shinsei to the contrary, we have
heard that the bank is now less interested in foreigners
and mortgages than it once was. Alternatives include Suruga
Bank and some of the Japanese major city banks. However,
almost all of these loans are for owner-occupied residences.

Several months back, however, the National Australia Bank
(NAB) started advertising the availability of yen-based
loans for Japan-based non-permanent residents. The rate is
2% over the interbank lending rate, which still means
interest under 5%, and they will loan up to 80% of the
property value if the loan is in yen.

Perhaps the most important point is that they will lend to
buyers wanting to purchase investment or holiday property.

Because Japanese real estate prices outside of the cities
have been falling for so long, the rest of the world has
caught up and in many cases, passed right by. This means
that there are some amazing deals in rural Japan. We did a
little trawling on the web, through both foreign and
Japanese websites, to find out what was available. How
about a weekend getaway 3-4 hours from Tokyo in Kusano
village, Souma-gun, Fukushima Prefecture? This quaint
cottage on 105 tsubo (348 sq. m.) of land would swathed in
snow during the winter and be picture postcard perfect. It
is a snip at just JPY3m (US$28,000).

http://tinyurl.com/5h75wv

Moving up the price scale, but still very good value is a
genuine antique minka with a thatched roof, located in an
exclusive part of Hakone, 1-2 hours west of Tokyo. This
home comes with its own natural hot springs and sits on a
third of an acre of land (1,537 sq. m.). It's priced at
JPY120m (US$1.1m). Drilling a new hot spring well alone can
cost hundreds of thousands of dollars and take years to get
permission.

http://tinyurl.com/5uaclj

Another popular destination for residents of Tokyo, Nagoya,
and Osaka is the Hakuba ski resort in Nagano Prefecture. It
only takes 4 hours by train to get there, and the snow is
apparently usually very ski-able — although perhaps not as
dry nor deep as Niseko much further to the north. There
are plenty of small holiday plots and residences for sale
in the area, many of which were built during the land
bubble of the early nineties, and which have since fallen
into disrepair. Check out the listings at:

http://www.hakuba-fudousan.com/

Lastly, if you're looking for somewhere a bit closer to
Tokyo, perhaps even somewhere you could commute from, then
check out this house on a hill overlooking Zushi Bay and
Mount Fuji — fantastic views and sunsets. 2-3 bedrooms,
double car garage, refurbished just this year with modern
appliances and conveniences through-out, all for just
JPY750,000/month (US$6,945/month).

http://tinyurl.com/58qwl5

…The information janitors