Japan – Bottomed Out?

Not sure what you wanted to say with those abandoned houses there – here's the summary of the article your zerohedge friend, who's intent, like you, on spreading his agenda of "short Japan, all hell is breaking loose!!!" conveniently forgot to incorporate into his so-called article/post – as he copied and pasted only the relevant parts, then added his own "spin" on them (a spin that exists only in his mind. the facts, however, are copied and pasted from the Japan Times – but the newspaper also continues to offer an explanation, which your friend didn't like that much -) Why have the figures increased even in urban areas?Hidetaka Yoneyama, a senior fellow of Fujitsu Research Institute and an expert on issues related to unoccupied houses, said many of the houses in question are about 50 years old and were built during the period of rapid economic growth from the mid-1950s to the early 1970s. With the rising trend toward homes shared by only nuclear family members, the owners' children ceased living together and the house became vacant after the parents died. Even if children inherit the houses and land, the homes are usually eventually abandoned for such reasons as: — The legality of rights among family members is complicated and multiple heirs are involved. — The heirs live far away and do not have a good understanding of how to maintain vacant houses. — The heirs cannot afford to maintain the house. In some cases, if vacant houses are demolished, new homes cannot be built on the same land.The Building Standards Law stipulates that a plot of land with a building on it must in principle open onto a road at least four meters wide. A strip of land at least two meters wide must also connect to the road to allow for emergency vehicle access. But some plots with unoccupied houses do not meet these conditions. Also, if owners demolish abandoned houses and leave the land vacant, they will no longer be eligible for a reduction or exemption from the fixed asset tax for residential land. If a plot of land measures less than 200 square meters, the taxable value of the land alone would jump sixfold from the tax base before demolition of a vacant house on the land. As for the JGB market – we've chewed this issue to death, but here we go again – No, Freckle, rising government bond yields are NOT always an imminent sign of an economy spiralling towards oblivion – sometimes they reflect expectations for growth and inflation, for instance (here's a lengthier explanation – http://monetaryaffairs.blogspot.com.au/2013/04/jgbs-imitate-usts-post-quantitative.html), much in the same way that a grandiose public debt on paper isn't always what it seems in reality, particularly in countries where the households save close to 10% of GDP per year. In short, to go back to your favourite bushfire metaphor which pictures me as the blind optimist – you're screaming "fire, fire" and jumping up and down a lot at the first sign of smoke, regardless of its source (why? beats me…either you like a good panic for personal reasons, or it some other purpose) while the person (Abe, in this case) who's making the stew looks at you with a raised eyebrow thinking ("well, how the hell did he expect me to cook without it?"). Yes, it's a fire – a purposeful, controlled one. Sure, fires can go out of control if left unchecked, and cause some significant damage – but most of them don't, and can make for a great utility since about caveman day. As for the last link, please, can we not go into that here? )) I mean, conspiracy theories are great and all, I love a good yarn myself, but to bring it up in this discussion (eg "Japan will fall because Russia, Brazil, India and China are on a global dollar-deletion mission") is a bit too much even for a sci-fi buff like myself… Any chance to get some reference to the original news items, or are you just here to blow the fire some more with your back to the board again? If you are, I'll have to ask you to leave the classroom, we're here to discuss things – rationally – not have a muddy-screaming-panic-day-feast, as much as you love those. Focus, please.

So you’re basically saying the increase IS due to increasing material price…considering McDonald’s Japan pride themselves on using local produce, it almost sounds as if the two decade long trend of deflation is being arrested/reversed…nah, couldn’t be.

Right…how about the wallstreet journal, CNBC & business week then (to name only a few)? Wishful thinkers, the lot of them, I take it –

http://online.wsj.com/article/SB10001424127887324789504578380473664467496.html (WSJ)
http://video.cnbc.com/gallery/?video=3000165927 (CNBC)
http://www.businessweek.com/articles/2012-11-29/japans-property-market-comes-back-to-life (BW)
http://qz.com/66531/after-more-than-two-decades-of-stagnation-japans-property-market-may-be-coming-back-to-life/ (Quarz)
http://www.worldpropertychannel.com/asia-pacific-commercial-news/-japan-office-market-2013-abenomics-japanese-real-estate-trusts-6764.php (WPC)

I can go on and on and on, (as could you, I’m sure) but you get the point – this is no more “wishful thinking” than your own “wishful thinking” of pending doom and gloom – reality is neither euphoric nor suicidal – it’s just reality, and it can point in oh so many directions, which is what I was saying in the original post – that these MAY be signs of capital growth returning over the next few years, and certainly are better news than we’ve been seeing come out of Japan for the last two decades or so. While this may not be the case (only time will tell, certainly not you, me or Paul Krugman or Kyle Bass), it certainly also isn’t the case of sure-fired destruction you’re trying to portray here. So no, you’re not over the top in your Japan bashing – you’re just over the top in bashing anything which doesn’t subscribe to your own investment preferences. Basically, your attitude has been, is and most likely will remain “it’s my way or the highway”, without really giving too much regard to what it actually is you’re bashing in this particular case. And before you accuse me of blaming the messenger, I’ll remind you that the messenger doesn’t really exercise any real discrimination between the subjects of his various messages either (US yesterday, Europe tomorrow, and the flavour of the moment happens to be Japan for you).

Not sure which foreign investors you’re referring to – maybe you’ve run across a great many acquaintances who hold this view. Personally, my view (and, as far as I can tell, that of the vast majority of our clients), is nothing of the sort. As mentioned countless times before, we invest in various countries in currencies, and not with funds we would need in a hurry either (as I suspect most savvy RE investors do). We did this when the yen was at 85, we’re still doing it when it’s at 100, and will most likely continue doing so if it hits 145 (to which “there are predictions” as you mysteriously allude…not even “most predictions” ) – if and when it drops (something that we certainly don’t claim to hold the crystal-balling exclusivity to, and nor do you, we normally leave the funds in Japan, to utilize further purchases, improvements, etc (because the further it drops, the better the deals become normally). If and when it rises, we may choose to bring our incomes back home. In any case, this is – I repeat as I’ve done dozens of times in these discussions with you – A LONG TERM PLAY. Your panic mongering may strike a chord with investors who were planning to withdraw their income every month or six – certainly not a strategy I’ve ever advised anyone to pursue in international REI, in Japan or anywhere else in the world, and certainly not a strategy I hold to be very wise, regardless of where in the world one invests, as it shows immense lack of planning and risk analysis.

Ok, now I’m starting to get the picture. It doesn’t really matter how many players are active anywhere or how big/small they are, nor what their previous record is – when they align with your views, such as flocks of panicky investors shorting a currency after every unsavoury CB announcement , they’re “in the know” and are “fairly switched on cookies”. When they act based on an idea you’re not in agreement with, they immediately become “muppets, speculators, gamblers and sheep”. It all makes sense now. Pardon me if I don’t bombard you with the vast cadre of funds, trust and institutional investors that have been going stir-crazy in Japan since late 2011 – you can run some web searches if you want, or drill down through our news items from that Prologis link – you’ll find the well runs pretty deep, and has been for a while – it’s only that the message took some time to filter down to the masses. Goldman Sachs and TPG, I think, were the first major fund to kick off this trend, but were certanily not the last.

Much similar to your favourite graphs play, actually. When you can’t avoid showing that they’re in the green, it’s because they’re “barely just keeping their heads above water” and through no credit to their actions or policies (couldn’t be just dealing with tough global economic climates to the best of their ability, in similar fashion to any other market, because that doesn’t sit well with your gospel). When they’re in the red, however, regardless of how long it’s been after various measures have been announced, let alone trialled or implemented, it’s imeediate proof that afore-mentioned measures are failing.

Anything I’ve missed in your world-view?

That's cool, oh-mighty-Freck-of-graphs and upcoming disasters, I think I finally get where our constant disagreement (or really, your basic dis-satisfaction with real-estate investing in any way shape or form) really comes from.You're looking at things from your preferred investment philosophy viewpoint, which says the world is a disaster, one could be losing money every month, and the ideal investment vehicle runs tidy 3-5 month profits, then allowing the investor to escape unscathed by market conditions, hopefully having increased his capital 100-200% in the interim. I'm sure you had your ups and downs with this strategy, that you've laid out for us in the past, just like any of us have had with their RE portfolios over the years too. From that perspective, you're absolutely right. People have "lost" (10-15% reduced by 30% still equals 7-10% net pre-tax, and should it drop further, it'll still be higher than their eternally safe long term cash deposits in today's environments, so no real harm done) – and even that loss is only real and substantial when they eventuate it (eg, bring their incomes back home because they depend on their REI yields to pay for their daily lives – not exactly the attitude most globally hedged REI are all about). Every month that passes without an immediate resolution of all issues in the local economy could be paving the way for further losses. A 5-20 year slump such as the US, Europe or Japan have seen and probably will see again is horrible for someone who was planning to go first-class around the world this summer on his Japanese, US or European income, or feed the kids off it and it alone. But the fact is, most of us are in it for the long-haul. Foreign investors in the USA who may have purchased pre-GFC may have lost some in the short-term (although, from what we're reading here, the ones that did were the ones that hooked up with shoddy operators. Those that invested more wisely, even if their overall value has dropped, and perhaps even their monthly returns, to an extent, are probably still sitting on their money and meanwhile living on other incomes from other countries and sources, as most of us here on this forum do) – Japanese investors like the ones I'm buying from today may have lost a great deal (and indeed, there are occasional foreclosures, although nothing like what we see in other countries) if these properties were their only sources of income. But for most of us, these are all the realities of investing overseas. It's a managed risk, easily countered with hedging and diversity. Your screams of "fire, fire!", to the long-term global real-estate investor who utilizes global economy, are windows of opportunity and expansion. All is well with our world. And besides all that, there's the fact that we actually enjoy what we're doing, too – makes things easier. Governments and central banks are not wizards. They're mostly stupid and corrupt. But you and me don't have all the answers either. For me, personally, it's all about supporting the business environments, countries and morals/practices I subscribe to. The more people like you and me become financially proficient and able to inject funds into where they're needed most, the better, even if it's not the ideal financial vehicle in someone else's eyes. Take a chill pill