Property February 2013

Investing in Tokyo

Now is a good time to buy property here

Foreign investors are, once again, purchasing Tokyo property. According to the 2012 annual report of the global property-consulting firm Jones Lang LaSalle, Tokyo was the fourth most popular place in the world for real estate investment.

The 2008 Lehman shock pushed Japan’s real estate market into a slump, while the industry had a very difficult time here after the 2011 Tohoku earthquake and tsunami, according to Hirokazu Mukai, president of Minato Asset Management Co., Ltd.

The investment firm, which has been operating in Tokyo for eight years, conducts real estate transactions in English and Japanese.

“We lost clients who were about to exchange purchase contracts within the week [of the triple disaster]; others postponed deals. But just one month after [the disaster], we had a flow of clients”, Mukai said.

Included were two prospective clients who, having looked at properties before the earthquake hit, decided to buy them anyway, realising how safe and well-built residential properties generally are in Japan. As a result, Mukai believes that people felt relatively safe in Tokyo, despite having experienced a major earthquake that resulted in damage to only a few buildings.

According to Mukai, as issues at the Fukushima Daiichi Nuclear Plant have stabilised, foreign investors are returning to Tokyo seeking property.

In addition, the new Liberal Democratic Party government has put forward a decisive plan to rescue the Japanese economy from long-term deflation. Moreover, compared with other countries, he noted, the yield between real estate income and borrowing rates remains high.

Mukai’s firm uses its expertise in real estate investment to provide a wide range of services, including assistance with rentals, real estate management and the purchase and sale of property; advice based on financial background; guidance regarding investments; and help with Japanese legal documents.

“Now is a good time to invest in property here as the Japanese government and the Bank of Japan have set a clear inflation target of 2%, and there is a rising expectation of inflation among investors.

“I believe the revision of the consumption tax that is expected sometime next year will increase property prices because all materials add up at a certain percentage”, he said.

The advantages of investing in Tokyo property, rather than that in Hong Kong, Singapore or other Asian countries, is that the yield here is much higher and more stable.

Real estate prices in other Asian cities have been high for many years, thus the risk of capital loss is higher than in the Japanese market. As a result, investors are choosing Japan as an alternative. Nevertheless, Mukai believes that one is not as likely to accrue capital gains here as in other Asian countries.

Investing in property is not risk free. There is always the possibility that investors will lose some of their money, while one runs the risk that there will be vacancies and legal issues.

“These [risks] are the same as in the global market, so if you have an investment property in another country, the risk itself is basically the same.”

The advantages of owning a property as an investment outweigh the risks. Over the long term, he said, “you can have a stable income and, if you are lucky and very knowledgeable about the market”, the income gained should be relatively stable.

However, capital gain in the Japanese market comes mainly from developments. If developers need your land for a certain project, they will pay a large amount for it.

Based on his experience, Mukai believes that Tokyo’s 23 wards are the best areas in which to invest. That said, very central areas do not provide the highest income.

“If you are a skilful investor, there may be a small possibility of capital gains in these areas, but future development plans are essential for this to happen”.

When considering investing in property, potential buyers should consider location, tenant stability, finance, property conditions and cash flow.

Mukai believes the current and forecast stability of the economy will have a positive effect on the market, although it may have a negative effect on those looking to buy property.

In addition, many industry experts anticipate an increase in real estate prices this year.

Anybody can invest in real estate in Japan. Although holding a permanent or spouse visa helps one obtain better bank loans, the only requirements are money and identification.

In the future, Mukai believes that the property investment industry “could suffer from large numbers of vacancies overall because of a decrease in potential tenants. But, if investors have a thorough knowledge of the Japanese market and choose a good location in terms of development and movement of population, they could benefit from high incomes”.

“I believe the return to power of the Liberal Democratic Party may have a positive short-term effect on the industry”, he added.