Having been purchasing, selling and managing high cash-flow Japanese investment properties for the better part of five years, on behalf of our clients world-wide, we have had the pleasure of witnessing certain trends developing over the course of the last few years. And while we are still a relatively young company with a relatively short experience reference – and while global economy has a nasty way of throwing in unexpected surprises for would-be speculators – we still believe it would be wise to share these trends with potential investors who may be interested in exploring their options in the land of the rising sun.
1. Tokyo/Osaka/Niseko – too popular for their own good
While Japan’s economic recovery is still in some doubt long-term, there is no such doubt that currently, Tokyo and Osaka property prices, which have been rising in a far sharper curve than the rents they command. International awareness of these popular locations means that not only the Japanese, but just about every ex-pat living in the city, who has any interest in property investment, have been intensely active in all of those locations for the past three years. As a result, competition for available properties, second-hand and new development alike, has been fierce – and with the 2020 Olympics coming up, we do not believe this will change in the foreseeable future.
As Tokyo and Osaka remain the country’s hottest and most speculative destinations to date, with net pre-tax yields severely depressed and properties generally un-affordable, and with Niseko maintaining its’ reputation as Japan’s most international, luxurious winter holiday resort spot, these locations all remain off-radar for non-speculative, cash-flow oriented investors, who do not “buy into the hype” long term.
2. Fukuoka – up and coming, feeling the pressure
Our clients’ favourite investment destination until mid-2015 has been, without a doubt, Fukuoka city. Well known to Singaporeans for quite a few years, and becoming increasingly popular with other countries’ visitors as well, its’ proximity to South-East Asia (closer to China and Korea than it is to Tokyo), this bustling, international city and its modern governance have seen its’ reputation (and population) increasing rapidly – as have property prices. And while good deals can still be had, net pre-tax yield has dropped significantly as transactions and prices picked up over the last three years. While good deals at 7-8% can still occasionally be found in the city, which is far better than Tokyo or Osaka’s 4-6%, the good old days of 10-12% are long gone, at least for the time being and unless the economy takes a hit in the foreseeable future.
3. Sapporo – where it’s currently at
Which brings us to our main topic, and current investor favourite – Sapporo city. Hokkaido’s capital, and home to approximately 1.9 million people, is Japan’s 5th largest city – featuring steadily, albeit slowly rising population figures. Sapporo city is also highly white-collar industry oriented, being one of Japan’s academic capitals, with education and information technologies being two of the city’s main industrial sectors, alongside tourism and retail. Conversely, it is one of Japan’s most popular tourism spots, with annual visitor numbers often exceeding the tens of millions(!)
In the two years that passed after the great tsunami and earthquake of 2011, Hokkaido tourism, which is largely dependent on international visitors, has suffered significantly – as winter holiday makers and ski enthusiasts were mostly avoiding the area, due to fears of further quakes and nuclear spillages from the subsequent Fukushima incident – even though the distance between the two areas is over 800 kilometres.
As international tourist numbers dropped, jobs were lost in Sapporo city, and the depressed local economy has led to property price drops as well. Since mid 2012, however, and with the situation in Fukushima declared as stable, fears have subsided – and tourism commenced again with much vigour. Property prices have slowly begun to respond with a slow and stable price hike, transaction speeds have similarly picked up significantly, with good deals once more being snatched within a matter of days – a trend that is very similar to what we have first witnessed in Fukuoka city in 2013, and has quickly accelerated, as mentioned above. For the time being, however, properties as low as 1.8 million JPY (less than 28,000 SGD at current rates) can still be found, providing some of the country’s highest yields – often reaching levels of 9-12% net pre-tax per annum, as our previously published deal analysis demonstrates.
Additionally, the geographically wide-spread nature of the city means larger properties, and while elsewhere in Japan a high yield property would normally be 1-2 bedrooms at most, Sapporo often offers larger units at the same yield levels – 3-4 bedroom properties at low prices and high return capacities regularly being advertised for sale. These larger properties mean tenants are often families, as opposed to the typical single tenant which normally occupies high-yielding properties in most other parts of the country- which naturally makes for longer tenancies, fewer vacancies and lower vacancy related expenses.
Ziv Nakajima-Magen is an Australian, born and raised in Israel, and has been deeply immersed in Japan’s culture and business environment since 2003 , when he forsake his career as in IT corporate project manager, wishing to spend more time with his family and secure their financial future.
Having made the transition to real-estate investment and successfully kick-started his own portfolio, he subsequently established Nippon Tradings International (NTI) together with his Japanese wife and business partner, he is now assisting others in capitalizing on Japan’s vast and lucrative property market.