You can earn US$15K a year per property invested in Tokyo?

Next big thing in Asia: Investors from Singapore, Hong Kong and Taiwan rush to invest in ‘cheap’ Tokyo

More than 20 years ago, Tokyo was one of, if not, the most expensive city in the world. At that time, the Japanese economic growth was unrivaled; six of the ten richest men listed in Forbes 1987 came from Japan. The mighty Japan Inc. pretty much exterminated the overseas market share of American and European consumer electronics companies. Japan became the world’s largest creditor nation, and the four biggest banks at that time were Japanese. From 1985 to 1989, Japan’s Nikkei stock index tripled to 39,000 and accounted for 42% of the planet’s stock market capitalization.


The city of Tokyo, Japan - investors are sensing opportunities here

Real estate prices experienced similar manic action, with the prices in Tokyo’s prime neighborhoods rising to levels that were 350 times more expensive than comparable land in Manhattan, New York. The land underneath the Tokyo Imperial Palace was rumored to worth as much as the entire state of California. Japan was deeply admired and served as an inspiration throughout Asia and economists were busily predicting that it would overtake the U.S. to be the world’s largest economy by 2010.

But Japan’s economic bubble proved unsustainable. The Nikkei stock bubble popped and plunged by nearly 50% from approximately 39,000 to 20,000 during the year 1990, hitting 15,000 by 1992. Japan’s imploding stock bubble also crashed the country’s real estate bubble, creating ‘zaitech-in-reverse’ and throwing the country into a deep financial crisis, halting three-decade of “economic miracle” and began the 20-year economic stagnation known as the ‘Lost Decades’.

Throughout these periods, Japan’s competitive edge against other Asian exporters, including China and South Korea, deteriorated and its steadily deflating stock and plunging property prices sent the economy into hibernation. Today, residential real estate in Tokyo was only worth of 10% of its late 1980s peak, while the most expensive land in Tokyo’s Ginza business district had fallen back to just 1% of its 1989 level in the same year.


Property prices in Singapore and Hong Kong now more expensive than Tokyo

Fast-forward 2013. The so-called Four Asian Little Dragons have finally grown up, and they are pouring money into Japan, a complete reversal of capital flow when the Japanese economy was at its peak back in the 1980s. When Julia Chang, a 48-year-old Taiwanese who divides her time between Taiwan and Tokyo, decided to diversify her family’s overseas investments, she settled on real estate in the Japanese capital where prices have slumped for two decades.

Chang, a former flight attendant, is looking to buy her third apartment in Tokyo, which is increasingly attracting foreign buyers after Prime Minister Shinzo Abe took office in December with a pledge to end the deflation that has depressed real estate for 20 years. “Tokyo properties make a good investment because they are relatively cheap,” said Chang in an interview at her 170 million yen ($1.7 million) three-bedroom apartment in central Tokyo. “It’s a bargain.”

Asian investors like Chang are being lured by returns as high as 8% on rental income and signs the property market is recovering. The government’s resolve to keep the yen weak has also made real estate in Japan more affordable compared with Hong Kong, Singapore and Taiwan, where governments have been struggling to contain surging residential prices. “Japan is cheap considering how much property prices have gained in Singapore and Hong Kong,” said Akihiko Mizuno, international director and head of capital markets at Jones Lang LaSalle Inc. “They expect to receive stable rental income and also have an expectation that prices will rise in future.”


Tokyo has one of the world’s most stable rental market

Home prices in Tokyo are now around 120,000 yen to 150,000 yen per square foot, according to Chicago-based Jones Lang LaSalle. That compares with about 280,000 yen to 400,000 yen in Hong Kong and 200,000 yen to 250,000 yen in Singapore, it said. In New York, the average price per square foot for a Manhattan condo is around 137,000 yen, according to appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. A unit of 1,000 square feet apartment in Taipei, Taiwan’s capital, costs about NT$19.5 million ($648,250) in June, according to Taipei-based Sinyi Realty Co. That translated into 64,000 yen, still cheaper than Tokyo but is enough to divert investments elsewhere.

Hot investment money that has driven up property prices in Asia for the past several years is now finding its way to Tokyo, said Sanjay Verma, chief executive officer for the Asia-Pacific region at broker Cushman & Wakefield Inc. “The capital is very restless,” Verma said in an interview in Tokyo. “If there is idle money sitting there, it will find a way to get invested.”

Sinyi, Taiwan’s biggest publicly-traded real estate broker, started selling properties in Japan to buyers from greater China - which comprises of Hong Kong, Taiwan, China and Macau - in 2010 and has seen the number of properties sold tripled in the past two years, said Kenny Ho, Tokyo-based managing director at the realtor. The yen’s weakening against the dollar this year has made apartments in Tokyo about 15 percent cheaper than last year, driving up demand, he said.

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You can take a mortgage loan for 2-3%, and rent out your property for 6-7% rental return

A one-bedroom apartment that costs less than 50 million yen can offer a return of about 6-7%, and because the interest rate in Japan is ultra low, the mortgage lending rate is only at about 2.5-3%, Mr Ho said. This mean that if you take out loan to purchase the house, then rent it off, and your rental income could easily be double of what you are paying for loan installments.

CTBC Financial Holding Co, one of five Taiwanese lenders with branches in Japan, said the number of mortgage loans and the value of mortgage lending in the nation has tripled in the first half from the same period last year. This may be due to that people are beginning to sense opportunities in Tokyo real estate. The bank is currently offering a floating mortgage rate of 2-3%, which is tied to the one-month Tokyo interbank offered rate, or Tibor, said Keiken Matsumoto, a Tokyo-based mortgage loan officer at the bank.

After noticing increased overseas interest, Jones Lang LaSalle held half a dozen seminars in Singapore last November, advertising Japanese properties. The broker sold more than 100 Tokyo homes, with prices from 40 million yen to as much as 200 million yen, for Japanese homebuilders including Mitsubishi Estate, Mr Mizuno said. The broker has also started marketing apartments in Japan to Hong Kong investors following the success in Singapore, he added.

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Can Japan return to its glorious past… via property boom?

Japan’s largest developers are set to benefit from rising apartment sales, said Yoji Otani, a Tokyo-based analyst at Deutsche Securities Inc. “Condo sales are buoyant,” Mr Otani said in an Aug 1 report. Completed condo inventory in the Tokyo metropolitan area is at its lowest level since 2000, according to the Real Estate Economic Institute. Japan’s housing prices have risen for a 10th consecutive month in June, the longest streak since December 1996, the Ministry of Land said on July 31. Mitsubishi Estate on July 31 reported a 44% gain in first-quarter profit after a 7 times increase in profitability at its residential business.

Prime Minister Abe’s pledge to end 15 years of deflation through monetary easing by the Bank of Japan have helped bolster consumer confidence, fueling expectations that property prices will start rising. Masayuki Taniguchi, a 51-year-old real estate broker, spotted the trend early. Three years ago, he set up a homepage in Chinese to sell properties in Tokyo to investors from Taiwan, Hong Kong and China. He didn’t get any response until late last year, and has now gotten about 200 inquiries since Mr Abe took office in December.

“At first, I was just stunned,” said Mr Taniguchi, the president of Mikuraya Co, a Tokyo-based hotel and home-share operator. “I knew there was demand. I just couldn’t believe how rapidly the situation changed. With Abenomics, people expect the yen to decline, which makes the properties here cheaper to invest for overseas investors.” An apartment in Tokyo can generate returns of about 6-8%, he said. After interest, the return is about 3-5%, he said.

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Is Japan finally a ‘profitable’ place to invest in?

It means that if you take out loan in Japan to buy a Japanese property, say 50 million yen ($510,000), and is able to rent it out, you will earn at least 1.5 million yen ($15,300) every year - just by buying the property. It is the opportunity in the Japanese real estate market now. Investors prefer apartments in Tokyo’s central five wards, with a price tag of 40 million yen to 100 million yen because they offer more stable rental income, said Mr Taniguchi, who plans to wind down his company’s hotel division and focus on real estate brokerage for international buyers.

Chang, the Taiwanese property buyer, said, “When making an investment, you want to buy when prices are low and with relatively low risks. That way, it has more room for prices to go up. Besides, Tokyo is one of the biggest cities in the world after all. Owning properties here makes me happy.”

Source:

http://www.sfgate.com/business/bloomber … 706727.php

http://www.stproperty.sg/articles-prope … s/a/131849

http://www.bloomberg.com/news/2013-08-0 … nters.html

http://japandailypress.com/tokyo-real-e … s-0533329/

http://www.businesstimes.com.sg/special … s-20130806

http://www.scmp.com/business/money/mark … -investors