(Kamogawa city in Chiba) (Kominka-tradtional Japanese folk house-)
Are you curious about where the most attractive city in Asia to invest is ?
CBRE, renowned global real estate company, recently published a report on Japanese investment market called “CBRE Investors Survey 2018” According to the report while domestic investors’ willingness to invest remains high but the marker can see a somewhat prudent attitude and a move to seek an alternative investment.
Foreign investors targeting the Asia-Pacific region ranks Tokyo as the most attractive city and local cities (7 cities in the region such as Osaka, Fukuoka as one category) in Japan as the seventh place.
In 2018, the interest from overseas investors to Japan is expected to further grow.
Here are key points from the report
While Japanese investors have increased willingness to sell, the intention to acquire is somewhat lower.
According to the report, 63% of investors in Japan said they would acquire the same volume as in 2017, an increase of 5 points from 58% in the previous year.
Meanwhile, 29% of investors responded that they will increase from the 2017 acquisition, a 9 point decrease from 38% in the previous year.
The overall result is that more than 90% of investors are still assuming investment trajectory shall be equal to or higher than the previous year. Nonetheless, the trajectory also decreased by 5 points from 96% in the previous year. The willingness to acquire assets seems to be somewhat declining.
On the other hand, the willingness to sell is somewhat increasing.Investors who said they would sell the similar volume as the previous year, is 62%, decreased by 7 points from the previous year,34% of total said they would increase sales from the previous year, an increase of 14 points from 20% in the previous year.Overall, 96% of the total is projecting plan to sell equal to or greater than last year.
Tag Archive for Real state investing
What is Hida-Takayama in Gifu ? Why so many Jewish people visit there ? : Will you be ready for investment in private lodging (minpaku) property ?
(Historic village in Hida-Takayama)
It is not secret that Japan is a surprising combination of peace and chaos, old and new and has just the right amount of anorak.
Inbound tourism continues to thrive as a record 28.7 million tourists visited Japan in 2017, up 19 percent from the previous year and apparently keeping the nation on track for the government’s target;40 million in 2020.
Challenges remain such as a tight supply of accommodations that cater to overseas guests and a heavy concentration of visitors from East Asia.
According to JNTO (Japan National Tourism Organization), the estimated number of international travelers to Japan in April reached to 2.9 million with an increase of 12.5% compared to the previous year, recording the best April ever. The estimated number of international travelers to Japan in 2018 reached to 10 million (+15.4% from 2017).
(Number of Inbound tourists by year)
(Inbound tourists by country in 2017)
That said, Hida-Takayama (飛騨高山）has become one of major tourist destinations among the foreign tourists
but it is not that popular destination for average Japanese.
I have recently read an interesting article about Israeli tourists in Hida-Takayama and would like to share the Takayama city’s
strategy how they become one of the most popular tourist places among foreigners especially Jews.
According to Takayama city statistics, the number of Israeli visitors has increased from mere 2,833 in 2013 to over 10,000 mark for the first time in 2016. The number has more than triple.
Total number of Israeli visitors to Japan during 2016 was about 30,000 so one-third of them visited Takayama.
In 2017, the total number of Israeli guests to Japan increased to 32,000 from previous year (up 7%)
(Chic Hida-Takayama old town village with historical kominka)
Read more
Real Case Study : How viable is buying a property to rent in Japan ? : How to get Financing and Tax implication
(Yokohama city center)
Evaluating Real Estate as an investment
According to an article in USA today, single-family homes in large U.S. cities have generated returns of about 9% annually on average,
according to the study, which examined results from 1986 to 2014. Yes, there are risks in real estate investment.
Becoming a landlord isn’t without its risks — from bad tenants and periodic market slumps to changing tax laws and natural disasters
such as tsunami and earthquake.
The principle and the mechanism of the real estate investment in Japan is exactly the same
as other countries.In theory, you borrow the money at 3% from a bank and buy the real estate that generates 8% yield.
The spread (in this case 5%) is your profit.
You don’t need the rocket science. But really ? Let’s find out how viable it is.
In financial parlance, it is called ‘leveraging’.
Leveraging does not necessarily mean success.
Skeptics about the real estate investment in Japan where the population is
declining and rapidly ageing have lots of ammunition.
Leverage magnifies all of your returns and those returns aren’t always positive!
If you want to make investments where you can expect the appreciation of 20% over next 3 years,
Japan is not your destination.
How to avoid mistakes when choosing a real estate agent -Perennial Ryote-torihiki（両手取引） and Kakoikomi(囲い込み） problem-
As the book ‘Freakonomics’ (2005 by Steven Levitt and Stephen J. Dubner.) describes
“information is a beacon, a cudgel, an olive branch, a deterrent―all depending on who wields it and how.
It is common for one party to a transaction to have better information than another party.
In the parlance of economists, such a case is known as an information asymmetry.
If you were to assume that many experts use their information to your detriment, you’d be right.
Experts depend on the fact that you don’t have the information they do.”
A real estate agent may see you not so much as an ally but as a mark.”
Too fazing?
Like in the US, many Japanese people believe that the real estate industry in Japan is quite shady.
All the real estate agents are strictly regulated by Building Lots and Buildings Transaction Business Act for both
rent and sales.
The regulations say ‘a Designated Examination Body must appoint examiners to administer qualification Examinations for Real Estate transaction specialists
（hereinafter referred to as “Examiners”） from among persons satisfying requirements as specified by an Ordinance of the Ministry of Land, Infrastructure, Transport and Tourism and have Examination questions prepared and marked.’
To become a licensed broker, one needs to pass the exam.
Some specialists call themselves ‘real estate consultant’ because they are not licensed.
They are not unlawful, but unlicensed brokers are not allowed to lure any investment and not allowed to become the intermediary
for the transaction.
In the meantime, technically speaking, listing agents could control all the information in multiple offer situations.
Efforts by regulators to increase transparency in the real estate industry have been made continuously and every year regulators issue
the new legislation.
With greater transparency, consumers theoretically can also be more confident of their decision to engage agents, and be able to select the agents who best meet their requirements.
How transparent is the industry in Japan now?
Do you think big names like Mitsui or Sumitomo will see you
as an ally?
The short answer is ‘no’.
In general, buyers have one representative in the transaction and sellers have another.
The sides negotiate back-and-forth towards a deal that would be acceptable to both principals but whose outcome depended on the quality of their representation and negotiation.
Representing both sellers and buyers of the property at the same time is called a double agent in real estate parlance,
it is called a dual agent.
It is called in Japanese 両手取引（ryote torihiki) or ‘double-handed’ transaction by the industry jargon.
If your agent is representing either side only, it is called 片手取引（’katate torihiki’ or ‘single-handed’ transaction)
Dual agency is not illegal in Japan but highly controversial.
Why?
Dual agents are supposed to protect the interests of both parties.
The buyer and seller have diverging goals and are both represented by the same agent or brokerage firm
(who has a great incentive to see the deal completed).
Imagine what would likely to happen?
Yes.
Conflict of interest.
It is very common in this type of deal.
Obviously, the buyer wants as low a price as possible, and the seller wants the opposite.
Like all other developed countries, real estate agents in Japan, including myself, work on the commission basis for the transactional business.
(I often work as a real estate consultant who is based on a fee)
The statutory rate for the transaction is maxed 3%(of the property price)+60,000 yen.
The problem is that the agent only stands to personally gain an additional $300 (3%) by selling your property for $10,000 more,
which isn’t much reward for a lot of extra work.
It is not solely the fault of the agents, but I venture to say it is a system failure.
In economics parlance, it is called the ‘agency problem’.
Particular incentives and incentive structures explain a very great deal of the financial world which swirls around us.
In capitalism, people respond to incentives and to their opposite, disincentives.
You can’t blame people who are acting very human.
Therefore when you are selling or buying the property, you need to understand the incentive structure which swirls around the industry.
In this sense, you may want to be extra careful if you wish to negotiate the brokerage rate with your agent.
By hammering their brokerage (by giving disincentives), your property would promise the detriment.
Again it is human nature.
One article in the magazine called ‘ZAI’ in November 2017 by renowned Japanese Diamond publishing company actually
grabbed the media attention by revealing the estimated double-handed transactions.
According to the estimate, the prominent
names like Mitusi, Sumitomo, Tokyu, Nomura are apparently engaging very actively in the double-handed transactions.
Please see the numbers below. (I listed only 10 companies out of 20 companies)
These are the estimated commission rate which each prominent real estate company generated between 2014 and 2016.
Mitsui Fudosan Realty Network 5.39%
Tokyu Livable 4.15%
Sumitomo Real Estate Sales 5.23%
Nomura Real Estate Group 3.74%
Mitsubishi UFJ Real Estate Sales 3.67%
Century 21 Group 4.40%
Mitsui Sumitomo Trust Real Estate 4.04%
Mizuho Real Estate 3.33%
Daikyo (a part of ORIX group) 4.69%
Odakyu Real Estate 4.43%
* Estimate is based on real estate distribution data of the Real Estate Distribution Promotion Center (They serve as a public interest incorporated foundation)
The estimated commission rate is based on the fee income
announced divided by the transaction volume (sales volume).
I don’t have access to the information source of Real Estate Promotion Center but tried to verify the commission which ZAI magazine released
by analyzing the financial report announced by a few of these companies.
And I landed at 5.1 % for Sumitomo, 4.5 % for Daikyo and 6.5% for Century 21.
And yet, the controversial article by ZAI looks reasonably accurate.
As you can see from the estimated commission rate of the major real estate companies are exceeding 4%, and a few companies are enjoying more than 5% commission rate.
This is most probably because they boast the relatively high commission rate working as ‘dual agents.’
It is illegal if a real estate company intentionally crafts two-hand transactions by concealing the property information without any prior agreement with the seller.
Unfortunately, in Japan’s real estate industry, you often encounter dubious double-handed transactions.
How can they craft such dubious deals?
As a matter of fact, their method is very simple and classic.
The industry has the database system called ‘REINS’ where all the agents list each property when they enter into the intermediate agreement with the seller or buyer.
Once the property is listed with REINS, all the
licensed brokers can access the database and look for a property they seek.
However, even the property is registered with the REINS system, the current rules allow the space for manoeuvring by the seller’s agents.
When sellers agents receive an inquiry from a potential buyer, they can they simply say
“The property has been already closed or under negotiation”.
It is very difficult for the principal parties to know the actual dialogues between sellers agents and buyers agents.
It is called 囲い込み （kakoikomi or boxing)
Kakoikomi by intentionally concealing the information is a violation, but sadly such kakoikomi is common.
The rogue real estate companies consistently disregard the inquiries from buyers agents and wait until sellers compromise the price.
For the seller, kakoikomi creates a significant opportunity cost.
Sellers miss opportunities to sell early.
Also, even they could be left only with the option of lowering price.
Remember the agents can gain only an additional $300 as a brokerage even they work hard and manage to sell your property $10,000 more.
Here classic ‘agency problem’ can be seen on a flip side as well.
The agents do not lose much money by lowering
your property price by $10,000.
Moreover, sellers agents can gain more by crafting the double hand’s transactions even the price is lower.
Unfortunately, the double-handed transaction is extensively practised in Japan.
Why do we have controversial double-handed transactions even though they look so dubious?
First, dual agencies are not prohibited by law.
And I said earlier the dual agency is very prone to
the conflict of the interest.
Second, it is almost impossible for the consumers to verify if competing offers are actually registered or not if agents are divulging offers to their clients.
On the other hand, even if it is an intermediary company on the side of the buyer, even if it is registered in REINS and looking at the information and applying to the real estate brokerage company on the seller side, he could say, the property has already entered into contract negotiation.”
It is easy to imagine that a strong incentive to do kakoikomi for real estate companies and salespeople who want to increase commission income.
The transparency is a huge issue.
To avoid such kakoikomi, what can you do?
Is it a good idea to go to a small to medium-sized real estate agents?
In my experience, it is not really a matter of
credentials of the company but who your agent (salesperson) is.
The real estate industry often is regarded as the
bunch of small non-corporate shops.
The business model of the agency is so simple, and once you gain the skills of sales and communication, they can enjoy the freedom in corporate life.
What matter is the individual performance, not the brand of the company?
What about medium and small-sized real estate brokerage companies?
The size of the company does not matter much.
Even if it is not a major real estate brokerage company, by posting the property information on the internet,
there is a good possibility of finding a seller.
Also, there are local and small real estate agents that are strong in certain areas, and they tend to have a lot of property information and information on local buyers.
They have a strong connection with the landowners and landlords of the areas.
The most important thing you need to remember is that the sellers (and buyers) should ask agents a few questions including double-handed transaction
to assess the integrity and attitude of real estate brokerage firm or sales representatives.
You do not know if their answer is genuine; however, at least, by asking such questions you will look sophisticated and don’t look like a mark for the agents.
In conclusion, here are some tips about how you can avoid pitfalls in Japan.
・Notable brands are not the guarantee of the quality of the service.
When you choose the agents, you also need to choose a person in charge of your property.
If you are not happy with a person for some reason, please ask the manager to change the person.
・Try to avoid a salesperson who is overly pushy.
They may keep sending information of the properties even if they don’t match your criteria.
He or she may just be desperate to make a transaction.
・Internet is the currency of the internet. It compresses the gap between experts and consumers.
Please do your homework by studying the relevant information on the web sites service like
AT HOME or SUUMO before you choose your agents.
・It is recommended that you interview a few agents before choosing your agent.
Each agent should have strengths in their sales and marketing.
Please ask your agents if they are willing to make a deal by the single-handed transaction.
They could try to craft the double-handed transaction, but your question will give them good pressure.
・Choosing agents who offer the lowest commission rate is not a necessarily good idea.
By choosing such an agent, your property could lose priority in their mind. Reduced commission means reduced marketing effort.
It will negatively affect your agents.
・Look for someone who is committed with integrity.
Integrity is always a key for success from a business perspective.
・Make sure your agent is focused on the value, not just the price
Your real estate agent should be able to accurately estimate the value of your property and set up a price that accurately reflects the value.
Moreover, when you are briefed the estimated price, please ask them the logic and story they sell.
両手取引 (ryote torihiki, in Japanese)
囲い込み（kakoikomi , in Japanese)
(Shimanto river in Kochi pref)
Toshihiko Yamamoto
Real estate investing consultant and author.
Toshihiko is currently writing a book about real estate investing in Japan
for foreign investors. About the book
Founder of Yamamoto Property Advisory in Tokyo.
International property Investment consultant and licensed
real estate broker (Japan).
He serves the foreign companies and individuals to buy and sell
the real estates in Japan as well as own homes.
He holds a Bachelor’s degree in Economics from
Osaka Prefecture University in Japan
and an MBA from Bond University in Australia
Are you interested in akiya 空き家（unused house) for free in Tokyo ?：How to find a house for almost nothing in Japan ?
(Okutama lake in Okutama town, Tokyo)
You can find “abandoned houses” all over Japan, due to the country’s shrinking population.
The ministry of land, infrastructure, Transport and Tourist（MLIT) reported in 2013
that about 8.2 million (about 13.5% of total) houses and apartments were empty.
*
In fact, this 8 million number which often catches media attention is very misleading.
It includes the rooms and houses for letting.
Taking the fact into account, there are about 2.2 million akiya ‘real empty houses’ (abandoned houses)
in the market. Still daunting number in deed.
One report said vacant land and homes could by 2040 be as big as Japan’s northernmost island of Hokkaido—about 83,000 sq km (32,000 sq miles), or the size of Austria.
The area is currently about 41,000 sq km, slightly bigger than Japan’s southern island of Kyushu.
Many of Japan’s 8 million abandoned homes—or akiya(空き家）—are often left empty indefinitely.
Why do we have so may abandoned houses ?
Is ‘minpaku’ (private lodging) finished in Japan ? : How is the new law affecting the real estate industry ?
The new law will be effective from June 2018 to crack down on illegal lodging
Local governments across Japan have just begun accepting applications for operating private lodging (aka ‘minpaku’ in Japanese) rental businesses under a new law going into effect in June 2018.
The law is responding to a sharp growing need for affordable accommodation amid a rapid rise in foreign tourists, while cracking down on illegal lodging.
The law is to limit the number of days per year that rooms in private homes and apartments can be rented to maximum 180.
Operators will have first obtain the certificate from the local governments and then display signs indicating the presence of rental units and manage noise and other complaints from neighbors. No-compliant operators can expect to be fined.
In the meantime, Japan’s condominium management company association recently released the nationwide survey results on the use for private lodging in condominiums in Japan.
It is the interesting development and I quickly share the summary of the report today.
Is Kyoto still good for investment in a vacation rental ? : Two boutique guest houses
In light of the surging inbound tourists, Japanese and foreign developers and hotel companies have stepped up construction, with names like Hyatt, Marriott, Nomura Real Estate Development and Mitsui Fodosan building new accommodations.
We have been increasingly receiving the inquiries from overseas investors about the properties in Kyoto for vacation rentals.
Generally speaking, lots of investments money to build the hotel and private lodging are flooding in Kyoto now from both inside and outside Japan and therefore the good properties with hotel license tend change hands very quickly.
There are very attractive investment opportunities for foreign investors in Kyoto properties.
I am going to discuss the opportunities of vacation rental in Kyoto today.
Let me start with the recap on the inbound tourism market in Japan, in particular, Kyoto.
The number of foreign visitors to Japan rose 19% to a record of nearly 29 million in 2017.
The government set the road to the target of 40 million by 2020 when Tokyo will host the Olympics.
Spending by foreign visitors rose 18% to ¥4.4 trillion ($40 billion).
Tourists have transformed the face of the nation’s cities, crowding into popular destinations such as the Ginza shopping area in Tokyo, temples in the ancient capital of Kyoto and ski
areas during the winter.
For example, the number of American visitors rose 11% in 2017 to 1.24 million which accounts for about 4% of the total.
Read more
2020 Tokyo Olympics revamping central Tokyo
(Current JR East ‘Harajuku’ station)
Tokyo will host the Rugby World Cup in 2019 and Olympics and Paralympics in 2020.
In view of the two big events and rapid growth of the inbound tourism, In Tokyo, there are a number of revamp projects in the pipe line now.
Today I pick up one of the projects by EAST Japan Railway Company (JR East)
involving Sendagaya station which is the closest station to the new National Stadium and Harajuku Ekimae project by NTT group.
Tokyo and neighbouring cities have been developed sufficiently and in a sense have been seeing the matured status
over the years,however, when the new development plans are revealed by the developers and the railway companies,
the real estate price in the redevelopment area picks up and price hike is likely to continue for over several years.
Risks in real estate investment in Japan-natural disaster- : How to avoid the earthquake risk
Japan has the risk of earthquake.
You remember the earthquake in Kobe in 1995 and Tsunami disaster in Fukushima in 2011.
Although Japan’s earthquake-resistant technology of buildings is considerably advanced than that of other countries,
we have to be realistic.
In the interest of personal safety and protecting the value of what is likely your biggest financial asset,
prospective buyers and investors should be aware of any natural disaster risk impacting a potential property purchase.
If the building is broken or collapsed due to an earthquake, you cannot get rent.
In most cases, learning about natural disaster risk will not stop investment, but it will help investors make a better-informed decision about where to buy and preparing in terms of appropriate insurance coverage depending on the type of natural disaster risks most affecting the property.
Unfortunately we don’t have a comprehensive ‘natural disaster risk score’ covering whole Japan announced by the government or a certain institute but on the prefecture and city level, many prefectures and cities
release ‘hazard maps’ to show the risks of natural disasters
in the area.
Read more
Is it the good time to buy a property in Tokyo ? – Quick recapitulation on condominium market in Tokyo in 2017-
Tokyo kankei (Japan’s institute for real estate study) recently announced
the market report on the condominiums in greater Tokyo area.
We have made the recapitulation of the report for the clients.
I will share a part of our report today.
Both prices of newly built second-hand condominiums and
unit price per square meter has gone up.
New construction projects were supplied mainly in central area of Tokyo
which sharply makes price rise.
The average price in the Tokyo metropolitan area (Tokyo and neighbouring cities) of newly built condominiums was 55.44 million yen, up + 9.0% from the previous year’s 50.87 million yen.
Because it was falling the previous year, it rose for the first time in two years, and the
whole metropolitan area shows a trend of rising again from a high stop.
The reason for price rise was due to the strong tendency of supply to concentrate in central Tokyo.
The average area for each condominium was 63.24 square meters, which was up 3.1% from 61.33 square meters in the previous year.