The world has cast concerned eyes on Japan over the past two months as it struggles to cope with an unprecedented triple disaster including a massive earthquake, a vicious tsunami, and a dangerous nuclear crisis. How will this affect Japan’s economy and its real estate market?
A recent report prepared by KPMG, released just weeks before the disasters, indicated that Japan’s real estate market had been on the road to recovery since its last report in early 2010.
Prior to the March 11, 2011 disaster, some of the indices mentioned that were believed to reflect an improved real estate market in Japan included:
- After 18 months of stagnation, real estate funds and
- J-REITs had shown ‘sound recovery’.
- Debt financing was expected to show positive growth in 2011.
- Cap rates across the country appeared to have begun stabilizing.
- With rental rates down in Tokyo as an adjustment in the leasing market, vacancy rates had also been steadily declining.
- The Japanese government put into place an economic stimulus that had helped spur GDP growth in 2010. This GDP growth was apparently one of the key drivers of the real estate market.
- An “Investor Survey” conducted by the Japan Real Estate Institute in October 2010 showed investor appetite had nearly returned to levels experienced prior to the Lehman Brother crash. 80% of respondents said they planned to look for new investments in the coming 12 months.
But how a tragedy as massive as the one Japan suffered will affect the country as a whole remains to be seen. An April 4, 2011 article reported the results of a Bank of Japan survey showing Japanese business confidence was expected to fall significantly for the April-June 2011 quarter, from a plus 2 pre-March 11 to a minus 2 post-March 11. This signifies that pessimists outnumber optimists regarding business conditions. Additionally, lending may tighten as banks become more cautious when evaluating properties and land sites when making the decision to provide financing to investors. Mizuho Securities Co. and Morgan Stanley Asia were both of the opinion that Japan’s economy was headed for a fifth recession. Additionally, with the difficulty to predict Japan’s economic outlook at the moment, investment interest by foreign investors is expected to remain low at least for the next six months.
My opinion for Japan’s real estate market? For now, most people with extra money are coming together and donating to help their fellow countrymen. News at the time of writing this article had Japan’s richest man, Masayoshi Son, pledging to donate $120 million of his personal money for quake relief. If that is the case, the Japanese people will not be out spending their money elsewhere (on clothes, eating out, buying luxury items, or investment). Consequently, investment in real estate may decline. Also, with the dangerous image of natural disaster, we may see folks wanting to move out of the affected areas and into other areas, causing those areas to experience a small boost. For now, it’s a wait and see situation for real estate, and we all know that too much waiting and seeing is not good for moving real estate.
Author: Susan Kwok Annoura, CIPS,
Annoura Realty Group
HAR International Advisory Group member