It has been just over one year since the catastrophic earthquake/ tsunami that rocked Japan. While Japan struggles with rebuilding its nation, it has also been embroiled in several battles over territorial rights of some of its outlying islands with its neighbors, China, South Korea, and Russia. Although, the overall health of the economy is described as weak, the value of the yen is strong, making it very difficult for it to export because other countries simply can not afford it anymore. One wonders how real estate is doing in the land of the rising sun. Here are some interesting facts and trends to update our readers on the state of today’s Japanese real estate market.
1. Land values are down.
An annual report released September 19, 2012 by the Ministry of Land, Infrastructure, Transportation and Tourism reported that average land prices nationwide fell this past year. While this marks 21 years of straight decline, the good news is that declines are less than last year. Tokyo, Osaka and Nagoya experienced a 1% decline (a year earlier they fell 1.9%) while prices in rural districts fell 3.4% (a year earlier they fell 4%). Land values today are about HALF of what they were after the peak of Japan’s bubble economy in the 1980’s. The report also showed that commercial property sitting in some parts of Tokyo’s Ginza shopping district remain the most expensive at 19.7 million yen per square meter. At 77.60 yen to the dollar, that’s roughly $23,593 per square foot. Tokyo’s Chiyoda Ward, home of the Imperial Palace, has the honor of having the most expensive residential land at 2.78 million yen per square meter (roughly $3329 per square feet).
2. Housing demand is up.
Supporting the claim that housing demand is up, The Real Estate Economic Institute Co. reported that housing loans by private banks increased in the last three months to 164.3 trillion yen. This is said to be the highest amount since 1997. Additionally, The Bank of Japan is keeping its benchmark interest rate at a remarkably low 0-0.1%. The 10 year fixed-mortgage rate at Bank of Tokyo-Mitsubishi UFJ Ltd. was at 3.65%. This low interest rate is helping to attract buyers. Another outside driving force boosting housing demand is a two phase consumption tax hike that will be coming into play. Japanese people must pay sales tax when they purchase a home (but only on the home, not on the land). The current tax rate is 5%. This rate will go up to 8 percent in April 2014, and then to 10% in October 2015. Consumers and real estate companies both know that big ticket items long contemplated will be bought before the hike goes into effect. Many are using the term “kakekomi kounyu” which translates into ‘rushing to buy something at the last minute after hesitating for a long time’. Among those big ticket items: Cars and houses.
3. Demographics of potential buyers are favorable.
Jasper Koll, head of equity research at JPMorgan Chase & Co. says “Japan is in a demographic sweet spot.’ As many as 19.1 million people are being dubbed the EchoBoomers. They are the children of the postwar baby boomers and the prime candidates to buy their first homes. They range in age from 35-44 and represent a potential market share of 44%. If history repeats itself, housing starts should gain. When the baby boomers reached the same age range (35-44) in 1987, Japan enjoyed its third highest housing start ever. The government seems to be well aware that the Echoboomers can help the overall economy if they begin to buy houses. It has extended tax breaks on mortgage payments and increased the credit limit for gifts made for home purchases by as much as 50% (the maximum gift can now be 15 million, or approximately $193,290). Additionally, The Japan Housing Finance Agency now has a fixed-rate mortgage program that will cover up to 90% of a home’s purchase amount. This would require the borrower to put down a minimum 10%. For Japan, typically people put down 20%, so the ability to only have to put 10% makes it easier for young people especially, to buy homes.
4. Efficiencies are trending up.
It could be a sign of the times, but sharing space, both residential and commercial, is trending up. Take for instance, The Social Apartments company. This series of designer shared housing complexes provides an economical way for international minded people to find housing. These complexes are location all over Japan, and are clean, comfortable, and modern. Many are designed by renowned Japanese artists. The location near Wakoshi station, for example, was designed by art director Shun Kawakani. There are 41 private units in a 4-story structure with each unit having a small bedroom, kitchen and bathroom. Then, attached to the 4-story structure is a large shared living space which includes a 60’s era style lounge with a pool table (rare for Japan), a library, yoga studio and a ‘beauty room’ which may consist of relaxation room with spa and the latest model massage chair. On the weekends, residents can do a language exchange in the lounge, or have parties on the weekends. Each location is slightly different from the others and offers different amenities. While this concept is common in America’s luxury apartments, this is a whole new concept in Japan.
On the commercial side, there is an Australian company called Servcorp Virtual Offices that now offers a fully furnished and fully functional office facility in various cities in Japan. Because it is so expensive to rent an office space, businesses trying to enter the Japanese market can ‘office’ out of this shared office space. Servcorp will provide administrative services, modern office equipment, and conference meeting facilities, plus give its clients a prestigious business address (inside the fancy Shinagawa Intercity Tower A, for example) and telephone number. If the company really needs to meet with clients, it can borrow an executive business lounge for up to 3 hours per day. This concept of sharing space, facilities, and staff with other companies suits two types of clients. It is good for startsups who need an address to bolster their image, or for multinational companies who may want a presence in Japan. The bottom line is they use these efficiencies to accomplish their goals without having to actually rent a permanent space.
So what are my thoughts on some of these trends? First, although the report shows that land prices are declining, it is bewildering that a place in Ginza can run $23,593/sf. Second, it was interesting to know that people have to pay sales tax on their house purchases. I worry about the backlash of raising the sales tax rate over the next two years because while it may encourage people to get off the fence and buy before the tax rate goes up, they may see a steep decline after the higher tax comes into effect. Much was seen here in the U.S. after the $8000 tax credit ended. Third, although the article touts low interest rates and lower down payments, the interest rates don’t seem that much lower than what we are seeing here in the U.S. and our FHA program allows for even lower down payments. And last, I love the idea of shared sophisticated spaces to save on rents, but I worry what this will do to all the empty office and condo space that no one will be willing to rent.
Susan Kwok Annoura, CIPS, ABR, GRI, e-Pro, CNE
Specializing in International Buyer/Tenant Representation
Annoura Realty Group, LLC
2012, Texas Association of Realtors International Committee
2012, Houston Livestock Show and Rodeo, International Committee
2010, 20 Under 40 Rising Stars in Real Estate Award Recipient
2009, Texas Realtor Leadership Program Graduate