Here’s the story. I was invited to a networking seminar about real estate investment in Japan aimed at foreigners living here. A young Canadian guy in the audience was asking a lot of questions during the Q&A session, and I broke in to ask one of my own, which apparently got his attention. During the networking party, he approached me and asked if I was in the business. I said yes. He asked me about the viability and potential risk of a real estate investment he was in the process of finalizing.
I learned that he was about twenty-eight years old, a consultant working for a pharmaceutical consulting company, and had lived in Japan for about two years. He had no supporting documents on the deal, but he mentioned the amount of money involved and the locations—the equivalent of about $US3 million, and two properties, one in Kumamoto Prefecture in Kyushu, and the other in Mie Prefecture on Japan’s main island of Honshu. Those are both rural areas. Interestingly enough, he’d managed to secure a fully leveraged bank loan—no down payment needed.
While there are some good opportunities in Japan’s rural areas, my first gut reaction was that this was a very risky deal. The population and infrastructure in Japan’s countryside are generally shrinking and deteriorating. The time line was also problematic—he said he was going back to Canada to take another job in about two weeks, but was planning to do the deal in a few days.
I asked him what yield he was expecting—11 percent, he said—who the lender was, and about the real estate agency involved. The lender was Suruga Bank, based in Shizuoka, which is very aggressive in lending money to investors. Their borrowing rate is quite high compared with other banks because they take the risk, so you know the interest rate must be higher, about 4.5 percent. But the bank was obviously willing to lend to a foreign investor.
To Be Continued