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The renowned global real estate company CBRE recently published a report in April 2018 on the Japanese investment market called “CBRE Investors Survey 2018.” 

 

The report indicates that foreign investors targeting the Asia-Pacific region rank Tokyo as the most attractive city, and seven local cities in regions such as Osaka and Fukuoka lumped as one entry ranked number seven.

Here are the key points CBRE made:

Japanese investors are selling more than buying

While Japanese investors are more willing to sell, their intention to acquire is somewhat lower. According to the report, 63 percent of investors in Japan said they would acquire the same volume as in 2017, an increase of 5 points from 58 percent in the previous year. Meanwhile, only 29 percent of investors said they would increase their acquisition rate—a nine-point decrease from 38 percent in 2017.

The overall result is that more than 90 percent of investors are still assuming an investment trajectory equal to or higher than the previous year. Nonetheless, the trajectory also decreased by 5 points from 96 percent in the previous year. The willingness to acquire assets seems to be declining.

On the other hand, the willingness to sell is increasing, with 62 percent of investors indicating they would sell a similar volume as the previous year—down by seven points from the previous year—while 34 percent said they would increase sales from the previous year, an increase of 14 points from 20 percent in the previous year. Overall, 96 percent are planning to sell as much or more than they did last year.

 

Around half of the respondents are concerned about domestic and overseas economic trends and declines in real estate prices
Regarding risk in the real estate market, most investors were concerned about sudden economic fluctuations domestically and overseas, and about the decline in real estate prices.

However, concerns about the oversupply expected in the office market in Tokyo, which about 20 percent of investors mentioned last year, decreased to less than 10 percent in this survey. The office vacancy rate in Tokyo’s 23 wards is less than 2 percent, reflecting consistently high demand, which seems to give investors peace of mind. More investors are concerned about political instability in Japan and abroad in response to the rapidly changing international situation.

To Be Continued

 

What they don’t like about Japanese market is that the growth is lower than other Asian markets. According to the report, Japan has a yield of about 3 to 5 percent, which is not very high. It’s now largely stabilized. In developing Asian countries investors can expect something like 6 to 8 percent. Those countries obviously have hotter economies thanks to a younger population and the increased income of the people.

 

The report also says investors are put off by the lack of information about the Japanese real estate market. Despite the size of the Japanese market—it’s the third largest in the world, and accounts for about 3 to 4 percent of the country’s gross domestic product—99.9 percent of the information is in Japanese.

 

For example, official questionnaires the MLIT conducts about land issues on the Internet are only in Japanese. Translating everything into English or other languages is too time consuming and troublesome, especially all the industry terms.

 

The MLIT issues maybe a hundred official reports a year, so even the most serious and committed overseas investors can’t be bothered to do them all. The ministry may pick one or two very important reports and translate them into English, which are on their website as well.

 

Very few industry professionals are producing timely information about the property market in English for the public, such as how political results will affect it. Even major firms such as Mori Building are not really distributing such information in English to the overseas market. So overseas investors don’t like that lack of information, or the very limited tax benefits. The purpose of my blog is to report on such issues as they arise, since that knowledge could be beneficial to our clients overseas.

 

Institutional investors started getting interested in the Japanese market about twenty years ago. The majority of them are staying in the Japanese market. Investors indicate that they overwhelmingly prefer Tokyo first and then Osaka and Nagoya, followed by Sapporo, Sendai and Hiroshima. Everybody loves Tokyo. Institutional people prefer to buy an entire building in front of Tokyo Station, for example.

 

To Be Continued

 

How do top investors, particularly global institutional investors, view the Japanese property market, and what are they basing their decisions on?

 

A 2017 report from the Ministry of Land, Infrastructure Transport and Tourism (MLIT) provides a good overview. It’s a key source of information for overseas investors in particular, because the ministry asked around sixty institutional investors such as big commercial banks and investment banks what they think about the real estate investment market in Japan. They also compare the difference between Japan and the European, American and Asia markets, so this is excellent macro data.

 

Overall they like the Japanese market because it is very vast, so you know you can’t be squeezed. (If you’re not familiar with the term, “squeeze” is financial jargon, and refers to when you are completely locked into a certain position and can’t get out of the market, so other competitors can really take advantage of you.) If the market is big, though, you reduce the risk of squeeze. If the market is too small, however, you can be squeezed. Specifically, they mentioned the following:

 

• Robust laws/regulations and stable system (73 percent)
• Liquidity (71 percent)
• Market size (67 percent)
• Level of risk (67 percent)
• Stability of the market (60 percent)
• Market growth (57 percent)
• Sufficient yield (return) (56 percent)
• Availability of good market information (51 percent)
• Easy access to financing (50 percent)

 

 

Investors clearly like the liquidity of Japan’s market, because real-estate investment is generally known for low liquidity, unlike the stock market, where you can buy stock and sell it moments later. So liquidity is highly desirable for investors because whenever the market is moving very sharply they have to get in as soon as possible.

 

Buying real estate in Japan takes an average of one to two months and sometimes longer because of documentation, financing and registration changes.

 

Another plus is that the real estate market here does not have any rogue regulations. In some developing countries, regulations and laws are routinely ignored, and bribery is also widespread. Investors like the Japanese market because they know the legal structures are solid on ownership and so on, and the people involved adhere to them because everyone prefers a stable market.

 

Guarantees that what you buy is yours

Investors also like the well-established regulations and laws of Japan. A lot of Japanese investors are looking at the foreign market as well, because Japanese market growth is lower. They’re looking at countries like Vietnam or Thailand or Cambodia, those fast-growing developing countries.

 

To Be Continued