Ziv Nakajima Magen is a Partner & Executive Manager, Asia-Pacific for Nippon Tradings International (NTI) which is a proxy and buyers’ agency, representing investors purchasing real-estate in Japan.
REThink Tokyo spoke with Ziv this week to get an update on the Tokyo market and some insights into the future of the property sector.
What are some of the defining moments in the Tokyo real estate / expat history?
Obviously, the big early nineties crash was the first of those in recent memory. While the image of Tokyo as one of the world’s most expensive cities stubbornly lingered for the next few decades, more and more people have slowly come to understand that things are a bit different – and since the turn of the century this has led to a steady increase in inbound tourism and business, which directly ties into real-estate fundamentals as well. Along with this recognition and increase in visitor and resident numbers came the realization within Tokyo itself that globalization is indeed “a thing” – which has led to government policies which, officially at least, were and are still an attempt to make Japan more accessible on a cultural/inter-personal level as well. Tokyo and some other select locations, such as Niseko, have been far more successful in this transition than the rest of Japan.
The second major turning point has been Abe’s re-election in 2012 – this marked what is now widely believed to be the property market’s point of bottoming out following the two “lost decades” – and kicked off a buying frenzy all over the country, but mostly in Tokyo – which has yet to cool down, especially since it’s now leading into the 2020 Olympics, so interest is expected to remain keen. Property price hikes have been halted in the last couple of years, mainly because salaries and rents have yet to catch up – and a lack of attractive inventory and yields have also slowed down transaction volumes – but more due to asset owners holding on to their belongings, and not due to any lack of interest, which still remains very high.
Also, and this may be a third defining moment – time will tell. We’ve now reached the point where Tokyo prices have almost caught up to their pre-bubble late eighties peaks – this could mean many things – it may act as a psychological barrier and help to curb price hikes further, or it may signal a new bubble just about to explode.
Where are the key emerging markets / sectors that people should be looking to in Tokyo that you think will have upside?
Office, shopping centre and prime area commercial properties are a bit soft at the moment, mainly due to falling rents – one of the benefits (and probably one of the causes) of this trend is shared office space, which is becoming extremely popular, and definitely something that people should be looking to.
Another major trend is the huge shift into e-commerce and same day delivery – this drives a keen demand for data centre facilities and suburban logistics spaces such as warehouses and packing/delivery properties. Both require large land parcels, so it’s worth looking into anything creative that can be done on the edges of the city, or in smaller satellite cities around it, like demolition and re-development of existing structures – chemically contaminated land that can be cleaned up and re-used, and so forth.
Short term stay facilities, such as budget hotels and weekly/monthly mansions will continue to gain in popularity at least until the Olympics, and likely beyond it as well – this is the most hands-on and involved market segment of the ones mentioned above however, and minpaku (short term stay) regulations seem to be a moving target as far as the government is concerned – with constant revisions and grey areas being re-thought and re-introduced, and so requires some deep understanding and compliance at all times, which can dictate many shifts in management practices and profitability on a regular basis, so I’d say not for the faint of heart or those with less time on their hands.
Lastly, there’s aged-care facilities, live-in or otherwise, which are constantly being expanded and re-invented – this will be a very interesting space to watch, and it’s still in its infant stages as far as owner/lease/re-sell schemes are concerned, so open to a lot of creativity as well.
Why did you first start working in the property industry?
For me personally it was more of a Japan journey than a property journey. Personal life circumstances led me to search for a way to get a financial foothold in the country, and for my own personal character, which is non-speculative and risk-averse as a rule (I’m also a sucker for paperwork and well documented, well organised paper trails), property investment here ticked many of the right boxes. I was originally interested only in my own portfolio, but having gone through a few purchases and management life-cycles, I realised there would be a lot of people interested in the same service out there, and so it became a business.
What advice would you have for those looking to come into markets like Tokyo and set up business?
That’s a funny question, mainly because I don’t think there’s any market like Tokyo (or Japan) anywhere in the world, and there have been countless books, guides and articles written on this subject, as well as many people providing excellent and less than excellent services to this effect. It’s simply not possible to do things the way you’re used to in other countries, or to just assume that if you’ve got a good service or product that’s worked elsewhere you can follow the same blueprint to start marketing it here. Things are very different in Japan, there’s still a very deep fear of foreigners and what they represent, at the most primal level, for most potential clients and business partners here, and local representation is a must, for the first few years at least.
How do you best help a buyer or tenant?
Listening is normally the first and most important step – understanding what that particular person is after, and whether that’s achievable at all. Lack of understanding and/or a personal compatibility with what the country and we, as a company, can offer, leads to a lot of frustration during the course of an investment’s life cycle or tenancy, so it’s best to make everything very clear from the start. We spend the most time on this – and we have had to refuse buyers on more than a few occasions, simply because we felt we wouldn’t be able to meet their expectations or provide the service that they’d be expecting down the track.
Once that’s out of the way, there’s a lot of hand-holding involved and concerns allayed at every step of the way, again, because things are done very differently here compared with what people are used to in other parts of the world. Tokyo is not as bad as the rest of Japan in this regard actually, but still quite alien to most who are accessing the property market here for the very first time.
In reality, we can’t really help too many tenants, since we try to keep our vacancy rate as low as possible, so there would normally only be 10% vacancies in our client portfolios at any given time, and not many of them would be in locations where expats normally look for residences – the vast majority of our clients’ tenants are native Japanese, and we utilise property managers to find and deal with them. For those expats who are interested in those locations though, we can offer some very attractive, affordable properties – and because the owners are foreigners themselves, there’s never any insane move-in fees or crazy rules. Depending on the tenant profile though, a 1-3 month security deposit may be involved, which stands to reason.
How do you best help a vendor selling / leasing their property?
Surprisingly enough (or not) – the exact same applies – a lot of listening, confirmation of expectations vs reality, consultancy and hand-holding all along the way – which is more intensive with the first sale, and becomes more of a routine with subsequent sales. With sellers in particular, we’ve always got clients waiting to buy, so if the property has a good profile and the price is reasonable, we can usually avoid going through a realtor, and just facilitate a direct sale to one of our clients, which works best for all parties involved.
With those leasing their properties, similarly, we’ll help them understand what is currently available, which can be hard at times – it greatly depends on surrounding factors like the time of year – in the north of the country in particular, winter is a very bad time for re-tenanting a property, as not many people move around in the snowy months. New developments in various areas of some cities, as well, while they generally reflect a demand, have the immediate effect of reducing rents, since there are newer and more attractive properties available for lease, so until these fill out, older and smaller properties stand to suffer rent reductions. Lastly, the fact that salaries and rents are very slow to rise, as mentioned above, mean that rents are often stagnant or drop slightly – although this is less of an issue in Tokyo’s residential sector than it is in commercial, or other parts of the country.
What would you like to see changed in the industry in 5 years?
The biggest hurdle for us as professionals serving foreign clients is the complete and utter disregard for non-resident foreigners in the banking sector here in Japan. The lack of ability to open workable bank accounts for non-residents, the impossible hoops people have to jump through to get investment financing here, and the close to none availability of non-Japanese banking facilities are a huge burden, as they mean we lose clients who can’t finance their purchases in cash, or aren’t feeling comfortable letting companies like ours, as reputable as we may be, to manage their funds for them – which is understandable, but doesn’t really help us operate – also it puts a huge dent in Japan’s attractiveness as in investment destination, which is a shame.
What advice do you have for people looking to buy affordable residences in Tokyo?
Reduce your space requirements and/or nearness to city centres. There’s really no other way. Space and walking distance to the main train and subway lines are generally the two factors that make properties most expensive in Tokyo – with the age of the building a close second.
Where is demand currently coming from, where is the interest focused at the moment. i.e what sectors / wards have the strongest interest at the moment and where are the buyers based (Locals, Foreigners etc)?
We, as a company, deal primarily with foreign demand for Japan’s real estate, which is rising all over the world – info on private buyers is harder to get, but as of last year’s summaries, about a quarter of all transactions in Japan were by foreign corporations or institutions – three times more than the previous year, but still not nearly as big as in other countries like Australia or the USA. These have been more commercial than residential in the last few years, but now, as it looks like growth is slowly grinding down to a halt, with Tokyo rentals forecasted to drop slightly, there seems to be movement towards residential properties, and more regional ones at that – second tier cities like Fukuoka, Nagoya and Sapporo are now looking more attractive than Tokyo or Osaka for many investors.
As for origin, we were seeing a lot of interest from Singapore and Australia/New Zealand between 2012-2016 – now that prices have risen significantly in many places and yields have become compressed, the more opportunistic investors out there have moved on to less stable, more emerging economies like the Philippines and Vietnam – whereas investors from the USA and Europe, who were happy with deals in their countries of origin for a long time after the global financial crisis, are looking to Japan now – simply because things have improved in the USA and most of Europe, so those super-attractive, super-affordable deals aren’t as prominent there anymore – so for them it’s time to venture outwards now, and Japan is on their radars.
Where do you see the Tokyo Residential market in 5 years?
Residential isn’t going to die off anywhere as a rule, it’s a lot more stable compared with commercial – but that also means that rents don’t fluctuate as much, as they can’t be raised as sharply as commercial rents, when the economy does improve. If prices remain as they are, meaning flat, and assets are as rare and far between as they are now, we’ll probably keep seeing interest ebbing out to other spots around the country. Having said that, the coming Olympics are definitely helping things along in Tokyo, particularly for properties that can conceivably be used for tourism and short term stay purposes, so demand will most likely be strong for the next two years at least. Following that, without being able to accurately predict the future, I’d say there’s probably going to be at least a small slump, as usually happens with Olympic cities – whether that’ll be shorter or longer term would depend on too many factors to be able to predict, unfortunately.
This isn’t just a Tokyo thing, but more of a national set of problems. Rising salaries will play a big part in this – if companies continue to sit on their cash and don’t allow it to trickle into consumer pockets, and if the forecasted consumption tax hike comes on top of that, and peoples’ buying power keeps diminishing, it’s likely that rents will remain stagnant or fall – which would leave no room for further property price hikes. That’s not necessarily a bad thing, since if prices fall again, they’ll fall faster than rents, which will make for high yields like we’ve seen in the years leading into 2014-2015 or so. Time will tell, but personally, I think the biggest problem Japan faces is the stubborn mentality regarding immigration and the place of women in the workforce – or even the home. These are the factors which are most directly contributing to the fast population and workforce decline, which is really what drives most deflationary aspects in the country these days. Unhappy women who can see women in other parts of the world being treated in a better way will continue to refuse to grow their families, if it means they keep growing their responsibilities as strictly home-makers – and without a massive increase in immigrating workforce, there just can’t be any giant leaps forward for the economy. It’s a tough pill to swallow for the average Japanese, particularly those born in previous generations, of which there are more these days – but really, mass immigration and female equal participation in all walks of life are the only way out in the long term, in my own personal opinion.
For more information about the Tokyo property market email Ziv Nakajima Magen – Partner & Executive Manager, Asia-Pacific Nippon Tradings International via the contact details below.
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