The Big Picture![]()
Re-igniting inflation in Japan, despite the government's and central bank's best efforts, remains an elusive target. Several quarters of economic growth and a buoyant stock market in recent years, have now been replaced with stale and stalling deflationary trends, all too familiar from the past two decades - and although prime minister Abe's fiscal and structural reform policies plough on ahead, adjusting and re-adjusting targets as time passes, it would seem that it may just take a bit more than repetitive and aggressive QE splurges and zero-cum-negative interest rates to give it the kick-start it so desperately requires. One may argue that deeply rooted social issues still need to be tackled, namely immigration policies and female workforce participation, as well as general female life satisfaction - both of which feed directly into the country's rapidly declining birth rate and ageing population issues. Others may add that the Japanese mentality, which greatly limits risk taking, innovation and questioning prevalent cultural norms, is also one of the main culprits in the stagnant growth scenario. Regardless of any of the above, from a well hedged and diverse investment perspective, a busted, flat-lining economy presents just as much of an opportunity as a bustling, inflated one. Similarly, the Yen, which has been fluctuating with much volatility in recent years, presents ample opportunity for extra profits to be made.
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The key, as in all investments, is to know when to act - and in what way. At this point in time, we are identifying two main trends -
1. The economic recovery and property market growth is currently limited to a handful of larger cities only - mainly Tokyo, Osaka and Fukuoka. Other secondary markets which are also doing well, although to a lesser degree at this stage, are Nagoya, Yokohama, Kawasaki and other, less glamorous locations such as Nagasaki, Kobe and Kumamoto, to name but a few. Regardless of what the near future may hold, it would seem as if now is the right time to avoid the "big three", barring exceptionally attractive deals - and focus on other places, where property prices are still extremely affordable - if not at the bottom of the deflationary cycle of the last two decades, at least still not far from it. If and when the economy takes a downturn, it may be wise to move back into the larger cities, as property price hikes grind to a halt, or even fall again. And should the economy start growing again, with property prices following - why, one is there well placed to grow with it, having put their money into those secondary growth locations - with the added advantage of collecting rental yields which are far higher than those available in Tokyo, Osaka or Fukuoka in the interim. 2. The yen, Japan's currency, which has long been touted as a stable haven for risk wary investors, has been going through some severe fluctuations in the past four years, and isn't likely to stop swinging anytime soon - this is mainly due to the fact that the government and central bank are doing their best to aggressively keep its value down, in order to boost exports - but are finding their efforts constantly thwarted by similar policies practiced by other governments - mainly the USA, who is pursuing its own aggressive money printing strategy - as well as economic tail winds in other regions, such as China, Europe and Australia. As a result, the value of the JPY against all currencies mentioned above, is quite volatile. An astute investor with their finger on the foreign exchange rate pulse, will find these "mini-peaks", which take place on a daily basis, to be extremely profitable, as they are able to move large amounts of liquid cash in and out of Japan weekly or bi-weekly, as rates dictate - making some very tidy side profits along the way - and usually far higher than any long term interest bearing bank account will offer. 3. All of the above is, of course, based on the assumption that one is interested in investing in Japan, as opposed to other global investment meccas such as the US, UK or Australia. Contrary to popular belief, and in stark difference to the situation up until the mid 1990's, Japanese investment properties are extremely affordable, as we've mentioned and demonstrated in previous publications. And while a fashionable holiday apartment of 200-300 sqm in the heart of Tokyo's Shinjuku ward may indeed cost a million dollars or more - the vast majority of Japanese, who are the foreign investor's main tenant market, actually live in the semi-central or suburban areas, in tiny (and often quite old) little studios or single bedroom apartments, which generally cost anywhere between $25,000-$100,000 at most. Coupled with the far higher rental yield that Japan offers, and the un-paralleled transparency, hassle-free management and docile/honest tenants and professionals one deals with here, it becomes a no-brainer, regardless of the current state of GDP growth, shrinkage or stagnation.
The Micro/Nitty Gritty Details![]()
Once this strategy has been decided upon, it's now time to implement it. As mentioned in a previous article, the main challenges lie in the cultural and language barriers - which are both a problem "on the ground" and NOT, as many mistakenly believe, a policy enforced from above. Officially, Japan's government welcomes foreign investment with open hands, at least as far as the stock and real estate market is concerned - however, in reality, unless one is purchasing in the heart of Tokyo, Osaka, Okinawa or Niseko, where there are at least a few English speaking professionals, the average realtor, property manager, insurance agent and local tax department will not be able to provide any service in any language other than Japanese. In fact, many of them will outright refuse to work with foreigners - including local banks. It is important to note, however, that this is not due to any government policy, but simply local attitudes and a fear of anything different or foreign, which borders on paranoia in most parts of the country.
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As a result, and as detailed previously, it is essential for non-resident foreigners to hire local representation who are versed in all aspects of the market, and are able to present local Japanese entities with a familiar face and voice, assuring them that they will not need to deal directly with "scary foreigners" at any stage of the purchase, sale or management processes. And while there are no "secrets" to deal making in Japan, as the case may be in less transparent countries, it is still important to note the subtle difference in operation - whether it's the difference between quoted "coupon yields" (gross) and "net yields" (which aren't really net per-se), which floor is better and why (single females avoid ground floor units - elderly tenants avoid anything beyond third floor if there is no lift - and any building under six floors will usually not have one) - and if one submits an offer and then retracts it for no apparent reason, or tries to negotiate beyond what is "culturally acceptable", it is very likely that one will instantly burn their relationship with the particular realtor handling the sale.There are ways to get around all of these issues, of course, as well as many more, subtle and less subtle issues, that are derived from the very unique and culturally isolated environment that is Japan's business world. Local, professional and reliable representation will normally provide this level of expertise, helping the investor avoid all of these annoying little pitfalls along the way.
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Ziv Nakajima-Magen is an Australian, born and raised in Israel, and has been deeply immersed in Japan's culture and business environment since 2003 , when he forsake his career as in IT corporate project manager, wishing to spend more time with his family and secure their financial future. Having made the transition to real-estate investment and successfully kick-started his own portfolio, he subsequently established Nippon Tradings International (NTI) together with his Japanese wife and business partner, he is now assisting others in capitalizing on Japan's vast and lucrative property market.
For more District Guides, you can head over to iProperty.com Singapore.
Re-igniting inflation in Japan, despite the government's and central bank's best efforts, remains an elusive target. Several quarters of economic growth and a buoyant stock market in recent years, have now been replaced with stale and stalling deflationary trends, all too familiar from the past two decades - and although prime minister Abe's fiscal and structural reform policies plough on ahead, adjusting and re-adjusting targets as time passes, it would seem that it may just take a bit more than repetitive and aggressive QE splurges and zero-cum-negative interest rates to give it the kick-start it so desperately requires. One may argue that deeply rooted social issues still need to be tackled, namely immigration policies and female workforce participation, as well as general female life satisfaction - both of which feed directly into the country's rapidly declining birth rate and ageing population issues. Others may add that the Japanese mentality, which greatly limits risk taking, innovation and questioning prevalent cultural norms, is also one of the main culprits in the stagnant growth scenario. Regardless of any of the above, from a well hedged and diverse investment perspective, a busted, flat-lining economy presents just as much of an opportunity as a bustling, inflated one. Similarly, the Yen, which has been fluctuating with much volatility in recent years, presents ample opportunity for extra profits to be made.
The key, as in all investments, is to know when to act - and in what way. At this point in time, we are identifying two main trends -
1. The economic recovery and property market growth is currently limited to a handful of larger cities only - mainly Tokyo, Osaka and Fukuoka. Other secondary markets which are also doing well, although to a lesser degree at this stage, are Nagoya, Yokohama, Kawasaki and other, less glamorous locations such as Nagasaki, Kobe and Kumamoto, to name but a few. Regardless of what the near future may hold, it would seem as if now is the right time to avoid the "big three", barring exceptionally attractive deals - and focus on other places, where property prices are still extremely affordable - if not at the bottom of the deflationary cycle of the last two decades, at least still not far from it. If and when the economy takes a downturn, it may be wise to move back into the larger cities, as property price hikes grind to a halt, or even fall again. And should the economy start growing again, with property prices following - why, one is there well placed to grow with it, having put their money into those secondary growth locations - with the added advantage of collecting rental yields which are far higher than those available in Tokyo, Osaka or Fukuoka in the interim. 2. The yen, Japan's currency, which has long been touted as a stable haven for risk wary investors, has been going through some severe fluctuations in the past four years, and isn't likely to stop swinging anytime soon - this is mainly due to the fact that the government and central bank are doing their best to aggressively keep its value down, in order to boost exports - but are finding their efforts constantly thwarted by similar policies practiced by other governments - mainly the USA, who is pursuing its own aggressive money printing strategy - as well as economic tail winds in other regions, such as China, Europe and Australia. As a result, the value of the JPY against all currencies mentioned above, is quite volatile. An astute investor with their finger on the foreign exchange rate pulse, will find these "mini-peaks", which take place on a daily basis, to be extremely profitable, as they are able to move large amounts of liquid cash in and out of Japan weekly or bi-weekly, as rates dictate - making some very tidy side profits along the way - and usually far higher than any long term interest bearing bank account will offer. 3. All of the above is, of course, based on the assumption that one is interested in investing in Japan, as opposed to other global investment meccas such as the US, UK or Australia. Contrary to popular belief, and in stark difference to the situation up until the mid 1990's, Japanese investment properties are extremely affordable, as we've mentioned and demonstrated in previous publications. And while a fashionable holiday apartment of 200-300 sqm in the heart of Tokyo's Shinjuku ward may indeed cost a million dollars or more - the vast majority of Japanese, who are the foreign investor's main tenant market, actually live in the semi-central or suburban areas, in tiny (and often quite old) little studios or single bedroom apartments, which generally cost anywhere between $25,000-$100,000 at most. Coupled with the far higher rental yield that Japan offers, and the un-paralleled transparency, hassle-free management and docile/honest tenants and professionals one deals with here, it becomes a no-brainer, regardless of the current state of GDP growth, shrinkage or stagnation.
The Micro/Nitty Gritty Details
Once this strategy has been decided upon, it's now time to implement it. As mentioned in a previous article, the main challenges lie in the cultural and language barriers - which are both a problem "on the ground" and NOT, as many mistakenly believe, a policy enforced from above. Officially, Japan's government welcomes foreign investment with open hands, at least as far as the stock and real estate market is concerned - however, in reality, unless one is purchasing in the heart of Tokyo, Osaka, Okinawa or Niseko, where there are at least a few English speaking professionals, the average realtor, property manager, insurance agent and local tax department will not be able to provide any service in any language other than Japanese. In fact, many of them will outright refuse to work with foreigners - including local banks. It is important to note, however, that this is not due to any government policy, but simply local attitudes and a fear of anything different or foreign, which borders on paranoia in most parts of the country.
As a result, and as detailed previously, it is essential for non-resident foreigners to hire local representation who are versed in all aspects of the market, and are able to present local Japanese entities with a familiar face and voice, assuring them that they will not need to deal directly with "scary foreigners" at any stage of the purchase, sale or management processes. And while there are no "secrets" to deal making in Japan, as the case may be in less transparent countries, it is still important to note the subtle difference in operation - whether it's the difference between quoted "coupon yields" (gross) and "net yields" (which aren't really net per-se), which floor is better and why (single females avoid ground floor units - elderly tenants avoid anything beyond third floor if there is no lift - and any building under six floors will usually not have one) - and if one submits an offer and then retracts it for no apparent reason, or tries to negotiate beyond what is "culturally acceptable", it is very likely that one will instantly burn their relationship with the particular realtor handling the sale.There are ways to get around all of these issues, of course, as well as many more, subtle and less subtle issues, that are derived from the very unique and culturally isolated environment that is Japan's business world. Local, professional and reliable representation will normally provide this level of expertise, helping the investor avoid all of these annoying little pitfalls along the way.
Ziv Nakajima-Magen is an Australian, born and raised in Israel, and has been deeply immersed in Japan's culture and business environment since 2003 , when he forsake his career as in IT corporate project manager, wishing to spend more time with his family and secure their financial future. Having made the transition to real-estate investment and successfully kick-started his own portfolio, he subsequently established Nippon Tradings International (NTI) together with his Japanese wife and business partner, he is now assisting others in capitalizing on Japan's vast and lucrative property market.
For more District Guides, you can head over to iProperty.com Singapore.