Could the Tokyo market boom?
Finance Could the Tokyo real estate market come to emulate the success of the London one?
That was the question put by Grosvenor Asia Pacific recently: in the wake of “Abenomics,” the economic reforms introduced by Prime Minister Shinzo Abe involving an initial ¥10.3 trillion fiscal stimulus package in 2012, followed by a further ¥18.6 trillion package in 2013, many people believe that Tokyo is one of the most attractive destinations for international investors, not least because various factors, including a fall in the value of the yen, have made Tokyo a much cheaper prospect than other cities in the Far East.
“Monetary stimulus has sharply weakened the yen, strengthened exports and driven share prices higher,” says Nick Loup, chief executive of Grosvenor Asia Pacific. “Both short and long term interest rates have dropped to historically low levels, while business confidence is near an all time high. Expectations are on the upswing; with surging profitability, companies are expanding, hiring and raising wages. Consumers are spending more, buttressed by wage increases and rising inflationary expectations. The near 70 per cent surge in stock prices reflects this obvious turnaround in confidence.”
The effects of Abenomics
All of this, clearly, had had a hugely positive impact of the real estate market, both commercial and residential, with investors from all over the world favouring Tokyo. “Demand is rising: interest in the Tokyo housing market has been picking up since the beginning of 2012,” says Loup. “For the first time in many years, Japanese people are starting to view for-sale homes as a viable investment as well as providing a place to live. Since July 2013, more than 80 per cent of newly developed homes have gone under the purchase contract within one month. The level of uncontracted units outstanding is nearing its lowest point in a decade.”
But it is not only Japanese buyers who have been tempted back into the market: foreign investors are interested as well. “Foreign demand has picked up: rising housing valuations across many Asian cities has driven buyers to consider alternative investment locations,” says Loup. “High net-worth buyers in China, Taiwan, Hong Kong and Singapore are looking at residential property in Tokyo, where prices – though on the rise – are still less than half those in Hong Kong.”
And then, of course, there is the favourable exchange rate. “Another factor driving foreign demand for Tokyo housing stock is the nearly 20 per cent depreciation of the yen under Abe’s economic policies, with further depreciation expected,” Loup continues. “London’s most recent surge in growth was driven in part from the Euro-zone crisis, which drew overseas capital as a safe have for investment. In a similar manner, Tokyo is likely to benefit from slower economic growth in China and general uncertainty across emerging markets.”
Major international interest
Jun Homma, Deputy Editor, Head of International Service, Nikkei Real Estate Market Report, is similarly bullish about the Tokyo market. “Asian investors from mainland China and Taiwan are actively buying condominiums in Tokyo because of currency issues,” he says. “On top of that, Japan is a huge market in Asia. If, say, a pension fund in the US is required to place big money somewhere in the region, then Japan is bound to benefit from that.” Demographics provide another reason that Japan is attractive: although ageing at the moment, influx of population into the urban areas is forecasted to continue for the foreseeable future. “The Tokyo Olympics games in 2020, the inter-city bullet train slated to operate in 2027 at 500km an hour, these are also attractive propositions,” he says.
Homma points out that land prices may still be falling in rural areas, but are very much rising in cities including Tokyo and Osaka, where there are very many developments going on, especially in central Tokyo. “Abenomics and the Bank of Japan want to pump up the Japanese economy by increasing asset prices,” he says. “They plan to get out from 20 years of deflation, which means it is accepted across the board that asset prices will go up.” He points out that yields for properties in central Tokyo are dropping: before Abenomics, they were 5 to 5.5 per cent, and are now around 4 per cent. But because of relatively low borrowing costs this still compares favourably to the other major cities in the Far East.
Big funds take a bite
Commercial properties are also sought after by the big funds such as Blackstone or Lone Star and although prices have been rising, these remain very attractive in central Tokyo. Residential, meanwhile, offers the stability that investors elsewhere in the world had been looking for in London. “European insurance funds, for example, are looking for rental condos to provide a stable income,” he says.