Chinese buyers lured by Tokyo property prices and yields

In mid-September, the CEO of a real estate brokerage held an investment seminar in a function room at the Shangri-La Hotel in Shanghai. The 40 attendees listened carefully to every word. This seminar was not about investing in Shanghai or Hong Kong, but was focused on the Japanese property market, in particular the areas in Tokyo and Osaka.

Promotional material handed out to attendees provided detailed information on the merits of investing in Japanese real estate, the purchase process and taxes, as well as information on ‘Abenomics’ and currency markets. With the recent weakening of the Yen, the pamphlet explained that a 30 million Yen apartment that would have cost 2.5 million Yuan in January 2012 could now be bought for 1.765 million Yuan (at January 2014 exchange rates). Note: As of November 24, it is the equivalent of 1.56 million Yuan. 

Major companies right down to small agencies dealing only with Chinese buyers are busy organising property tours in Japan, with bus tours held almost every day.

A representative from a major brokerage said they have seen the number of inquiries jump by 1.5 times over the past 12 months and have attributed the strong interest to the falling Yen. Approximately half of the participants in their tours end up buying a property.

Taiwanese brokerage Sinyi plan to double their presence in Japan next year. They have already sold 20 billion Yen (170 million USD) worth of real estate in the first 10 months of 2014 and are expecting to close 450 deals worth  31 billion Yen in 2015.

An unnamed source in the the Nikkei Asian Review suggested that Taiwanese agencies could sell between 50 ~ 60 billion Yen (423 ~ 508 million USD) worth of Japanese real estate in 2014. This is still a small figure when compared to other destinations for Chinese money, such as the US where Chinese citizens bought 22 billion USD worth of homes in 2014.

What makes Tokyo appealing?

According to the material from the seminar in Shanghai, Japan real estate market offers high-quality properties at low prices, especially when compared to the prices in cities in China. While major cities in Asia have seen real estate prices surge in recent years, Tokyo’s property market has remained rather flat due to a deflationary environment over the past 20 years.

Over the past two years, however, prices in central Tokyo have started to rise, but with apartment prices around 1.2 ~ 1.5 million Yen in the city centre, they are still considered to be relatively low when compared to other countries. In Singapore, for example, apartment prices in prime locations may be around 3.6 million Yen/sqm, and in Taipei they may be around 3 million Yen/sqm. Prices in New York and London can be even higher.

While prices have just started to rise in Tokyo, they are still seen to be around 10 ~ 20% lower than prices in other major capitals. According to property consultant Osamu Nagashima, Chinese are buying real estate in central Tokyo with the expectation that it will rise to the level seen in other global cities. One Hong Kong broker said that their clients are expecting to rake in ‘hefty gains’ upon resale with the partial legalization of casinos (buyers should note that the casino legalization bill has been pushed back).

Based on their experience with the lead up to the 2008 Beijing Olympics, Chinese buyers are also excited by the prospect that the 2020 Tokyo Olympics may push up prices even further.

Important note: Offshore buyers who are unfamiliar with the Tokyo market should be careful when deciding whether a property is ‘cheap’ or not. To avoid buying a property that is overpriced, it is advisable to compare that property to others in the same area, rather than comparing it with prices in your own city. Buyers should also conduct their own due diligence before buying and should not rely solely on the property brochures and sales pitches given by salespeople.

Sources:
Shukan Post, October 17, 2014.
Nikkei Asian Review, October 30, 2014.
South China Morning Post, November 15, 2014.
Taipei Times, November 25, 2014.

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