Foreign buyers of real estate in Japan still lack adequate support from agents

As a foreign buyer of real estate in Japan, whether living abroad or in the country, you may find that there are only a small number of real estate agencies that are capable and experienced in working with foreign clients. Even if the language barrier is not an issue, finding an agent who has worked with foreigners and can understand and explain the key differences and intricacies about Japan’s property market is essential.

We have heard of nightmare stories from buyers who have purchased properties without receiving full explanations or even incorrect explanations of property details, resulting in some very bad investments. With a growing number of foreign buyers, these bad practices are only going to increase.

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Foreign investment in Japan reaches 19-year high but still low by international standards

Foreign investment Japan 2015 2
[Left] Meguro Gajoen; [Right] Kirarito Ginza.

Investment by foreign-based funds and corporations in Japanese real estate has reached the highest level since 1996. Between January and September 2015, foreign funds acquired 706.5 billion Yen (5.91 billion USD) of property, an increase of 41% from the same period in 2014.

Meanwhile, some last minute transactions at the end of 2014 put the annual acquisition volume for 2014 at 981.8 billion Yen.

Some of the funds have been seeking capital gains, while others, including government-related funds, have been seeking high yields with a long-term view for holding their assets. In September, average office rents in central Tokyo increased for the 21st month in a row. The average spread between the office yield in central Tokyo and the long-term interest rate is around 3%, versus 1% in Singapore and Hong Kong.

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Chinese developer sets sights on Japanese real estate market

Chinese developer, Greenland Group, are planning to invest in Japan’s real estate market. On September 21, Mizuho Financial Group entered into a business partnership with the developer. As part of the agreement, Mizuho will provide support and assistance for Greenland’s investments in Japan.

With the lower Yen, and an oversupply in some sectors of the Chinese property market, Greenland is looking at participating in some urban planning projects in Japan, as well as investing in existing residential and office buildings. Mizuho will supply necessary information on suitable land for potential projects and assist with fundraising.

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Kyoto machiya popular with foreign buyers

Kyoto machiyaAccording to the Urban Research Institute Corporation, foreign corporations acquired 1.2 billion Yen of real estate in Japan in 2014, 2.8 times higher than the figure in 2013. This accounted for a little over 20% of the value of all transactions nationwide.

While most of the foreign investment is centred in Tokyo, Kyoto is also attracting some foreign buyers.

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China’s Wanda Group to develop luxury hotel in Tokyo

According to an article in Business Journal, Chinese property developer and cinema chain operator, Dalian Wanda Group, plan to develop a mixed-use hotel and cinema complex in Tokyo.  This will be the first project in Japan to be developed by a major mainland Chinese property developer.

It is hoped that the hotel will be open in time for the 2020 Summer Olympics.

The group has developed 109 large-scale shopping malls and 71 hotels (including 69 five-star hotels) across China. In early 2014, the group acquired a 90% stake in plans for a mixed-use condo, hotel and commercial project in Chicago. Construction of the $900 million project is scheduled to start in 2016. There are also plans for Wanda Hotels in London and Madrid.

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Foreigners buy 174 ha of forestry in 2014, down 10% from 2013

According to the Forestry Agency, there were 13 cases of foreign funds acquiring a total of 174 hectares of forestry across Japan in 2014. The buyers, which were private individuals and corporations, were primarily from the British Virgin Islands, Hong Kong and Singapore, and the reasons for purchase were either asset holding or development.

Buyers from Hong Kong accounted for just 8% of the land acquired by foreigners, while buyers registered in the British Virgin Islands accounted for 78% of the land acquired.

Hokkaido is the main destination of foreign funds

Over 99% of the forestry was located in Hokkaido. Buyers from the British Virgin Islands acquired 135 hectares of forestry in Hokkaido’s Iburi sub-prefecture for the purpose of real estate development. The British Virgin Islands is a popular tax haven that may also be used by Japanese investors, so the actual nationality of these buyers is unknown.

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Malaysian pension fund makes first investment in Japan

In their first investment in Japan, Malaysia’s Employees Provident Fund (EPF) has acquired several logistics facilities in the greater Tokyo area. This is the first case of an Asian public pension fund investing in Japanese real estate.

EPF acquired five distribution centers in Saitama and Chiba from Mitsubishi Corporation for 14 billion Yen (117 million USD). Management has been entrusted to Diamond Realty Management, a subsidiary of Mitsubishi. The buildings are around 20 years old and attract lower rent than newer facilities, but are located in prime positions with strong tenant demand. Yields are expected to be around 10%, which is higher than the 4 ~ 5% offered by private REITS.

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