There is a wonderful phrase that comes in very useful living here in Japan and it is “猿も木から落ちる” which translates to “even monkeys fall out of trees”. But what does that even mean??? Basically, even those that have the knowledge and experience make mistakes.
And so this week I read with interest at a story out of Leopalace 21, a major player in the rental apartment market here in Japan with over 30,000 apartments. Leopalace 21 has been growing slowly since the 1970s by building cheap apartment buildings of over 15 units in locations slightly out of the downtown regions. Cheaper land, cheaper construction techniques means Leopalace 21 are able to rent to people cheaply and fill up the apartments. The price and quality of the apartments often mean that people will rent short-term in an area before moving on. To continue attracting tenants, Leopalace 21 will often offer zero key money, 1st month free and pay for reasonable moving fees. They have good market share and are very well know. Salarymen or women on a short term project away from their home base will often “Leopalace” as in the west emlpoyees might “AirBNB”. They are that well know.
So the people running Leopalace 21 certainly have experience, almost 50 years of experience! This week it appears they had problems with 1,324 sites meaning they will pay to move 14,000 tenants out and fix the problems. Leopalace will book a ¥36 billion loss this fiscal year and will need to work hard to rebuild trust and reputation. You can read more about this story on the Japan Times here.
So what can we, as investors learn from this large and costly mistake? There are a few things, don’t grow too quickly, don’t over stretch what you are capable of taking care of, ensure you know your suppliers and what they can/can’t do, take care of your business!
If you are looking for an investment that you can trust, look no further than Japan Property Investments, we are in the journey with you. You are not just an investor but a friend and someone we want to grow with.
Real estate investing
like any investment vehicle comes with risks. These risks can be difficult to
control for beginners on their own. Things such as rent not being paid, tenants
damaging property, items in the house breaking down and needing to be repaired
and other issues that can cause landlord’s headaches. In Japanese properties,
these issues are often absent.
Japanese Tenants generally stay for several years allowing a steady source of rental income.
Tenants usually are very reliable in paying their rent on time.
Tenants are respectful to rental properties making sure the properties are kept clean and tidy. On vacating properties Japanese tenants will make sure the property is left the same as when they moved in
By western standards, Japanese units/houses tend to be very basic accommodation. Tenants are required to purchase all white goods and furniture themselves. This even includes ceiling light fittings and fans
Little protection for the tenant at the end of the lease period.
At the beginning of a rental period the tenant must pay on average a deposit of 2 months rent. Deposits usually are non-negotiable as they are a refundable expense that is meant to cover any damages done to the apartment outside normal wear-and-tear
Another payment a tenant must make is called ‘Key money’ and is a throwback from the end of World War 2 when the country was rebuilding. It was a gift to the owner for allowing the tenants to live in the owner’s apartment. Although the building has long since been completed, the `key money’ payment still exists and usually is around 2 months rent
Other fees charged to tenants include cleaning fees and renewal fees.
With the help of Japan
Property Investments the process of owning real estate and managing tenants can
be even easier. Contact us to show you how.
The Nikkei Asian Review has some excellent articles and I stumbled across another one this week. The article says that foreigners are no longer buying Japanese Real Estate!
Apparently, prices are too high now with little room for improvement and that rental returns have suffered a blow. Transactions by foreigners account for 30% of the Japanese real estate market and a pullback by foreign investors saw transactions fall by 34% year on year.
JPI hasn’t seen any dip in interest from foreign investors. Again. local knowledge and feet on the ground helping our investors means we only work with properties that return well and are sensibly priced. I think this article is too focused on the very rich investor who has jumped on the Japanese Real Estate bandwagon and paid too much in the process.
It is also to Tokyo centric. If you have read any JPI articles, seen our youtube channel or joined our mailing lists, you will know that, in our humble opinion, Tokyo is not the place to invest. In the Kansai region prices have not risen and rents remain profitable. Perhaps the region will see capital growth but for now it is safe, steady cashflow that keeps our investors coming back.
One of the strongest
draw cards for investing in Japanese property markets is the high rental earnings
that are possible. Upwards of 5%+ is common and in some properties it’s
possible to get above 10% earnings.
properties that have a high rental return and capital growth has been pretty
much non-existent, however, according to the Real
Estate Economic Institute, the average price of a condominium in Japan in 2015 was
¥46.18 million, which is 7.2 percent higher than it was in 2014. By 2017 spurred
by material and labor shortages, the price of condos have increased by almost
20 percent, the steepest rise ever. Therefore, here
in Japan, we observe simulataneous access
to high rental returns and capital gains.
PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI) rank Japan as number
one in Asia in 2016 as regards prospects for residential property investment
returns, ratifying the same results from 2015. Tokyo ranked number 1 and Osaka,
number 4. Rental earnings typically are around 5% possibly higher.
This deal came into the office today. 8 minutes from Shin Osaka, on the 8th floor of a 13 floor building. The building was constructed in 1980 with 181 apartments. A west facing 18.5 square meter apartment with a 2 square meter balcony. The current tenant pays ¥600,000 rent per year, the monthly management fees are low at ¥8.862 and annual tax is ¥23,000.
This is a solid investment in a build building in a much sought after area. Contact JPI today for 10.3% gross return and 8.5% net return.
Property prices in Japan should increase in the coming years because of the rising immigration in Japan.
Japan has had
a history of being isolated. Aside from being geographically difficult to
reach, for much of its early history, the country for the most part remained
closed to foreign influence. Between 1641 to 1853, Japan barred its nationals
from leaving and foreigners from entering. Only traders from China and the
Netherlands were allowed at the port of Nagasaki on Japan’s southernmost island
isolation, strict immigration laws and a declining birth rate has now led Japan
to be referred to as a “super-aged”
nation, where more
than 20% of the population is over 65. By 2060, the country’s population is
expected to plummet by more than 40 million from 2010, to 86.74 million people,
according to a projection by the Japanese Health Ministry (Green, 2017) . With
fewer workers paying taxes to support a growing older population in need of
pensions and healthcare services, Japan’s economy is facing an unprecedented
challenge and massive labour shortage.
One of the
major ways Japan may be able to ease it’s labor shortage especially in
so-called undesirable vocations such as demolition and construction is to
increase immigration of foreign nationals. Currently Foreign nationals make up
just 1.6% of the country’s overall population.
(CNN 2018). Just in the
last 5 years immigration has doubled and looks to continue to increase. (Nikkei
Asian Review 2018)
In most countries an increase in immigration has led to positive effects on property. These effects include increase in property prices, an increase in the demand of both owner occupy, increases in the number of tenants, and rental properties and also an increase in rental prices. Naturally many Immigrants are likely to choose rentable properties over owner-occupy. With the increase in immigration in Japan there is an expectation that property prices and rental costs will increase also.