Lure of Japan for sophisticated investors

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SINGAPORE: When the Monetary Authority of Singapore introduced the total debt servicing ratio (TDSR) in June 2013, investors saw even more reason to look at property markets overseas.
This was because it came after a series of property cooling measures that included hikes in stamp duties.
“Even though the [Singapore] commercial sector was not affected by the stamp duties, investors here were hit by the TDSR,” says Martin Goh, managing director of Coldwell Banker Elitehill.
Goh, who has been in the property business for 11 years, co-founded Elitehill Real Estate in 2008 and became a franchisee of Coldwell Banker just last month.
The com pany focuses mainly on the commercial sector, particularly the sale of shops and strata-titled office units.
In the last 1½ years, the 41-year-old Singaporean has zeroed in on Japanese real estate and has been taking groups of Singaporean investors on property tours to Japan.
“We recently brought some investors to look at potential investments in Osaka,” Goh says.
Why Japan? Sophisticated Singaporean investors tend to prefer mature markets in developed cities, besides London and New York, he observes.
“In Asia, it will be Tokyo.” Another attraction is that Tokyo is just a seven-hour flight from Singapore.
Interest has also shifted to Japan because of the 2020 Tokyo Olympics and talk about the introduction of integrated resorts (IRs) with casinos.
“The yen is also at a historic low and the Japanese government has been very active in inviting foreign companies to invest in Japan,” Goh adds.
According to a CBRE report released on Nov 18, the introduction of two IRs in Singapore saw a signifi cant increase in the number of tourists and had a positive effect in overall tourist consumption.
The expectation is that the cities in Japan where the IRs are likely to be developed could see an increase in development of new hotels and MICE (meetings, incentives, conventions and exhibitions) facilities.
This, in turn, is expected to bring a significant increase in tourists, and have a po sitive impact on overall tourist consumption.
If IRs were to open in Tokyo and Osaka in 2020, the number of foreign tourists to Japan could increase 5% annually.
This will bring Japan into line with its goal of achieving 30 million vi sitors by 2030, estimates CBRE.
Tourist spending was ¥1.4 trillion ($15.53 billion) as at 2013, and is projected to rise to ¥4.3 trillion by 2030.
The IRs could bolster the retail sector, adds CBRE.
According to a Reuters report on Nov 4, Japanese lawmakers are likely to delay the legalisation of casinos.
But Goh believes it’s “just a matter of time” before that will be tabled.
Pre viously, the plan was to introduce the IRs with casinos before the Tokyo Olympics.
However, that would place “considerable strain” on the country’s resources, and the building costs for both mega developments would be astronomical, he adds.
“The idea is not to have too many catalytic developments at one go, and then suddenly [they] fizzle out.” Nevertheless, interest in commercial buildings in Japan, especially in the capital city, has started to pick up, with a 15% increase in value over the past 12 months, Goh estimates.
Likewise, competition for assets has intensified.
Several months ago, he was marketing a handful of commercial buildings in central Tokyo’s Chiyoda, Shibuya and Ginza districts.
They have all been snapped up by Japanese investors.
“The market is very competitive now.
It’s not just investors from Singapore, China and Taiwan; the Japanese themselves are also actively buying,” Goh says.
The sweet spot for investors is commercial buildings in the US$5 million ($6.5 million) to US$10 million bracket, fully tenanted, and within a 10-minute walk to a train station, he adds.
Such buildings are typically sold in less than a month, and in Tokyo, they are likely to generate gross yields of about 6%.
Coldwell Banker Elitehill is currently marketing several properties in Tokyo.
An example is a property in Arakicho, Shinjuku.
It has a floor area of 3,810 sq ft and a price tag of $2.33 million.
It is currently leased at a monthly rental of $12,125, or an annual income of close to $145,500, which translates into an annual gross yield or return on investment of about 6.2%.
Completed in 1988, the property is within walking distance of the Tokyo Metro Marunouchi Line in Yotsuya-sanchome Station.
Another property in Shinjuku, completed just this year, is located in Kawada-cho.
It has a floor area of 1,927 sq ft and a price tag of around $1.46 million.
The property is currently leased at $7,953 a month, or a gross annual income of $95,433.
This translates into a 6.5% yield.
The property is a short walk from the Toei Oedo Line in Wakamatsukawada Station.
Three months ago, Goh brokered the sale of an eight-storey commercial building in Sapporo, the largest city in the northern island of Hokkaido, for just under US$2 million.
The buyers were a group of Singaporean investors who had formed a company to purchase the property, which has commercial units on the first two levels and apartments on the six upper levels.
The freehold building is more than 80% occupied and has a gross yield of 12%, which implies a net yield of 9% to 10%, estimates Goh.
A gross yield of 12% or even 13% is to be expected in Sapporo, he explains.
If that same building had been located in Tokyo, its price would have been US$5 million to US$6 million, with gross yields in the 6% to 6.5% range, he reckons.
There has also been strong interest in apartments in Japan, particularly Tokyo.
JLL launched Tiaro Residence, the latest phase of The Parkhouse Harumi Towers in Chuo-Ku, within the heart of Tokyo, over the weekend of Aug 30 and 31.
All 25 units released were snapped up, with prices starting from $663,171 ($1,068 psf).
The twin blocks of Parkhouse Harumi Towers have 861 apartments, with a mix of one- to three-bedrooms sized from 621 to 820 sq ft.
The project is developed jointly by Japanese property developer Mitsubishi Jisho Residence and construction company Kajima Corp.
Goh took some Singaporean clients to the weekend exhibition by JLL and they managed to pick up some units on the first day.
However, when he returned the next day, “all the units had been taken up”.
He expects interest in Japanese real estate to continue into 2015.
While there have been launches of projects in other markets in Asia, such as Cambodia, Malaysia, the Philippines, Thailand and Vietnam, the sophisticated investors are only interested in “developed markets”, notes Goh.
“And in Asia, that’s Japan, mainly in cities such as Tokyo and Osaka.” For sure, Japan’s economy is still in recession, and Prime Minister Shinzo Abe is calling for an early election.
A consumption tax hike in April this year has also been blamed for the recession, and the next hike from 8% to 10% has been delayed to 2016.
Are investors in Singapore concerned? “It has not affected the Singapore investor appetite for Japan properties,” says Goh.
“These investors are going for mid- to longterm appreciation.”
This article appeared in the City & Country of Issue 653 (Nov 24) of The Edge Singapore.

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