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Squarefoot Magazine 105 eastern star

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These articles below can also be found in the 1 - 15 August 2010  issue of Square Foot magazine:

 

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Eastern Star

 

It’s said to be one of the world’s most expensive cities but Tokyo is one of investment’s best-kept secrets

 

| Text : Elizabeth Kerr | Photo : www.thinkstockphotos.com |

 


 

 Tokyo is one of the few cities left in the world that is simultaneously modern, cosmopolitan and Western in many ways and yet maintains its own distinct identity. The Japanese capital is home to extremes of high end dining, accommodation and “things to do”. It is the spiritual or actual birthplace of some of the most widely recognised brand names on the planet: Toyota, Honda, Sony, Yamaha, Nikon, Issey Miyake and Shiseido are the tip of the iceberg. At the same time, the sprawling megalopolis of 23 wards and upwards of 35 million people (in the official metropolitan area) is one of the most boggling, contradictory and enigmatic anywhere. The same can be said of its property market.

Almost all of what we hear about property in Tokyo is based in commercial or office space stats and the seemingly insular nature of the nation — fair or not. Japan’s major business centre, Tokyo is also the locus of all vital things related to education, government, medicine and culture and it’s actually quite welcoming to investors; foreign nationals are able to buy properties with very little fuss. “There are five places in Asia where you can buy, basically, unencumbered: Hong Kong is one, Japan is another. Then you have South Korea and Singapore, where you can buy with certain restrictions and finally Malaysia,” explains Chris Dillon, a Hong Kong-based property writer out to do for cross-border property what Lonely Planet did for travel with his series of buyer’s guides called Landed. “The only real restriction in Japan is with farmland. But you can buy, and you can own the land.”

Many of Tokyo’s — and Japan’s — property complexities come from simple demographics. With a shrinking, aging population and a concentration of talent that’s having fewer children in one city, there are glaring discrepancies from one city to another, and within Tokyo itself, where anyone with a modicum of ambition is flocking to from the provinces. “You can buy cheap, cheap property in the sticks, but it’s a poison chalice,” Dillon points out. It’s backwards from an ideal situation — everyone is a net beneficiary and not a net contributor leading to fewer services and a shrinking infrastructure.


Of course, you can build your own infrastructure, as is the case in Niseko, an increasingly popular ski destination. The chalets popping up can rival anything in Aspen or Whistler but at bargain prices. But look at that demographic influence. Typically, there’s not much there and expatriate owners are creating their own little communities much to locals’ chagrin. It’s the flipside of the so-called Yellow Peril from 20 years ago, when Japanese industrialists were buying the Seattle Mariners and Pebble Beach and could be a downside for foreign investors.

Back in Tokyo, last year’s global financial meltdown is being felt in the real estate market. As Dillon explains it, “Tokyo as a world financial centre is in dire straits. The biggest part of the Japanese international finance business pre-Lehman Brothers was bond trading and Lehman was the 800-pound gorilla — and it’s not there anymore. When it collapsed it gutted the industry.” So the Western-style expat luxury market (which is marginal at best) is scrambling to re-invent itself in the face of a glut of so-called gaijin houses flooding the market post-Lehman. Many landlords are renovating their sprawling Western homes into shared accommodation expat housing with an eye toward the fact that “expat” often means people from other parts of Asia.

But that could be meaningless for investors. Like London, Tokyo has a constant stream of professionals relocating to the downtown areas and renting until they eventually buy homes outside the city centre. Investors don’t need to be residents to purchase, and can leave things like utilities to locals who have the appropriate paperwork. “People do invest in Tokyo and what they typically buy are these tiny little apartments … in 30- to 35-year-old buildings that are fully depreciated. You can get gross yields of 8, 10, 12 percent. What ends up happening is you get people who rent the same apartment for 20 years. So you’re doing things like putting in new tatami floors, but you don’t spend a lot to renovate,” Dillon clarifies, adding that as an investor it’s wise to buy what the rental market will demand, as prime addresses on the Yamanote Line will always be sought after. “If you live in Tokyo and you work for a Japanese company, everybody faces the same conundrum: ‘Do I live close in, in a rabbit hutch or do I live further out on the Chuo line?’ The difference is 90 minutes each way … [a] 20-foot shipping container and something nicer and bigger further out.”

So the $64,000 question boils down to price. Tokyo is usually in the top three most expensive cities in the world to live in. Property must cost a fortune. “No. You can buy one of these places for US$100,000,” states Dillon. So the myth of Tokyo comes from where? “Wonderful question. If you insist on living like a Western princess [it is expensive] … A typical Japanese tenant has no interest in a Poggenpohl kitchen. They want a Japanese apartment, as opposed to the Lehman Brothers banker, who wants the apartment [they] had in New York or Hong Kong.”
 

 

 

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