Tokyo residential property 10 months on

Ten months after March 11, I called my real estate agent to find out how Tokyo residential property had fared since the earthquake.

Jason Foutch, sales agent for Century 21, said that many expats left Japan just as they had after the Lehman crisis in 2008.  Then higher priced Tokyo residential property in the 100 million Yen range collapsed, while sales of property in the 50-70 Million range remained stable.  This time, after the earthquake, prices also similarly declined.  The Japan Real Estate Institute (JREI) reported large apartments in Tokyo’s 5 central wards declined in value roughly 18% in the 1st half of 2011, while standard apartments dropped about 3%.

According to Mr. Foutch, immediately after the disaster, sales “were on hold” for a month.  Building supplies became scarce.  Builders could not complete new homes.   Manato-ku, with its many expats, was hard hit with values at the high-end plummeting. “Two to three months after the Tsunami things started picking up”, said Mr. Foutch, adding that he “did not expect to see much change in the market between now and springtime”.

The events of March 11 affected the market in other ways too.   Before the Tsunami, buyers were keen on high-rise condominiums.  Now there is less demand.  Lower rise apartments have gained in popularity, and Century 21’s clients are more cautious, first enquiring about earthquake related risks such as liquefaction.  The Tokyo Bay area real estate market has been particularly affected.   With its many tower mansions, residents have become shy of the prospect of sinking buildings and cracked underground pipes.  After the shock higher floored apartments in tower mansions commanded a much narrower price premium over those on lower floors.   Fearing another earthquake, buyers want to avoid walking up 50 flights of stairs when the elevators get knocked out.

Property values have been affected by other factors too.  The sovereign debt crisis emanating from Southern Europe, the strong Yen, continuing deleveraging throughout the economies of the industrialized world, and persistently high unemployment have contributed to low and stagnating property prices.   Values have come down and are much cheaper today compared with 5 or 6 years ago.

There is a bright side, however.  Low property prices offer the possibility to earn a stable return on investment.  Today there are few asset classes that offer low volatility, good value and an income.   The stock market has become notoriously volatile with investors paying a premium for low beta (low volatile) stocks.  Investors are wary of property bubbles in high growth economies such as China.  With few income generating safe havens remaining, Tokyo residential property could provide a port for investors looking to park capital returning a steady income.

According to JREI, Japan today is one of the most attractive real estate markets in Asia offering a stable yield on investment.  They could be correct.   Reuters recently reported that foreign property investment firms are gearing up to invest $ 1 Billion in Tokyo Property this year.  A GE Capital Real Estate joint venture with Aberdeen Asset Management PLC plans to invest $400 million in Tokyo apartments alone.

Even if you don’t have $ 400 million, Tokyo residential property could be worth investing in.  Government tax incentives on purchases of condominiums and variable rate mortgages as little as 0.7%, are currently being offered.   Just don’t expect to make a capital gain on your investment as the economy is likely to be weak for years to come.

Beacon Reports interviewed Mr. Jascon Foutch, sale agent for Century 21 Smica Create,1-26-9 Kami-Meguro, Meguro-ku, Tokyo  153-0051     Tel:  03-3760-5752

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