Tokyo Real Estate Value comparison with Foreign Cites
The attractiveness of Tokyo real estate
Over the past nearly 2 decades after the bubble economy collapsed, Japan had been experiencing deflationary and poor economic conditions. But the economy has begun to pick up due to Abenomics, the first economic policy of Abe government. Since then, Japanese real estate has been attracting attention from overseas investors.
The key factor affecting this phenomenon is a progress of yen depreciation triggered by the easy monetary policy from Bank of Japan. Yen rate which was around 80yen/USD is now depreciating to nearly 100 yen/USD. The acquisition cost is now becoming lower, which is relatively attractive for overseas real estate investors. The Tokyo real estate, in particular, is attractive for its resistance to earthquake, safety, city power, and the quality of buildings such as interior decoration.
In this article, value of real estate in Tokyo will be discussed from the viewpoints of profitability, quality, and city power as compared to overseas real estate.
1. Profitability
The income of property investments is divided into two components: (1) cash inflow from monthly rent revenue and (2) capital gain/loss, the difference between the acquisition cost and the sale price of the property. Due to the maturity of Japanese real estate market, real estate prices are relatively stable in Japan compared to overseas market. Because of prolonged deflationary economy and fewer foreign capital inflows, Japanese real estate prices fluctuated within a small range over the past several years. The opposite situation can be seen in Hong Kong, a high risk/high return market, where foreign capital flew in looking for higher returns in its volatile market. Although we cannot expect large appreciation of real estate price in Tokyo, we do not expect its depreciation either.
The stability of profitability comes from stable income gains by rent revenue. For example, annual yield of rent revenue in Hong Kong is 2.5%~2.8%, whereas it is close to 4% in Tokyo.
As there are politically unstable countries in Asia, wealthy people prefer city of Tokyo which offers a politically stable environment for the purpose of risk diversification. New York city has little room for development, thus the transactions are very limited at present. London is popular as a good investment location for its stable income gain since it’s difficult to change rent. However, taxation was strengthened in March, 2012 — 7% of stamp tax was imposed at the time of acquisition for properties for the amount of more than 2 million pounds. Taxation is strengthened in Singapore as well to curb a sharp increase in housing prices.
On the other hand, the Japanese real estate transaction is not highly regulated nor subject to special taxation on overseas investors which is very appealing for foreigners. As such, real estate in Tokyo is very attractive as it generates a high return from a stable income revenue instead of a capital gain due to low volatility of real estate prices.
2, Quality
Japanese real estate stands at the highest level in the world in terms of resistance to earthquake, disaster prevention, security and so on. The global earthquake-resistant standard is that buildings will be uncollapsible when earthquakes occurs. Since Japan is subject to frequent earthquakes, the buildings are designed to minimize rolling in addition to avoid collapsing.
Japanese style interior decoration has a big freedom of the layout, and a high value is set at the facilities of the kitchen as compared to other Asian countries where the eating out culture develops, and a bathroom facility is in the world highest level as well.
Although Japanese real estate is inferior to European and American ones from energy conservation perspective, the quality of Japanese real estate stands out among all.
3. City power
According to world aggregate city ranking in “Global Power City Index, 2012 edition ,” Tokyo is ranked at the fourth place in the world in terms of city power next to London, New York, and Paris, and, above all, is ranked at the first place in terms of living environment and working environment. It stands at the world top level in the field of economy and environment. Tokyo has a well maintained transportation network and good distribution of a large number of convenience stores which produce comfortable living environment. Because of that, the number of Michelin star restaurant in Tokyo is 243 exceeding Paris of 73 restaurants by more than three times (by “the Michelin Guide” of each city). These are the evidence of Tokyo’s high quality of dining culture and environment.
In addition, Tokyo becomes the world’s best working place in terms of the amount of income paid, accumulation of the companies, the numbers of employment opportunities, and low unemployment rate. It is certain that these factors will contribute favorably to the value of Tokyo. Furthermore, we can anticipate further improvement of city power by the developments of infrastructure, the enlargement/enhancement of housing and amusement facilities given the decision of Tokyo Olympics to be held in 2020.
4. Volumes Swell
The volume of real estate transactions in Tokyo jumped 58 percent to $15.6 billion in the first nine months of this year, according to a report by Jones Lang LaSalle Inc. That’s $400 million short of New York, which ranked second with $16 billion after a 16 percent decline. Paris was fourth with $10.9 billion, while London topped the list with $23.2 billion.
Tokyo’s office vacancy rate, a measurement of unoccupied space, dropped to 7.56 percent last month from 7.9 percent in September and was at its lowest since June 2009, according to broker Miki Shoji Co. The gauge reached a record 9.43 percent in June 2012.
Commercial land values in Japan’s three biggest metropolitan areas rose for the first time since 2008 this year, gaining 0.6 percent, according to the land ministry’s annual land survey report released in September.
5. Spreads
The spread on the Tokyo-based Real Estate being very good due to Japan having the lowest interest rates globally while enjoying solid yields from rental income.
“The overall office market is improving at a faster than anticipated rate which is very positive for the REIT market,” “We refinanced the debt earlier because we see now as a good timing.”
Abe’s economic stimulus campaign includes monetary stimulus to encourage finance activity. Stepped-up borrowing by Japanese companies has to translate into increased capital spending for the measures to succeed in ending deflation and reviving the world’s third-largest economy.
Summary
Tokyo real estate is characterized by a stable and profitable income gain, strong resistance of buildings to earthquake, well designed of disaster prevention, good security and so on. In terms of city power,the economic condition and living environment, Tokyo is ranked in the world top place.
Given these facts, it would be obvious that real estate in Tokyo is very attractive. Japanese real estate is certainly the best choice in future investments.
The attractiveness of Tokyo real estate
Over the past nearly 2 decades after the bubble economy collapsed, Japan had been experiencing deflationary and poor economic conditions. But the economy has begun to pick up due to Abenomics, the first economic policy of Abe government. Since then, Japanese real estate has been attracting attention from overseas investors.
The key factor affecting this phenomenon is a progress of yen depreciation triggered by the easy monetary policy from Bank of Japan. Yen rate which was around 80yen/USD is now depreciating to nearly 100 yen/USD. The acquisition cost is now becoming lower, which is relatively attractive for overseas real estate investors. The Tokyo real estate, in particular, is attractive for its resistance to earthquake, safety, city power, and the quality of buildings such as interior decoration.
In this article, value of real estate in Tokyo will be discussed from the viewpoints of profitability, quality, and city power as compared to overseas real estate.
1. Profitability
The income of property investments is divided into two components: (1) cash inflow from monthly rent revenue and (2) capital gain/loss, the difference between the acquisition cost and the sale price of the property. Due to the maturity of Japanese real estate market, real estate prices are relatively stable in Japan compared to overseas market. Because of prolonged deflationary economy and fewer foreign capital inflows, Japanese real estate prices fluctuated within a small range over the past several years. The opposite situation can be seen in Hong Kong, a high risk/high return market, where foreign capital flew in looking for higher returns in its volatile market. Although we cannot expect large appreciation of real estate price in Tokyo, we do not expect its depreciation either.
The stability of profitability comes from stable income gains by rent revenue. For example, annual yield of rent revenue in Hong Kong is 2.5%~2.8%, whereas it is close to 4% in Tokyo.
As there are politically unstable countries in Asia, wealthy people prefer city of Tokyo which offers a politically stable environment for the purpose of risk diversification. New York city has little room for development, thus the transactions are very limited at present. London is popular as a good investment location for its stable income gain since it’s difficult to change rent. However, taxation was strengthened in March, 2012 — 7% of stamp tax was imposed at the time of acquisition for properties for the amount of more than 2 million pounds. Taxation is strengthened in Singapore as well to curb a sharp increase in housing prices.
On the other hand, the Japanese real estate transaction is not highly regulated nor subject to special taxation on overseas investors which is very appealing for foreigners. As such, real estate in Tokyo is very attractive as it generates a high return from a stable income revenue instead of a capital gain due to low volatility of real estate prices.
2, Quality
Japanese real estate stands at the highest level in the world in terms of resistance to earthquake, disaster prevention, security and so on. The global earthquake-resistant standard is that buildings will be uncollapsible when earthquakes occurs. Since Japan is subject to frequent earthquakes, the buildings are designed to minimize rolling in addition to avoid collapsing.
Japanese style interior decoration has a big freedom of the layout, and a high value is set at the facilities of the kitchen as compared to other Asian countries where the eating out culture develops, and a bathroom facility is in the world highest level as well.
Although Japanese real estate is inferior to European and American ones from energy conservation perspective, the quality of Japanese real estate stands out among all.
3. City power
According to world aggregate city ranking in “Global Power City Index, 2012 edition ,” Tokyo is ranked at the fourth place in the world in terms of city power next to London, New York, and Paris, and, above all, is ranked at the first place in terms of living environment and working environment. It stands at the world top level in the field of economy and environment. Tokyo has a well maintained transportation network and good distribution of a large number of convenience stores which produce comfortable living environment. Because of that, the number of Michelin star restaurant in Tokyo is 243 exceeding Paris of 73 restaurants by more than three times (by “the Michelin Guide” of each city). These are the evidence of Tokyo’s high quality of dining culture and environment.
In addition, Tokyo becomes the world’s best working place in terms of the amount of income paid, accumulation of the companies, the numbers of employment opportunities, and low unemployment rate. It is certain that these factors will contribute favorably to the value of Tokyo. Furthermore, we can anticipate further improvement of city power by the developments of infrastructure, the enlargement/enhancement of housing and amusement facilities given the decision of Tokyo Olympics to be held in 2020.
4. Volumes Swell
The volume of real estate transactions in Tokyo jumped 58 percent to $15.6 billion in the first nine months of this year, according to a report by Jones Lang LaSalle Inc. That’s $400 million short of New York, which ranked second with $16 billion after a 16 percent decline. Paris was fourth with $10.9 billion, while London topped the list with $23.2 billion.
Tokyo’s office vacancy rate, a measurement of unoccupied space, dropped to 7.56 percent last month from 7.9 percent in September and was at its lowest since June 2009, according to broker Miki Shoji Co. The gauge reached a record 9.43 percent in June 2012.
Commercial land values in Japan’s three biggest metropolitan areas rose for the first time since 2008 this year, gaining 0.6 percent, according to the land ministry’s annual land survey report released in September.
5. Spreads
The spread on the Tokyo-based Real Estate being very good due to Japan having the lowest interest rates globally while enjoying solid yields from rental income.
“The overall office market is improving at a faster than anticipated rate which is very positive for the REIT market,” “We refinanced the debt earlier because we see now as a good timing.”
Abe’s economic stimulus campaign includes monetary stimulus to encourage finance activity. Stepped-up borrowing by Japanese companies has to translate into increased capital spending for the measures to succeed in ending deflation and reviving the world’s third-largest economy.
Summary
Tokyo real estate is characterized by a stable and profitable income gain, strong resistance of buildings to earthquake, well designed of disaster prevention, good security and so on. In terms of city power,the economic condition and living environment, Tokyo is ranked in the world top place.
Given these facts, it would be obvious that real estate in Tokyo is very attractive. Japanese real estate is certainly the best choice in future investments.
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