Cherry blossoms came early to Japan as investors rush in for golden pickings while the investing climate is still relaxed and lucrative.
Japan Property Investment Market – 2016 Forecast
If the last seven years have taught us anything, it is that even the biggest and best established global financial powerhouses can, and indeed do, make the wrong bets on occasion. With that in mind, the best and most intelligently balanced investment strategy remains, as ever, a diverse and hedged portfolio.
Key points from Price Waterhouse Coopers:
Japan remains one of the region’s top two investment destinations – as investors prefer the largest, most well-established Asia-Pacific markets –namely Australia and Japan.
While 2015 had seen consistent price hikes in most of Japan’s major cities (as high as 20% year-on-year in central Tokyo and Fukuoka, a trend that has been apparent for the last three years), most investors now believe that this trend will slow down somewhat. The main yield driver for 2016 is strongly believed to be rising rents. But for any rent increases beyond 2-3%, it would depend on market fundamentals such as consumer confidence, confidence in PM Shinzo Abe’s economic policies, and most importantly wage increases. As a result, while speculative growth-based investing can still occur in Japan to some extent, the general feel is that cashflow-based dealing should now be the norm.
Competition in the central Tokyo market will continue to be fierce – while local Real Estate Investment Trusts (J-REITs) have slowed down their purchasing frenzy of the last three years, foreign institutional investors from China, Europe and the USA have moved in to pick up the slack. This has continuously been driving smaller investors to secondary markets such as Fukuoka, Nagoya and Sapporo, where supply is more readily available, competition is lower, and yields are far higher. This trend is expected to continue throughout 2016.
As more international banks continue to expand all across Asia, it is expected that access to property purchasing finance will become easier – however, at this point in time, non-resident foreigners can only tap into these channels for central, relatively new and expensive Tokyo properties. It is still unclear whether this policy will change in the coming year.
The general consensus regarding Japan’s property investment market is that, currently, there are far more buyers than there are available assets. This has been evident throughout 2015, leading to the price hikes mentioned above, and also to a very high number of transactions in the first two quarters of 2015. A low rate of new developments hitting the market suggests that this will also be the case in 2016.
The retail and hotel sectors have been doing exceptionally well, both being on the top of the Asia-Pacific regional lists for these market segments – and will most likely continue to do so, as the depreciation of the JPY compared to other currencies continues to boost visitor numbers. However, Japan also tops the lists for best residential property investment in Asia-Pacific for 2015, mainly due to the fact that occupancies are rising, construction has slowed significantly, and the supply and demand cycle seems to be pushing towards rent rises, which have already started to some degree in central locations. Both trends are expected to continue throughout 2016, with retail and hotel forecasted to continue to increase all the way to the 2020 Olympics.
Chinese buyers, who have been mostly immersed in Australia up until now, are gradually becoming more and more interested in Japan – and will most likely be extremely active in 2016, thereby applying more pressure on the local property market – particularly in Tokyo and Osaka, which are regularly flagged as two of Asia- Pacific’s top investment destinations.
Further insights from CBRE:
The office segment continues to draw top interest, as lack of supply and increased corporate growth dictate high occupancy rates and an expectation for rising rents in central locations of most major cities nationwide in 2016. Over 50% of “A class” assets currently under development are already rented well in advance of completion. New supply is extremely limited, and regional cities, including Sapporo, Hiroshima and Fukuoka are experiencing historically low vacancy records of around 4%.
The Tokyo logistics real estate market is going through a current boom phase, as demand for modern state of the art logistics facilities continues to increase, and will most likely be further expanded in 2016 – this is mainly due to increases in e-commerce, streamlining and improvement to retail delivery services, and the expansion of third party logistics service providers.
The real estate investment market is expected to expand by a further 15% in 2016, with transaction volumes continuing to pick up steadily, and regional cities taking the pressure off a saturated Tokyo market. As a result, price rises and yield compression are expected in most major and regional cities, and further property deal supply is expected in Tokyo.
Summary as per Ziv Nakajima- Magen, Manager of Asia- Pacific, Nippon Tradings International (NTI)
The consensus, which our own experience in 2015 seems to validate as well, is as follows –
Japan will remain a favourite Asia- Pacific investment destination in 2016, due to its stability, transparency and well-established, well-regulated business environment.
Capital expenditure will continue to expand from Tokyo towards regional cities, due to saturation and yield compression in the capital.
Prices will continue to rise, although the graph will most likely taper down at least slightly, as yields become too compressed for comfort, particularly in Tokyo and Osaka.
Rents will most likely begin to rise, although it is unclear how sharply – the actual effectiveness and pro-activeness of the government’s financial and social policies, as well as corporate cooperation in wage increases, will determine the exact numbers.
Despite the challenges, 2016 promises to be yet another good year for Japanese property investment, following a similar trend in the three years leading into it. Currently, it’s perhaps, one of the last remaining opportunities to enter this market at an attractive level for the current decade. It still remains not only stable and comfortable to operate in but also extremely lucrative.