Local native representation is essential to penetrate the Japanese market
As mentioned in our article in the inaugural issue of Asian Property Review in May, Japan offers some of the developed world’s most spectacular and reliable rental cash-flow, in an unparalleled safe, regulated and fully documented business environment. The caveat to these advantages, however, is that the country is also highly ethnocentric, culturally isolated and extremely foreigner shy.
Except in very particular areas such as in the heart of Tokyo, Hokkaido’s international ski resort villages, or Okinawa’s islands with their plethora of US army base personnel, the average Japanese person has very little exposure to foreigners of any sort, barring perhaps the occasional Korean or Chinese service person. Japan is, both historically and currently, not an immigration friendly country, with only about 1.5% of the population being of non-native Japanese origin.
What this means in practice, is that very few people in Japan speak any English (or any other foreign language), let alone read or write it to any significant exten—and although it is now a mandatory part of the curriculum in elementary schools nationwide, this educational policy has only been in effect for a very few years. Further, the extent of these lessons, or any exposure to English as a rule, is still very limited. Add to that the natural Japanese shyness, fear of change or anything different, and the individual tendency to “stick to themselves”, and you’ll begin to understand why sometimes, even when approached by a foreigner speaking fluent Japanese, many Japanese will avert their eyes in panic and duck into a shop or cross the street to avoid the encounter at all costs.
Business implications
This self-imposed cultural barrier naturally carries through to the business environment as well—further complicated by the rigidness of tradition and the multi-layered, many-faceted business culture. The Japanese have an entirely different vocabulary used in business situations, with further sub-vocabularies used when addressing clients, superiors or elders, and place great importance on “the right way” to do anything business-related. This ranges in levels of complexity, from the correct number of official and non-official meetings required before deciding on a potential business relationship to minute details like the correct way to present a business card when meeting for the first time. Even large companies, which employ English-speaking staff or have the resources to hire interpreters and translators will insist on these ceremonial “necessities” — which are often the downfall of non-
initiated foreigners attempting to do business in the country.
Even with smaller companies, which tend to focus less on “proper” Japanese etiquette, language and fear of foreigners are still an issue—even more so, since the chances of these companies having anyone, in-house or outsourced, who can speak English is very close to nil. And since, as mentioned, Japan is Asia-Pacific’s largest and most active property investment market, none of these companies would normally have any real incentive to step out of the comfort zone — they simply have more than enough local business to satisfy their requirements.
The solution
As you’ve probably guessed by now, the first step to penetrating the cultural veil lies in having local, native Japanese representation in all practical matters — unless you’re happy to pay the price associated with relying solely on international property brokers, who normally charge hefty fees, and prefer to focus only on high-end properties to justify their overhead. This strategy works if you’re interested in central Tokyo, newish properties, with price tags starting at approximately USD300,000 or so, – but focussing on these types of properties and with this type of representation would greatly reduce your cash-flow and ability to diversify.
Local representation, however, isn’t necessarily an insurmountable hurdle. There are smaller, English-speaking, one-stop-shop pur cha s e / s a l e /management agencies serving foreign investors in some of the bigger cities such as Tokyo and Osaka — although these tend to focus mostly on their “back yard” areas. Our company which, as far as this author is aware, is one of the only ones, if not the only one, covering all of Japan at all entry levels, can also represent investors at a very reasonable fee. The advantage of working with such companies as well as with the bigger international brokers is of course, their depth of knowledge and experience.
Another option, which may be more profitable, depending on the estimated size of the portfolio planned could be to hire part-time English/Japanese speaking assistants— these may be property professionals looking for more international exposure and extra earnings on their free time—or even college/university students. Various online forums, virtual assistant websites, and “friends of Japan” type pages can all provide a reasonable selection of these types of hirelings at very reasonable prices (since the economy here has suffered severe deflation over the last two decades). In these cases, one would have to rely on one’s own real-estate investment experience, in order to properly instruct the employee in the tasks required at all stages of the research, due diligence, document review and ongoing management of the portfolio.
It is essential, however, for the person hired to reside in Japan for the following reasons :–
Much of the work will be conducted over the phone—
while some Japanese realtors and property managers can and do communicate via e-mail, and certainly it is essential to receive confirmation and information for critical matters in writing — government agencies, building management companies and insurance companies usually won’t. The person placed in charge of ongoing contact with all third parties will need to make and receive quite a few calls on a regular basis, and no one in Japan will be willing to make international calls for this purpose. It is possible these days to get a virtual “local” Japanese telephone number, which diverts to any other telephone number anywhere in the world – but the quality of these calls is normally quite low, which can be rather frustrating and lead to miscommunication issues.
As mentioned in the previous article in this series, it is near impossible and highly impractical for non-residents of Japan to open local bank accounts – and no one in Japan, including all of the professionals and third parties mentioned above, will be able to remit funds internationally – therefore, the local representative will need to open a local bank account, or use an existing one, to receive funds into and make payments out of (while it may be possible to pay some of the bills via international transfer if the local target account’s SWIFT/BIC code and bank details are known, the cost of such transfers makes the exercise highly unprofitable). Furthermore, some bills, such as tax statements, for example, require physical payment at post office branches or convenience stores.
Last but not least, while certain government agencies in certain foreigner-friendly areas of the country can post tax statements and other correspondence overseas, this is the exception rather than the norm. In the vast majority of cases, posted correspondence will require a local address—and the Japanese love paperwork— expect to receive hundreds of pages per property on an annual basis –a local postal address to post these to is essential.
It is of course essential to cement any such employment agreements via legal contract, templates for which can be easily found online. I would also advise to sign a non-disclosure agreement, or include such a clause in the employment contract – but one of the biggest advantages of working with the Japanese, is that it is extremely unlikely to be swindled, screwed over or otherwise taken advantage of. In the vast majority of cases, the person employed will be honest and trustworthy to a fault – although this does not guarantee ability or skill set, of course. The latter would still need to be evaluated on an individual basis, prior to employment.
Once local representation has been found and sourced, the scope of services, payment and mutual responsibilities cemented via legal contract, and bank, address and telephone details known and documented, it’s time to get down to the actual business of market research, due diligence and, finally – purchase.
On all of that and more, in our next instalment in this series – stay tuned!
Ziv Nakajima-Magen, is Manager of Asia- Pacific, Nippon Tradings International (NTI), which specialises in assisting investors in capitalising on Japan’s vast property market.