Its interesting to read commentaries years after they have been published. Here is a 2006 article outlining the merits of investing in the Japanese property market. No dispute - there are bargains in Japan - though I am not as optimistic as this commentator, and I disagree with his simplified understanding of Japan credit markets. But he does highlight a good point - the change in market psychology as time progresses.
In the recent boom "Americans believed that you can’t go wrong in real estate". That belief is being questioned now. At the same time, "after 16 years of falling prices, the Japanese now believe that you’ll never make money in real estate”. These sentiments are the typical attitudes of people who buy property. But what remains a self-evident truth is that things change. After 15 years of falling prices is one going to expect another 15 years of the same. That seems contrary to market patterns. In the stockmarket I know too well that the time to buy is when everyone else is selling or panicking. The opportunity to buy is when there is no more bad news to come out. Price variability is indisputable. Prices go up and prices go down.
"Put simply, the Japanese are afraid of getting burned". Americans sitting on the fence are waiting until such a time that they wont get burned. Confidence in the USA needs to be restored. Even when it hits bottom, it will need to build a support before buyers overcome the 'wall of worry'. Japan has already built that support and confidence is being restored, though tested by external events in the USA. It is in precisely in these types of markets that 'contrarian buyers' enter the market. There are compelling reasons for buying, more important than population statistics, and they are:
1. Credit cycle - the cycle of credit expansion that every country does through. If Japan cannot rely on population growth or (US) exports to sustain growth, then it will need to rely on domestic credit growth and/or reform.
2. Global expansion - There is no question that new credit instruments in western countries have driven the global economy too far & too fast, but there is nevertheless a compelling reason for continued growth in economic activity. That reason is the opening up of developing countries at an unprecedented pace, which has engaged huge populations such as India and China. There are few economies today which are not fully engaged in the market place. Huge productivity gains are being made in these countries. They are catching up and in the process sustaining rates of economic growth that have never been possible before. The statistics from these countries dont even tell the full picture. I realised this several years ago when I prepared an energy report. At the time half the coal shipments into Malaysia were not declared because business wanted to avoid paying taxes. China is said to be growing at 11% GDP growth. Its probably more likely 14%.
We are in the midst of a super-cycle and Japan will benefit from the trickle-down effect. Its property markets after years of falling I suggest therefore present good buying. Japan along with the Philippines are laggards, but they will not be left behind for long.
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Andrew Sheldon www.sheldonthinks.com
Buying Property in Japan, Foreclosed Japan Real Estate, Philippine Real Estate, NZ Property
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4 comments:
I am a foreign home buyer in Tokyo, mainly because I have Japanese children and to save on rent. I figured if I were to leave Japan, I can still keep the property should I not make such good returns from it and then pass it on to my children who may eventually want to get back to Japan.
That being said, I know rental returns in Tokyo are high and may consistently be so especially since the population in Tokyo has been increasing with more Japanese from rural areas heading to Tokyo with lower economic activity there. But will it last?
You mentioned global expansion and a change in the credit cycle - but these may slow if a 2-5 year depression occur. Will it then cause property prices in Japan to lag longer?
I already have 1 property and looking to buy another. But, with earthquake risk, I am also a little reluctant to over expose myself in Japan and instead diversify to other countries such as South East Asia or Australia where I might move to.
I think the attraction of cities will remain, though I think city people might opt for 2nd homes, and people will be drawn to outer areas for a balance. Its hard to see rural areas regaining population at this point. Might a communications revolution do it? I dont think so. Immigration..not for some time yet if ever. Rural areas really suit lifestylers & retirees.
Philip, I agree, I have property in Japan, and like the Philippines. The call centre industry is going to be a big industry here in future, and outsourcing is just starting, so I like the Philippines, but unless you have a GF in these Asian countries, you can only buy apartments with less appreciation. Or managed schemes.
With respect to the credit cycle, I was talking about Japan, not the globe. At some point Japan is likely to expand credit. I think that process will be delayed by global weakness. I think Japan is more likely to reform, but I see no evidence of change yet. Just the country remains a yield proposition for now.
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