Property investment - USA or Japan?

Anyone noticed how the Japanese Yen is close to its previous highs. I am sure I have wrote about this before, however it kind of defeats the idea of foreigners who are non-residents investing in Japan. Anyway you can check out the price action on Google Finance. There are few currencies which are performing as well as the yen. In fact I could not find one. I was expecting the AUD to hold its own, but its about where it was 5 years ago.

The implication is that it only makes sense to buy property in Japan if you are planning to live here for a while, and you will otherwise be paying high rental yields. Even then, I think if I was a US citizen living in Japan, I would be sending my money to the USA and buying foreclosed properties or gold/copper/tantalum stocks, and perhaps a few other strategic metals. There are two reasons:

1. The very low USD compared to the yen

2. The depressed property market, which must be close to a bottom.

3. Metals are denominated in USD so benefit as the USD falls

4. The US will benefit from immigration and recover quickly, whereas Japan will be a slow process

5. The Yen is destined for the same debasement as the Euro and USD. Why? Because the govt has to repay a lot of debt to the people. It does not have the courage to raise taxes when demand is so weak, and for the same reason, it is not going to be cutting spending so much. It has no choice but to print money. That equals debasement given that the debt is 200% of GDP. Yes, I know its owed to Japanese. But last time I looked, Japanese investors expected interest, and they don't like to be taxed.

If you are looking for a protracted US recession of the type experienced in the 1930s, think again, it will not be as bad for a number of reasons:

1. There is no huge over-capacity in the world

2. The central banks back in the old days made a lot of mistakes, so the commercial banks lost a lot of credibility. There has consequently been no run on the banks like in decades past. Too soon to say? I don't think so. Most are adequately capitalised, and they are backed by paper money. Worthless? Yep, but so are all the paper currencies, and that is why I'd go for gold for protection against debasement.

3. The global story is not as bad as indicated for several reasons - (a) The trade liberalisation of China, India, Latin America, Africa has resulted in an escalation of commercial activity on an unprecedented level. This is reminiscent of the sugar, coffee, cotton booms of centuries past. We are having the same technological boom, but on so many levels, i.e. Miniaturisation of products, high strength steel alloys, outsourcing to Asia, the internet, voice over the internet (i.e. less travel), work from home. There is more coming in energy saving technologies and solar cells, new steel making technologies like HIsmelt.

If you must buy property in Japan, and we like to help, I'd confine myself to a lifestyle home in the countryside. You can avail of the Japan Rail Pass and travel around the country on a tourist visa from your new-found home base. That is what I do. A $300 gets me a week on Japan trains. I have the odd night out on the far-reaches of the country, but otherwise I return home. i.e. Get up early to get to Shibuya by 6AM. Shinkansen to Yokoyama, overland train to Tottori or such places, staying at some lodge, drinking in some small bar with weird people, then next overland train along some great canoeing/kayaking rivers. Its actually amazing how much forested wilderness Japan has.....if only the Japanese people could afford to see it. But you can with a Japan Rail Pass!

NZ Property Guide Philippine Real Estate GuideForeclosed Japan GuideAuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Talk of BOJ weakening the yen

Almost on cue the Japanese government is calling on the Bank of Japan to ease monetary policy. Such pronouncements of course provide support for the Yen, but rest assured there will probably be a crisis of some form to get the yen to 81Y support.

See the full story at Japan Times.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan GuideAuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Philippines property - contrarian investment

Property investors beware. You are about to be introduced to one of the best opportunities to buy property you will ever have. The Philippines has long been the 'dislexic' tiger of Asia. It always had a lot of promise, but it could never overcome the legacy of corruption and inept administration. There is perhaps ever reason to think that a solution is not far off, but it will be another 6-8 year. In the meantime, there is every reason to think that the economy will perform ok.

There is good reason to think you will get a great opportunity to buy property there. The reasons are explained in this post I wrote about the current president Noy Noy Aquino. I believe there is very good reason to expect a 'Thai style' military coup. This is of course the time to research, to set up your bank account, and to be ready to transfer funds. During the last crisis - the Asian Currency Crisis - a large amount of money was made and lost.

The implications are that you will never get a better chance to buy property in the Philippines. Any such military-police takeover of government will result in the Philippine peso plummeting to new lows. Check out the currency here, whilst I have indicated support levels on the following chart.

This is the time to be a contrarian investor - both for foreigners and Filipino expatriates. The Philippines is a good long term story. The population is growing at 2% per annum, the economy benefits from a lot of remittances from expatriates abroad, it is the focal point for outsourcing of Western businesses professional services like call centres, etc. The benefits will not be confined to Manila. It is also just a 'stones throw' from China, so expect a lot of tourism, investment when China becomes overheated. The Philippines already has a large Chinese community.

We have written a Philippine Real Estate Guide (2 eBook set) which describes the opportunities in the Philippines property market.

Philippine Real Estate Guide

Foreclosed Japan Guide NZ Property Guide AuthorAndrew Sheldon Applied Critical Thinking | www.SheldonThinks.com

Premium NZ property anyone?

Harcourts NZ, the local property brokers, have flown company representatives over to China and Hong Kong in order to sell a package of high-end NZ properties. NZ is of course an appealing market because of its idyllic natural environment, however given the small size of the local economy, during an economic squeeze like the current recession, it is often difficult to find buyers.

Prospective buyers will need to contend with the local foreign investment restrictions. Among the properties available for purchase are:

1. Private islands

2. Agricultural properties

3. High end residential apartments

Prospective buyers might be interested in our report on the NZ property market.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan GuideAuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Should you buy property in Japan?

Now is not a bad time for Australians or Canadians to buy property in Japan, but Americans ought to be sending their money the other way. Consider my latest blog post in my Forex blog. The USD is narrowing the gap with its lowest exchange rate for the yen ever. I don't expect the Yen to breach this level by much. There are 2 reasons:

1. The Japanese government has their own deficit to finance, as well as wanting to stabilise deflation in the country. For this reason I expect the Japanese government to resort to printing money in order to stimulate the economy. This might be performed by offering greater welfare. Certainly the Democratic Party of Japan is the party to implement such a policy. This will of course stimulate some domestic spending.

2. The other reason is the uncompetitiveness of Japanese exporters. This is not a desirable quality, though perhaps there is no hurry, since global demand is pretty weak.

The US presents a far better prospect for investment at this time, and the prospect of the USD falling to 81.86 yen over the next few weeks provides you with the best opportunity to shift your money. This is easily said if you hold Japanese equities, but a little harder if you are holding Japanese property.

Of course the fact remains that if you are living in Japan, you need to live somewhere, and if you are planning to spend a long time there, you may as well buy a place there. But I would only buy if you are planning to buy in the outer suburbs (with are cheaper). I would not be buying into any growth boom. But the very high yield of 12% does make buying more sensible than renting. Of course since is Japanese low interest rates you are using, there is some scope to leverage your investment in Japanese property. Rest assured that Japanese (and indeed international) interest rates are going to remain subdued.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan GuideAuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Australian property - Morgan Stanley misguided

I am going to weigh into the Australian property debate. The issue was sparked by an academic Steven Keen, who was unsurprisingly proven wrong with assertions of a dire collapse in Australian property prices. Its just not going to happen. Now there is a guy from Morgan Stanley saying there will be a slow decline in Australian property prices. I care to differ. The reasons are the following:

1. Interest rates in Australia will not rise, the Australia dollar will go up. Is that a concern? No, because I think commodity prices will be buoyant, and the govt would prefer commodity producers to suffer rather than homeowners.

Sydney, CBD, 2009

2. There is a raft of huge energy, iron ore, coal, coal seam gas projects to be developed in Australia, each spelling a huge amount of investment in the country

3. There will be a raft of Chinese and Indian investment in these projects over the next 2-3 decades, and that will free up Australian equity to fund all manner of investments and consumption, not to mention tax receipts.

4. There is still strong (i.e. bent up) demand for first homes and home upgrades, and that will continue

5. Neither government is going to allow land releases to severely undermine urban land prices. I see utterly no discussion on land zoning.

6. Mineral exports will increase over this period because of strong demand from China and India. China is not going to stop spending. It is finding even more reasons to invest. It now has to produce a lot of its own iron ore because Australia, Brazil and India are playing hard ball. So they will need new steel mills, new power stations, new railways, etc.

Mosman - Lower North Shore, Sydney, NSW

We are in the midst of an economic era which will never be seen again. There is really no historical precedent for the period we are currently passing through, and it will not be repeated again on this scale. You have half the world's population undergoing liberalisation, at a time when population growth rates can only fall, so the stimulus is never going to be greater from population growth. Even if governments ceased to be centrally controlled, and reason was the standard of value, it is doubtful that the current wealth production would be achieved because of the reliance on consumption by politicians (i.e. Because they undermine productivity through their very existence).

For this reason, I don't see a collapse in Australian property prices, or even a slow leak. I see a government which will be looking to achieve a sideways movement in property prices in order to allow household debt levels to come down. If they spark a property bubble by preventing interest rate increases, they will leave voters with no one to blame in an uncertain international climate. They will be able to do this because employment, immigration and capital inflows will sustain economic activity and per capita incomes.

There are however some caveats to this:

1. If the Liberals win government, they plan to cut immigration so this can be expected to reduce demand for property. I don't think this will have too much difference.

NZ Property Guide Philippine Real Estate GuideForeclosed Japan Guide

AuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com

Buying foreclosed property in Japan

It has been a while since we described the opportunities to buy foreclosed property in Japan. The lowest priced properties are of course in the rural areas. For example, in order to impress upon you the opportunities, I did a random search of properties on the http://bit.sikkou.jp website.

You will need to use a translating tool like Google because the website is in Japanese. Court documents are in Japanese as well. I am used to dealing with these documents because they are in a standard format. Maybe you can find a Japanese student if you need help. Pictures convey a thousand words, and the court gives you 10-20 photos. They are very fair minded, with an attention to detail.

I chose one of the cheaper rural areas on the more populated East Coast, close to Osaka City. The region is Wakayama. It is a Y2.1mil ($US22,000) two-storey house, basically $10K for the house, $10K for the land. Some houses have been trashed. This place is untidy, has some 'collateral damage' from the alcoholic who is currently residing in it. How do I know? Well there are crates of alcoholic bottles sitting outside the premises, and at the time the house was photographed, there was still someone living there. If you visit you can find out if he is still living there. Talk to the neighbours. The property detail inside also suggests atypical damage and regard for the property, but really such issues are cosmetic given the price you would be paying. Structurally, the building is probably find. You will likely go there to confirm. You have a period of time during which the courts will help you evict the previous owner. That is of course assuming its a problem. Most leave of their own free accord. If they don't most people simply pay them off rather than go to court. There is a process whereby you can pay the court to store their possessions, but since the evictee needs money rather than a court drama, most simply leave with your cash incentive. Better not to deal with drunks with a chip on their shoulder. How do you know? Talk to the neighbours, establish if they have moved out already. Fortunately, the courts photos give you a great deal of info on the tenants/owners, and they are very fair in their property description. Remember, in Japan you are dealing with the court system, not some agent with a vested interest. This $US21,000 house is 102m2, so its typical Japanese/European size. The land size is going to be small, but if its a holiday house, I think most of us would be happy with a 'crap hole' if you are only paying $21K. Land rates on this property are probably $300 per year, given the location and age of the house, and given the small investment, you would not even bother insuring it.

These types of places are great if you are free to work from home and travel, like being a programmer or graphic designer. In Japan you can get pre-paid internet modems, and no place is too far from the shops. A scooter is another great accessory to get around, or because of great infrastructure, even a bicycle is enough. What more do you need? You need to look at more properties. I use the hyperdia.com tool to find train stations to locate a property, then the map provided to find the specific address. I use Google Maps to look around the vicinity of the property, both the street and satellite view. Train lines are important. Make sure you are buying land, as opposed to buying a house with a lease of land.

All the best with your search!

NZ Property Guide Philippine Real Estate GuideForeclosed Japan Guide

AuthorAndrew SheldonApplied Critical Thinking | www.SheldonThinks.com