The property people ignore

A recent purchaser of my foreclosed property book highlighted the opportunity for buying Japanese foreclosed property for business purposes. It was always my strategy in Japan to think outside the square, to see opportunities which other people did not see. Japan creates some wonderful opportunities in this respect because there is a lot of tunnel vision. This is surprising for such a large economy because large populations encourage unique goals. Unfortunate collectivism has a tendency to entrench certain values so herein lies the opportunity for Westerners not burdened by such entrenched thinking.

Anyway I wanted to draw people's attention to the 'other category' of property in the property search tool that accompanies the report. People tend to look just for residential property, but the 'other category' holds some gems because most Japanese buyers don't have a flexible objective in Japan. They just want a home. Japanese buyers, unless they are investors, don't have much flexibility with respect to location. In fact, talking to Japanese investors interested in foreclosed property, I found that they were more interested in buying property close to their home town because it was familiar than something which was going to yield the best return. There is an overarching concern with safety. Not taking too much risk... in fact most prefer to take no risk at all, and of course they content themselves with the 1% return on Postal Savings.

When I was buying foreclosed property in Japan I was quite taken by the opportunities to buy some really cheap property in this 'other category' that seemed to go unnoticed. The attraction was properties like the following:
1. A fairly new (1980s) corporate holiday resort. Such a place would not interest a business today because its a legacy of an era that has long since gone, but the same premises (500m2) would make a wonderful hotel or backpackers. I think setting up a backpackers would be an opportunity that a great many people would be interested in because there are not very many of them in Japan. More commonly called Japanese Guest Houses, they are not very cheap either. I'd be inclined to base such a property around a holiday/sporting area. My idea a few years ago was to establish a chain of such facilities which Western tourists could say at short term. eg. They fly from Denmark to Narita, use their cheap Japan Rail pass to travel around Japan, staying at my chain of holiday inns. Unfortunately that idea died when I broke up with my Japanese girlfriend. Nevermind, plenty of ideas where that one came from. I have a Japanese friend who is the vice-president of a construction company. He has such a holiday house west of Tokyo. Amusingly he would never actually go there. He was the unhealthiest person I've ever met. Over-worked, he eats poorly, goes to a bar most nights, drinks alone, and yet he has this jewel in the forest, and no one to take there.
2. The other opportunity was a love hotel in the south of Hokkaido. I was thinking to convert this old love hotel into single Japanese youth accommodation for the local university. I reckon these youth would have loved the idea of living in this retro love hotel accommodation, with mirrors over the beds.
3. Another opportunity arises for importers and exporters. Japan is a high cost centre for manufacturing, so a lot of products need to be imported. If you are interested in a product, have found a distribution channel for it, then why not buy a foreclosed warehouse and bid for it. You are best looking for one on the edge of a major city after you have established a preferred port of entry. I would think the Nagoya or Mita area makes a lot of sense, but there are other choices.

These are the types of opportunities you will find in this 'other category'.
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Andrew Sheldon www.sheldonthinks.com

Building vs renovating a house in Japan

Thanks to all those people who have offered feedback on my eBooks. One recent buyer suggested he intended to build a house in Japan.
Actually I don't recommend this; though I strongly recommend refurbishing a place if you have the skills, time and/or courage. The reason for not building is that you are likely going to pay too much for services in a foreign country, and Japanese labour costs are already too high. The more critical reason though is that foreclosed properties are so cheap, and older (over 12 year old) houses are even cheaper, trading at substantial discounts to the market price. You will find properties (depending on how close you need to be from Tokyo or other cities) where you are essentially buying a property for substantially less than just the land value.
Take for instance one of the places I bought, which I have yet to fix up because I use it as a holiday house. It has an 18yo dormitory on it. The land value was around Y22,000/m2 last time I looked, but I got it for Y10,000/m2, and the 18yo 2-story dorm essentially free. I dare say all buyers were looking for a house. You will need to read the book to find out the other reasons why it was cheap. If I internalised the 2nd storey stairs, it would look like a house. This is indeed what a Japanese developer did with the 2nd dormitory behind. He beat me in the next bid for a 2nd dorm by $1,000. He converted his lower quality dorm into a holiday house for some old Japanese man living in Tokorazawa. The retiree wants to live in the city close to services and family, but he uses his holiday house as a weekender for the family. I wish I got there that often.

The other attraction of this property is that it lies outside the designed urban zone, yet the valley in which my place is located, is crammed full of houses. The implication is that the government will eventually rezone the area and add services. This will increase my land value of course significantly. New houses in the area are selling for as much as Y30mil - resort type. I paid Y2.8 million, and I probably have more land than them.

There is of course a trade off between buying a place that requires a lot of expenditure and effort, and buying a place for a discount that won't attract too many buyers, versus a place convenient for Japanese people. Japan is a great place for DIY refurbishments and repairs. I recommend buying near a Cainz Home branch. :)
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Andrew Sheldon www.sheldonthinks.com

Help and advice buying Japanese foreclosed property

There has been more interest lately in our Japan Foreclosed report. I dare say people are buying for several reasons:
1. Japanese properties are comparatively relatively cheap compared to other OECD countries
2. Japanese property market is not as debt leveraged. i.e. Japanese households have much lower levels of indebtedness
3. Japanese properties offer attractive yields
4. Japanese foreclosed properties are a particular bargain
5. Japanese investors in times like these are inclined to avoid investments, but property is a particularly a good one in the right area

I would not suggest Japanese property for Australians, New Zealanders unless you are paying for the property in yen earnings, otherwise you are exposing yourself to future yen depreciation. If you are earning yen with the intent of repatriating the money home, then you have a few years (3-4yrs) to renovate and flip the property the property before you go home, and before commodity-exporting nations currencies appreciate once more. I'm not a fan of the 'buy and hold' strategy because it really carries a huge opportunity cost. The value of that strategy has just been decimated. It was promoted by so called 'life coaches' and 'financial advisers'.

If you are interested in Japanese foreclosed properties which sell for between 5-50% discount to market prices (depending on location), then you should take a look at the eBook 'Japan Foreclosed Property 2009'. This is the 2nd edition with a lot of new content. It has 120 pages of information on how to buy foreclosed property in Japan.
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Andrew Sheldon www.sheldonthinks.com

Selective property purchasing in NZ

The NZ property market has yet to reach its bottom, though we need to be careful drawing generalisations. We have already entered the market - as of 2 weeks ago. The reasons are clear:
1. We did not buy in an area that was over-priced
2. We bought in an area where the history was depopulation, but the area is open to a paradigm shift
3. We bought the worst house in the best street, close to services
4. We bought a house which has loads of potential, with elevated views of the sea
5. We bought a house on a deferred settlement basis
6. We bought at a low point in the NZ-USD and NZD-AUD

We wanted to be on the coast, but at the same time close to services. We did not need or want to be in a large city like Auckland, Christchurch or Wellington, though we wanted reasonable access to at least one of those cities, as well as access to regional centres. Wanganui-Castlecliff is 2 hours from Wellington, 6 hours from Auckland, 1 hour from Mt Ruepehu (volcano), snow skiing, as well as being on the doorstep to a beautiful hinterland. Wanganui has a good beach by my standards (elongate, arcuate, with surf zone, little traffic), and the town is actually well-serviced. It has several shopping centres, a number of entertainment facilities with something for everyone. Internet services are relatively expensive, but speeds are ok.

Looking at the property itself, we purchased a 2br house with study for $NZ78,000 ($US44,000). We paid cash because it was hard to get finance. We did however require deferred settlement so we could get the best exchange rate. The house was built in 1910, it has excellent (14 foot) high ceilings with wood panels, timber entry aisle, and sweeping views over Castlecliff, which we will enhance by adding an elevated sunroom to the back. The high ceilings in the front of the house will mean there should be little difficulty getting approval for the extension.

After some basic repairs we would be able to rent this property for a gross rental yield of about 8.5%, though we actually intend to live in it whilst we do more substantial improvements that should lift its value to closer to $180K. The 760m2 property is actually on a ridge with sweeping views over the area. The improvements will include a retaining wall, creation of a garden and patio area, the upgrade of the bathroom, and finally the sunroom above the bathroom. Having completed all those works, enjoyed the premises, and allowing for 1-2 years to pass, we might just be in a good position to sell and move on to the next opportunity. At that time, we would expect the NZD to have recovered against the USD and other currencies.

We bought a place here which is offering 7% yield (unleveraged), though we can lift that to 9% with a bit of basic maintenance & improvements. The move substantial improvements will lift the yield slightly, but its really in the re-sell value where it will add the greatest value, which why that investment will be deferred. The sun room will be a great place to write, particularly to capture the early sun in winter. This room will always have sun on it.

This investment was a great investment for us because it consolidated a large array of positives. It made favourable use of exchange rates, it recognises a future change in Wanganui property values, it makes sensible use of capital, and it was also pleasing from a lifestyle perspective as well. All we need to do now is to buy another property to make better use of our capital. It does not make sense to pay cash for a house. :(

I am already preparing a report on my experiences buying and renovating a property in New Zealand. You can place orders at our e-Store.

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Andrew Sheldon www.sheldonthinks.com

Asset prices in Japan are still cheap

The Nikkei 225 Index reached an all-time high on Dec 29th, 1989 of 38,957 points before plummeting to 8422 points in May 2003, some 13 years later. On 28th Oct 2008 the Nikkei-225 reached a new 26-year low of 6994.9 points, meaning that the collapse (from the 1989 peak) of the Japanese market has taken 20 years. We can be fairly confident that the Japanese economy, has bottomed, but we cannot ignore the ‘policy paralysis’ that has Japan stagnating for 2 decades. The Japanese government has done very little to reform the economy; instead relying on exports and government spending for stimulus. Now, in the wake of the global collapse, Japanese export markets will dried up.
The positive implication is that the global crisis will force the Japanese government to reform its economy. For this reason there can be few better places to invest than in Japanese property as long as the focus is on the major cities which are experiencing regional population growth.
Since Oct 2008, the Nikkei-225 has recovered to 9,319 points, and its soon to test its previous high around 9,500 points. The yields on Japanese property give similar confidence to the property market, but equities are always a leading indicator.
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Andrew Sheldon www.sheldonthinks.com

Should you buy Japanese foreclosed property

We are already in the midst of a stock market recovery lead by resources. I would however caution you that the recovery will be short-lived. So expect higher unemployment to sink market sentiment around Feb. This is therefore a period to trade stocks. The 'buy & hold' strategy I have debunked before, and I caution for the next 4-5 years it will make even less sense as we struggle with falling consumer confidence, rising unemployment, and eventually inflation.
If you are earning money in Japan then the local currency should hold high for the next 3-4 years, giving you enough time to flip a property, or you might like to hang onto it. I recommend flipping it unless you are buying an owner-occupied place of low value in the suburbs with little equity at stake. Otherwise you are better off buying a high yielding rural property in Western markets now, or waiting 6 months to buy one in Western cities.
Much depends on your personal context. e.g. Your career & lifestyle flexibility, your debt funding capacity, your job, whether you have a Japanese partner, how long you want to live in Japan, where would you otherwise live, whether you intend to live there long term, don't mind fixing them up (basic work), or coming back to perform routine maintenance. Its a trade off between yield income (in suburbs) or capital growth income (in the cities). For the next few years its better to go for yield. A big issue will be whether you can get bank finance. Having a Japanese partner will make all the difference, particularly if she works full time, but also because she is tied to you.
You need to make a choice between buying in the city and suburban area. I would avoid the apartment idea because you pay a lot of management fees on them. in Japan, and there is an endless supply of skyline given that the size and expansive nature of Tokyo's rail infrastructure. This makes other satellite cities better buying. Places like Mito, close to the airport, as they have lifestyle benefits, and increasingly we are working from home. You are positioning yourself for a paradigm shift, and you will more likely find a foreclosed bargain in Mito.
It makes sense to buy something in the suburbs if you intend it to be an investment, so you will get better yields by buying outside of Tokyo City wards. Further out, there is less bidding competition. Its the same further away from the station - less competition. Japanese buyers dominate the foreclosed market so we need to understand what they want to maximise our bidding success and efficacy. I look for properties which put off Japanese buyers prepared to pay a premium. focus on those where only 1-3 bidders. If you buy land value, then of course you avoid management fees. There is also greater appreciation from houses because land doesn't depreciation like buildings, but aprtments do have strategic value, but its already been priced into the property, so less gain for you. And you carry the large cost of the management fee, which is like a tax. Target 10-15yo buildings as they are cheaper, yet far from demolition. I bought one with my partner in a scenic valley outside Tokyo (Tokigawa in Saitama) for instance, but it maybe too far for you if you are living in Tokyo. Look at the smaller cities as well, and try to make it flexible, so that you might envisage living in it.
If you are planning to go back to UK, or migrate somewhere like Aust or NZ, then city properties in those countries will make sense in about 6mths, in which case you might want to hold off. The currencies for AUD, NZD will likely come off again, so good entries into these markets, whether to live or invest, the opportunity to trade the currency as well because they are off-bottoms. Depends where you see yourself being in a few years, and what doing, your flexibility now.
Agents are after rentals - true - but only ones not requiring too much work, and only those within 1-3km from the station. Find another selling point such as 'scenic location' or close to school. In rural areas, living near station is less important as they depend on cars. I like centres like Ranzen, Saitama. It has a shopping centre and Cainz home centre, so great convenience for fixing up. Great for renters as well, as more than likely the renter will work locally and not in Tokyo, so they will drive to work. In rural areas they don't need to buy a car space so you are helping them save money. Your target is older people who don't drink or families with kids over 10yo. Japanese kids tend to be well-socialised, to the point of docility. If you can get near a future train station, all the better.
If you decide to wait, stocks will likely have a post-Xmas rally. In fact its already started with resource stocks, so I'd go for another sector which has yet to recover. Look at the sector indices in your country, but only trade them as they will fall back to lows, which suits you buying property. But you are best off buying property now in Japan; in 6mths elsewhere, unless you buy in rural areas overseas then now is good too, particularly if you can optimise the forex benefit. For this purpose I recommend learning to read charts.
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Andrew Sheldon www.sheldonthinks.com

Buying property in the Philippines and NZ

We just received a very positive reply on my 'Buying Philippines Property" eBook.

“I was very impressed. It's just... huge. I'm sure you passed a lot of hours doing it, and the result is quite impressive. I'm very happy to read this eBook; it gave me a lot of details and a global overview about the Philippines way to consider the property market”.

Before you rush out and buy this eBook I would suggest that the Philippines currently is more of a lifestyle proposition now, in the wake of the economic downturn, as opposed to an investment proposition. The reason I say this is because there are more compelling places to buy. I think NZ is currently the best, or rural property in certain parts of Australia. By far NZ is best, which is why I have just bought there, and am writing a report on it.

If you have a necessity to live in the Philippines, because you have a Filipino partner, or because you want one, then I’d recommend it. Some of you will have more strategic reasons for buying property in the Philippines. You can of course use the book as an educational tool before you buy, which I guess would be best in 3 years time, prior to an economic recovery. This might change if there is a constitutional or political crisis than undermines the currency, thus providing an earlier buying opportunity.

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Andrew Sheldon www.sheldonthinks.com