Type of foreclosed property to buy

Many buyers will be unsure what type of property to buy in Japan. I have several suggestions which will make you reflect more on your decision. The most important factors are:
1. Neighbours: Foreigners in Japan are subjected to discrimination in Japan. The nature of discrimination I don’t find terribly intrusive or threatening. Its more of a quiet detachment which makes them more scared of you. When you do something wrong you will probably never redeem yourself, and being in a strange country you will probably make an error. If you have a Japanese partner, then of course it makes a great deal of difference, particularly with the women. Since you are buying foreclosed property you want to avoid the possibility of angst from the previous owner. You therefore want to avoid properties with a legacy of family ties, like neighbouring brothers and sisters, etc. You are safe from a family legacy if you buy in a subdivision. You are not buying in non-urban land. A reader made a good point. Being in a rural area means you become the focus of attention. 
2. Charges: Charges on property in Japan are relatively low compared to other countries. Insurance costs are low, small lots mean that land taxes low, though there is also a tax on land improvements, so it is variable. Apartments or ‘mansions’ carry a very high charge to cover future improvements, as well as on-going maintenance. This charge is excessive and is justification for avoiding such strata-type property.
3. Depreciation: Japanese buildings depreciate significantly after 12 years as a result of the aging style and finish of the building. This ‘aging’ is because Japanese property is built for ‘function’ rather than lifestyle or aesthetic. For this reason I would caution against buying property which is going to deteriorate in value faster rate than your return on investment grows. The implication is that you want to buy a property with a high percentage of land value. This is likely to occur closer to the city centres. Mind you, modern buildings are better designed, so will likely keep their age better in future. The alternative is buying land with an old building on it and giving it a face-lift when required. If taking this approach I would tend to opt for one-story houses to avoid stress on the wooden frame and potential risks of poor design or workmanship.
4. Land area: Attempt to get as much land area as possible. Westerners are not accustomed to living on top of each other. If you are placed in the position of having neighbour problems, better to have some space between them and yourself.
5. Improvements: I would caution against buying property in rural areas which is outside a subdivision. There are several reasons:
             a. Short cuts: There is the possibility of short cuts being taken with respect to property approvals. i.e. Unlicensed water tank.
            b. Shared infrastructure: The old way of building was not regulated. For instance, if you buy a farm house, the septic or water might be connected through a neighbour’s property (i.e. a relative of the previous owner). The property was thus designed as part of a community. It is preferable to avoid this style of property if there is any uncertainty about the existence of such ‘shared’ infrastructure.
            c. Property boundaries: The property boundaries in the case of rural property are not so clearly established, so I would suggest avoiding rural property if the land area is small, or any improvements are close to the property boundary. There will not be any property disputes if you buy in a subdivision.
6. Geological risks: I would be inclined to avoid some of the subdivisions one finds perched on the sides of mountains on the fringes of cities. Japan is a geologically unstable area, so any building on or near step structures poses risks. The risk of land slide arises due to unstable slopes, but also because of rising hydrostatic head as water builds-up behind retaining walls. There are drainage holes to avoid this risk, but some structures are better designed than others.

For these reasons I consider properties in the 12-18yo age range as the best buys in semi-rural settings. Certainly I would be looking at the younger end of the market for rental properties, though ultimately it’s a question of how well the property has been maintained. One of the properties we purchased was 12yo old, however internally it looked brand new after we painted the wallpaper. The cost of building in Japan is very high so I would be looking at 'liveable' structures which can be renovated by recladding than building a completely new structure.

Refer to our Japan foreclosed property report for more details.

What is foreclosed property?

A foreclosed property is a property which is subject to forced seizure and sale by a lending institution because the borrower/homeowner has fallen into arrears on the interest repayment, triggering a debt recovery action. In Japan, debt recovery proceedings are undertaken by the Prefectural Court Offices.
Foreclosed property is a feature of many developed countries and some developing countries (like the Philippines) which have established formal proceedings for the liquidation and recovery of unpaid debts.
Insofar as the lender is concerned, the prospect of being foreclosed might not be a bad thing. Given that some property buyers bought their properties at excessively high prices, it might make more sense for some home owners to abandon the property rather than pay the debt. Why pay a debt if the property value is less than the outstanding loan amount? This is possible because property prices were falling at an average rate of 9% per annum until 2006, whilst any property over 12 years old will also experience a stronger rate of depreciation. For this reason, why hold onto such property. If the Japanese home buyer does not need a credit rating, they are better off abandoning the property and buying a new property in a relative’s name.
You can understand also that a lot of home owners will continuing making payments on home loans even though asset value < loan amount outstanding. The reason they will retain the loan is the fact that at the current low interest rates in Japan, it is likely to make more sense to make those payments rather than sell. The implication however is that Japanese banks are likely to face an anomalously high rate of defaults as interest rates rise. I would however suggest this dynamic is only likely to operate among the lower income Japanese households.

Signs of life in Japanese government policy

Already there are signs that the new Japanese government is looking at policies to stimulate economic activity. The Japanese government has bureaucrats around the world which look at public policy ideas in various countries. The new Japanese government appears to be taking several policy ideas from Australia (not necessarily the originator):
1. Immigration - The LDP could not sell the idea of increased immigration, though the current government is considering such a move.
2. Cash incentives for new parents - Australia had the $5000 baby bonus

The aging of the Japanese population and declining population thanks to a higher death rate than birth rate is the reason for the policy. This of course is good news for property buyers; particularly property buyers in the fringe areas of the major cities. We know immigrants prefer the larger cities (say over 2mil population) for several reasons:
1. Greater support from fellow country people
2. The availability of services for their culture, e.g. Local government info in multiple languages
3. Greater job potential
4. Less discrimination
5. Greater availability of accommodation
The outer areas become more popular because of the high cost of land in inner city areas. Many Asian immigrants will of course be accustomed to living in small apartments....but Japanese 'boxes'? One can expect property near outer satellite city stations to attract the greater share of interest.
This policy will of course take time to unfold. Japan is currently subdued like the rest of the globe, but expect other stimulus coming out of the recession. Recently the outer suburbs have experienced population losses as people were moving into apartments in the inner city. Its probable that foreigners would offset this trend to some extent in years to come.
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Andrew Sheldon www.sheldonthinks.com

Outlook for Japan

Most property buyers in Japan tend to be Japanese residents. For them the prospect of buying in Japan is less controversial. The reasoning goes: You need a house, foreclosed properties are a huge discount to market price, there is a huge inventory of foreclosed properties ensuring a good choice....where do I buy your book? :)
These people can also look abroad, but not knowing when they are going home, and the issues of looking for property abroad, and not wanting to put all their money in gold, is probably going to lead them to Japanese property. Fine.
That said, the Japanese economy is likely to perform well in future....after the slump that is. There are some promising aspects about Japan:
1. Reform-minded government can be expected
2. Household debt has wound back over the last 16 years
3. Low interest rates

When we look at Japan, one cannot ignore the relationship of Japan to its neighbouring countries. Aside from holding a lot of US treasuries (for what they are worth), Japanese enterprise has a lot of investment in Asia. The question of when and if Japan will allow increased foreign immigration is difficult to say. I tend to think it will target higher productivity and retraining rather than imported labour. We must remember that Japan is effectively outsourcing jobs already. There are Filipinos, Chinese, etc doing contract work for Japanese companies, both in Japan and outside. This is a global trend. So the question then becomes simply who will care and entertain the aging parents. Probably middle aged children and robotic pet dogs.
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Andrew Sheldon www.sheldonthinks.com
http://foreclosedjapan.sheldonthinks.com/

Recommended Property Markets in Asia-Pacific

There has been a bit more interest in our Japan Foreclosed and Philippines Property Reports of late. More interesting perhaps is the shift in the types of buyers. I detect greater interest from professional investors in Japan, as opposed to most buyers who are foreigners married to locals.

There is less interest in New Zealand, which is understandable given the recession, and the changes to the NZ immigration classifications, and all-round job losses. The strong $NZ is neither helping the economy, nor providing foreigners with the incentives to invest there. We are not complaining. We bought property there when the forex rate was 50-55 USD, now its 67c, so all is good. Property at the bottom-end of the market, where we bought is holding up well, and I expect inflation to keep it that way. On our side, there have been no more drive-by shootings, which has kept property prices higher. We are hoping that the thieves who took the water heater have not come back, as we are currently in the Philippines. The missing water heater no doubt drove a few customers away, and allowed us to get a real good price. Top that off with the fact that when we bought the outlook was particularly bad, and the 70's plus couple were probably looking at a repeat of the Great Depression, which they would have heard tirelessly about in their childhood.
I am also encouraged by the appointment of a right-wing politician Don Brash to a productivity inquiry. The government is keen to catch up with Australia.
In Japan we bought a property which is not in a "Urban Designated Zone" though given the level of housing construction in this valley in the mountains west of Tokyo, we are expecting a re-zoning in coming years, and a shift to town water/sewage supplies. We are comforted by the construction of high-value 'lifestyle' townhouses on the hill for Y30mil a piece. That should help our property purchases for just Y2.8mil. I provide more property buying strategies in our Japan Foreclosed book.

In the Philippines, we are also happy to report that our properties in Lipa City are looking good. Lipa is a growing city with a lot of promise. It is well located between Manila and Batangas. Great for foreigners who like to go to Puerto Gallera. It has the attraction of a cooler climate since its at an elevation of 400m, and there are areas which are even higher. It has three shopping malls, though I must say its still "franchise city". There have been some attempts to establish higher-end restaurants, but each has failed. I was particularly fond of the Korean restaurant. Fortunately there is now a new Savory franchise in SM Lipa which actually makes franchise food particularly tasty.
We are most pleased with our investment in Lipa. Both properties were foreclosed property purchases. One was in an upmarket subdivision. Not the typical place we would normally buy, but were were looking to buy something secure we could live in and store stuff whilst overseas. We got such a good price - P2700/m2, when they are selling them onsite for P4500/m2.
The prospects for the other property are even better. We understand that a private school developer is negotiating to buy a foreclosed lot on the highway near ours, so this should add to the value of this property, and step up the pace of local development. I have long believed this area would have a small shopping precinct, and I believe that the single entry/exit into Lipa City, which is congested now, will result in a diversion to take the pressure off the existing road.
The extension of the tollway is shown in red, my expected connectors are shown in green, and our hot spot is shown by the pink circle. There are a number of other attractive features. There is talk of the Fernando Air Base being used as a commercial freight facility. If this facility does indeed great converted into a commercial facility it will do a great deal for land values because the grounds of the Air Base are phenomenal. Nicest gardens around. This would make great facilities for high-end accommodation and/or restaurants. Its hard to envisage another shopping mall for another 10 years, but this also would be a good place for it. The Philippines population isa growing by 2% per annum, and given the rising industrialisation, more people are heading to commercial centres on the fringes of Manila. Manila is too congested. Filipinos care about their lifestyle more than anything else. Which is why call centres are being established in satellite cities like Lipa. The implication is that Lipa's incomes can be expected to grow quickly, as the population grows quickly. I don't even expect the recession to reduce remittances, nor do I expect much decline in call centre developments in the Philippines.

As I anticipated a year ago when I released the Philippines property report, the Philippines market is remaining one of the most prosperous places to invest. Given the Chinese-based heritage, I think you can expect a lot more Chinese investment in the nation as well. Japanese and Korean retirees will also feature. Where do you think these Korean and Chinese holidayers will retire as they age. Remember it is the old people with the money, the children want to live in the Philippines to learn English on the cheap, and to escape their discplinarian parents. The dynamics are on the wall. The Philippines will be the next tiger economy. Mind you the pickings are getting pretty slim. Pretty well every other economy has taken off. There are many other reasons why the Philippines is appealing. e.g. Its the only Asian country with generous visa conditions. You can stay in the Philippines for 18 months without leaving the country. That's just as a normal tourist, hence most people don't even bother with a retirement visa. For further information check out our 2-volume eBook set on Philippines property and receive a free list of Philippines bank foreclosed properties.

Andrew Sheldon
www.sheldonthinks.com
http://foreclosedjapan.sheldonthinks.com
http://nzproperty.sheldonthinks.com
http://philippinesrealestate.sheldonthinks.com

Regional growth in the Philippines

Here are further signs that the Philippines economy are retaining their strength as we predicted in our property report. The implications for Philippines property are significant. It must be appreciated that call centres are emerging as a significant employer of Filipino labour in the country, as call centres around the world close in favour of Philippine operations. Well not close, so much as downsize, as there are significant constraints teaching a Filipino to speak like an Aussie or NZ, or how to spell Auckland. General knowledge was never a strong point for any country in Asia. English is a strong point for the Philippines, so expect this trend to continue. The lack of general knowledge is a cultural divide which will closely be closed. In the meantime there is still a huge market for call centres in the Philippines.
Most call centres are being established in Metro Manila, but slowly they are shifting out into regional satellite cities as well as other cities around the country. More call centres will be built in regional cities as communications infrastructure improves. The attraction is the cheaper labour in these regional areas. The cost of living is lower and staff are more loyal since there tends not to be so many competing call centres to poach your staff. People are more relaxed and lifestyle orientated, but that is an obstacle as well, as much it might help to retain staff.
The impact of call centres is readily apparent. You can imagine the impact on a small city to suddenly have a few call centres in an area. Each of these students is living at home, earning $400 per month, and they want to eat out and drink with friends. Whereas I used to eat at empty restaurants in Lipa City, now they can be full of young people. There is a Starbucks coming to Lipa City.....about a year after a number of smaller coffee shops sprang up. Likely some of these businesses will fail and become upmarket bars instead. The growth of such services will make these places more attractive to business executives wanting to relocate out of Metro Manila. The Southern Highway from Manila is currently being upgraded. Eton City is planned in between, which will be just a 1hour commute from Lipa City. There are already a number of high class golf-residential resorts in the Lipa City area. There is already 3 shopping malls - SM, Robinsons and Fiesta. The place is overrun by franchises, but expect more boutique-style businesses in future.
This is just one of the locations progressing in the Philippines.
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Andrew Sheldon www.sheldonthinks.com
http://foreclosedjapan.sheldonthinks.com
http://nzproperty.sheldonthinks.com
http://philippinesrealestate.sheldonthinks.com

New political stage should underpin Japanese reform

The problem in Japan is that a large group of old men associated with the Liberal Democratic Party (LDP) have traditionally run the country. These men are often the descendants of former PMs. One need only reflect on the last 3 PMs of Japan – all of them were the descendants of previous leaders.
1. Shinzo Abe, the grandson of a former prime minister.
2. Yasuo Fukuda, the son of a former prime minister
3. Taro Aso, the grandson of a former prime minister.

Japanese people of course like to elect outspoken and ‘weird’ people whom they hope will break with the past. This has yet to occur. Yet on 30th August 2009 the Democratic Party of Japan (DPJ) ousted the 54-year reign of the LDP which has ruled Japan since its formation in 1955 (aside from a 11-month hiatus in 1993). Under Japan's constitution, the DPJ leader Yukio Hatoyama is assured to be the next Prime Minister of Japan. He will be formally appointed on 16th September 2009.

Many people will be hoping that new party leadership will mean change for Japan. That outcome seems improbable without good leadership. So what about Yukio Hatoyama - the leader of the DPJ? Well, he is unsurprisingly the grandson of a prime minister, who incidentally defeated Aso’s grandfather. Hatoyama might be considered a ‘pedigree politician’ with powerful family figures. His family is compared to the Kennedy’s in the USA. Hatoyama’s mother, Yasuko Hatoyama, is a daughter of Shojiro Ishibashi, the founder of Bridgestone Corporation. She was a big financial supporter when her sons established the Democratic Party of Japan (DPJ) in 1996.

Given their links to Japanese business it will be interesting to see whether ‘new’ money can out-manoeuvre the old zaibatsu conglomerates of the pre-WWII industrial era. Traditionally these corporations have had a strong influence on Japan, having a long association with the LDP. Another influential group is the civil service, though given their ‘safe’ positions, it seems probable that they will not disrupt reform if there is an agenda to do so, and that agenda has support.

The last time the DPJ had power was briefly in 1993. On that occasion, in the wake of the economic collapse, the fragile coalition of opposition parties were undermined and discredited by the LDP. That seems less likely on this occasion given the strength of the leader and the election result.

The DPJ's policies include plans to restructure the bureaucracy (expected to result in layoffs and pay-cuts); a monthly allowance for families with children, a reduction in petrol taxes; income support for farmers; free tuition for high school students; banning temporary work contracts in manufacturing; an increase in the minimum wage to Y1000; and no increase in the VAT sales tax until 2013.

The strength of the coalition seems assured for now since the other coalition parties won just 3 seats each compared to DPJ’s 221 seats. The People's New Party (PNP) comprises LDP members who opposed Koizumi’s autocratic style and post office privatisation, whilst the Social Democratic Party (SDP) is a socialist party which has witnessed a decline in support because of its support for North Korea. It can therefore be expected to be a weak party partner.

One might wonder whether the DPJ is the party to deliver economic prosperity to Japan given that it is considered the ‘Left of centre’ party in Japan. There is good reason to think that it will carry a reform agenda because the party was originally founded as a ‘centrist’ party. The move to the left prompted Yukio Hatoyama’s brother Kunio to leave the party. Yukio stayed with the party through several mergers with other opposition parties in 1998. He was DPJ Party Chairman and leader of the opposition (1999-2002), and DPJ Secretary-General before succeeding Ozawa as party leader on 16th May 2009. He was selected by fellow party members by a winning margin of 124 to 219 votes, defeating rival Katsuya Okada. Hatoyama has indicated that his wife Miyuki Hatoyama will play a prominent role as First Lady during his administration. This might suggest that he will attempt to gain broad-based people support as a means of driving political reform.

Katsuya Okada is another potential leader of the DPJ should Hatoyama fall from grace, as many Japanese leaders seem to do. He is the former president and current Secretary General of the DPJ, who will serve as Foreign Minister. He also has strong ties to business, being the second son of Takuya Okada, the founder of the Japanese retail giant AEON Group. He is a graduate of the University of Tokyo (law) and Harvard University. His political roots lie with the Takeshita faction LDP, though in 1993 he followed LDP faction leaders Tsutomu Hata and Ichirō Ozawa to join the Japan Renewal Party. Eventually they amalgamated with the DPJ and Minseito in 1998. He became president of the DPJ on 18th May 2004.
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Andrew Sheldon www.sheldonthinks.com