The global economy is recoiling from one of the longest property booms in history. According to Andrew Sheldon “Japan started recovering from the worst property bear markets in history at around the same time the USA entered its bear market”. Rural property prices in Japan are in their 16th straight year of falling in the wake of the 1980s economic bubble. Since then Japanese banks have been slowly unwinding their bad debt exposures. It was only in recent years that the largest cities in Japan have been recording strong property price gains, particularly in the CBD of the major Japanese cities”.
In the three biggest urban regions, residential land prices rose 4.3% while commercial prices surged 10.4%. In Tokyo-23 wards, the average residential land prices rose 10.4%, slightly slower than the 11.4% in 2006. Prices in rural areas dropped for the 16th straight year, though the pace has fallen to just 1.8% for residential land and 1.4% for commercial land. Again we need to consider the disparity in land prices between regions, and the positive impact that higher food prices could have on land prices in rural areas in future. The increase in land prices does however suggest that asset price inflation has returned to Japan.
It seems paradoxical that around the same time the United States is learning the errors of boom-bust cycles that Japan has emerged from its 1990 bust. Unsurprisingly after such a protracted collapse in prices few Japanese are willing to buy property, but they will eventually understand the benefits of counter-cyclical investing. The Japanese are facing the same trepidation that Americans felt after 2000 property slump. At the time US mortgagees are selling Japanese investors should be buying.
Quite apart from the fact that Japanese property prices are cheap is the news that investors or home buyers can buy property at steep discounts to market prices. For a number of years now the Japanese court system has been administering the sale of the foreclosed property through a tender system. The process has taken 18 years because the government was sympathetic to the needs of stressed mortgagees, and quite simply there were just not enough buyers to absorb all the properties being placed on the markets. That was the extent of the Japanese exuberance.
Of particular interest to foreigners is the fact that there are no restrictions on foreigners buying property in Japan. Given the weakness in the Japanese economy one would expect the Japanese government to welcome foreign investment. The bulk of foreign buyers already live in Japan, often with Japanese wives or businesses there. Certainly a mortgagee is unlikely to be able to get a loan unless they can they have a local job or existing assets in Japan. The situation is likely to be different for prospective buyers who can establish a relationship through the private banking division of a local bank. The attraction is the very low interest rates available in Japan.
The Japanese property market has its opportunities and challenges. There is however support for serious buyers, whether its online search engines for the national foreclosed market or local English speaking brokers able to negotiate the sale process for prospective buyers.
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