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Foreigners in a market gone from boom to bust and back (a bit)

Foreigners and the Japanese property market - the two sound like unlikely bedfellows, but in recent years their "liaisons" have been the focus of much media attention - and not all of it positive.

First it was investments by foreigners driving up land prices; now they're supposed to be driving them down.

Of course, most of these investments are by foreign-owned or foreign-run corporations, as opposed to your run-of-the-mill individual gaijin. However, the number of foreign residents buying properties in Japan is certainly on the rise, and, like their corporate cousins, these buyers are bringing to the Japanese property market a set of presumptions and expectations that are often very different from the homegrown variety. That can play in their favor, but it can also lead to costly mistakes.

So, before we start construction on the Timeout guide to property-buying in Japan, let's survey the landscape a little, examining in particular the sometimes troubled but nonetheless ever-closer relationship that's developed between foreigners and the local property market.

This week the news of Nomura Holdings' purchase of Lehman Brothers' Asia-Pacific brought into relief an interesting reversal of fortunes. The U.S. property-price boom over the last decade in many ways echoed Japan's asset-price bubble a quarter of a century ago. As in the United States, it was rising property values - and sinking morals, on the part of lenders - that encouraged Japanese consumers to borrow who never should have.

Many lost their savings, but perhaps more significantly, one or maybe two generations became convinced in light of this that property should not be considered as a form of investment.

Two official surveys of land values are made each year in Japan. One is by the Land, Infrastructure, Transport and Tourism Ministry (MLIT) and is calculated on Jan. 1; the other is by prefectural governments and takes place on July 1.

In each survey, average land prices plummeted for 16 consecutive years from 1992 till last year. To give one relatively standard example of the decline, even as late as the period of 1998-2006, the average price of land in the Tokyo dormitory town of Toride in Ibaraki Prefecture almost halved to JPY 66,600 per square meter.

A parallel MLIT survey conducted each year since '93 shows that as average land prices declined, so too did owners' expectations.

According to the survey, in '93 some 62 percent of Japanese clung to the idea that "compared with cash savings or shares, property is a profitable form of investment." That percentage decreased consistently right through till '03, when it hit 33 percent. Even today, fewer than 40 percent of Japanese believe property is a profitable investment.

Much is made of the fact that Japanese apartments and houses are not built to last. As Masao Ogino, president of foreigner- friendly real-estate agency Ichii in Tokyo's central Shinjuku district explained, "what is fundamentally different about the Japanese housing market compared with other markets around the world is that the average life span of houses here is very short, so the prices of properties come down enormously."

The knee-jerk reaction is to lay the blame for this at the door of home-builders. But the MLIT survey suggests the causes are much more ingrained. Why would builders make residences that retain their value if no one thinks of them as investments in the first place?

Up until the turn of the century, participation by foreigners in the local property market could largely be summed up as: "Either you're already in, or you stay out." Lucky or smart or just particularly long-term residents who had managed to buy before the bubble economy sent prices through the roof either hung onto, or cashed in on, their investments, while those who had missed the boat generally opted to stay out. And when prices started free-falling, foreigners - both individuals and corporations - were as loath to buy as locals.

Then came '01, and the introduction of Real Estate Investment Trusts. Put simply, REITs, as they are known, are corporations investing in property that enjoy reduced rates of taxation in exchange for a promise to distribute a large portion of their profits to their investors.

Homes sweet homes: "Of course decreasing property values are a concern, but when you rent you're spending money that will never return," says Jim, who has just purchased a 65 million yen house in Yokohama (top); while Rab and his family opted to build their own log house in the Saitama hills (above) - at a total cost of 44.5 million yen. "It had to be a house and land, as we have two kids and wanted space for them to play in and also to implement some eco concepts into the residence," Rab says.

REITs provided foreigners with a way to invest in Japanese property without actually buying it. And, as the Japanese economy was simultaneously showing signs of a turnaround - occasioning suspicions that property values had bottomed out - investment started pouring in, totaling JPY 7.2 trillion in 2007. Foreign investors played a large part in that growth, holding 29 percent of REITs' holdings at the end of last year.

This influx of investment led to an increase in mostly inner-city land prices - enough, finally, to halt the 16-year-long decline of the national average. In March '07, when the MLIT introduced its annual appraisal of land prices for that year, the national average had increased 0.1 percent for residential properties and 2.3 percent for commercial properties.

Of course, few REITs were interested in properties in places like Toride - where prices continued to fall - but the growth in Japan's three main urban centers of Tokyo, Osaka and Nagoya was sufficient to lift the national average.

The historic turnaround was marked with unusually emotive language in MLIT's White Paper for that year. "Large changes can be seen in our country's property-market trends," it begins, before naming a revival of the economy and the establishment of the REIT market as responsible for the rise.

From July of that year, all major MLIT reports on land values began carrying the caveat: "With regard to future prospects for land prices, consideration should be made of trends in the economy and interest rates, supply and demand balance, and the tendencies of investors in Japan and abroad." It was a paternalistic warning of the dangers of jumping into a market now partly, at least, at the mercy of non-Japanese.

This year's White Paper, published in June, for the first time includes half a chapter devoted to the property investment market, with half of that aimed at explicating the thoughts, motives and likely actions of foreign investors.

Of course, that White Paper was prepared before the so-called global credit crunch really bit, and any shine the property market had gained for individual investors has no doubt now been thoroughly erased. The very latest land prices - collated by the prefectures two weeks ago - show that the downward march had resumed to the tune of a 0.8 percent dip in commercial land prices and a 1.2 percent dip in residential land prices.

The chairperson of the National Federation of Real Estate Transaction Associations, Hiroshi Ito, voiced MLIT and media sentiment most succinctly, saying the downturn was due to "a reduction in the amount of investment in Japanese property by foreign investment funds due to uncertain financial conditions caused by the subprime problem." He also named stricter building regulations and a perceived downturn in the economy as factors.

Sure enough, MLIT figures suggest that foreign investment in Japanese REITs has leveled off over the last year, but a MLIT survey this January of non-Japanese investors in the Japanese property market showed that 68 percent still believed the local market was "bullish" or "somewhat bullish."

Even in these dark days, they seem to say, profitable investment is possible in Japan.

And if so, it's foreign buyers who are leading the way - especially in the area of ski resorts. In the same most recent land-price survey, there was one standout statistic: The place that posted the greatest increase in land values was a town called Kutchan. The town occupies one side of the Mount Annupuri-Niseko, a ski area now famously popular with property-buying Australians, and more recently Asians too.

According to the survey, a sample property in Kutchan saw an annual increase in value of 40.9 percent to July 1. This rise is almost entirely due to money flowing in from non-Japanese investors and buyers. According to statistics provided by the town, the number of approvals of new building applications increased in Kutchan from 95 in 2005 to 121 in just the first five months of this financial year. In 2005 only 11 applications were by foreigners; this year there have already been 70 by foreigners.

Town officials are careful to point out that their criteria for judging whether someone is a foreigner rests solely on their judgment about whether the name on the form is "foreign" or not.

That fact illustrates an important point. While documentation of the investment activities of foreign-owned corporations abounds, neither the MLIT nor local governments have any data, nor any means of collecting data, on exactly how many non-Japanese individuals are buying properties.

Nevertheless, several indicators suggest that more foreign individuals are buying property.

Foreign banks, such as Australia's Commonwealth Bank, are starting to offer mortgage services in Japan. "We found that there was a fair number of foreigners wanting to buy properties in Japan who couldn't, or found it too difficult because of language issues, life-insurance issues, residency issues," said Richard Harris, the bank's general manager in Japan. Since launching these services in May, they have received 350 inquiries.

Meanwhile, both the Foreign Resident's Advisory Center within the Tokyo Metropolitan Government and the Kanagawa Housing Support Center reported increases in the number of inquiries about house-buying over the last few years, although neither had concrete figures. Isao Nagasawa, the head of the Kanagawa facility, said most home-buying inquiries came from Brazilians and South Americans who were the grown children of first-generation migrants.

Among those members of the English-speaking foreign community who are buying properties these days, many are British, American and Australian. Typically, they have been here for eight to 20 years, meaning they have sat out the economic downturn, but also watched from afar the property booms in their home countries.

Four such home-buyers have provided The Japan Times with accounts of their experiences. Their stories - selections of which appear below - suggest that chief among their reasons for buying were Japan's still low interest rates, concerns that rent money was wasted money and, somewhat surprisingly, pet ownership.

While aware that properties tend to decrease in value here, most seemed to be holding onto the idea that either sound construction practices (a structurally sound log house in Saitama, for example) or careful selection of the location (near Yokohama, for example, with good transit options) might see them turn a profit if they decide to sell.

Most buyers said they had mentally made the commitment to live in Japan forever, and it was that fact that was most applauded by estate agent Ogino.

"I think the break-even point (for buying property) would be 30 years. If the owner lives in the property for 30 years or more, it would be financially worth buying it," he said.

That, and the establishment of new corporate investment options such as REITs, suggests that the unlikely marriage between foreigners and the Japanese property market is set to continue for many years to come.

By Japan Times staff writer Edan Corkill; Additional reporting by Tomoko Otake; Sunday, Sept. 28, 2008

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Growing numbers of Aussie and Asian skiers are choosing northern Japan over slopes in B.C.
Joanne Lee-Young, Vancouver Sun
Published: Monday, September 15, 2008

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Skiers from Australia, Hong Kong, Singapore and elsewhere in Asia are descending on a resort in northern Japan, putting it smack in a line of traffic that used to bee-line for Whistler.

Niseko has been drawing these skiers because it gets a consistent dump of so-called "champagne powder" snow, the dry and smooth stuff. For skiers in Asia, it is also much closer to home, and cheaper on everything from airfare to lift tickets to real estate investments.

Most importantly, instead of battling a 15- to 17-hour-plus time difference, getting to Niseko -- just one hour behind Sydney, and one ahead of Hong Kong -- involves no jet lag.

Peak source for a cold one

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Up for a brewski? Some of the cleanest frosties come from the snowiest places on Earth. Willie Simpson reports.

''SKI hard, drink well" could be the motto of any number of powder hounds - but a pair of enthusiasts has started a beer-importing business based around a shared philosophy. Boutique Alpine Brews is the brainchild of business consultant Geoff Cope and Graham Blackley, a corporate trainer, and the result of their passion for discovering good beer while skiing overseas on holiday.

The theme also inspired Kevin O'Neill, of Snowy Mountains Brewery, who has experimented with the white stuff in his latest brew.

Cope recalls how their business began: "We were on a chairlift ride at the Hirafu resort in Japan, after discovering Otaru beer the previous night at the pensione I stayed at." One thing led to another and the pair cooked up the idea of a business importing beers from alpine areas. Otaru Export was the first alpine brew in their portfolio, hailing from a brewery in the Niseko region of Hokkaido. The whole exercise had a multicultural touch, with the Australians importing a Japanese beer made by a German-born brewer. Otaru is a clean and malty lager, and while it was an acceptable enough beer, Cope and Blackley were soon looking further afield.

A network of friends and French business connections led them to Mont-Blanc Blonde, produced by the Brasserie du Mont-Blanc near Chamonix in the heart of the French Alps. Not only does this beer shout its famous alpine connections, it has a Belgian-inspired character and elevated alcohol content that lends itself nicely to apres-ski behaviour.

Further beer and skiing research led the blokes behind Boutique Alpine Brews to the well-known Sierra Nevada Pale Ale, which represents the snowy peak of flavoursome US craft brews.

"We are in current conversations with Sierra Nevada to bring in their pale ale in small quantities," Cope says. A looming skiing holiday to New Zealand has Cope and Blackley sizing up a few Kiwi brews to augment their portfolio.

At Snowy Mountains Brewery, owner Kevin O'Neill last month collected a couple of bucketfuls of the first snow to fall at NSW's ski village Charlotte Pass and dumped it into a batch of his Charlotte's Hefeweizen. "If you're drinking one of the beers with a batch date marked July, you are likely to be drinking some of Charlotte Pass' finest," he says.

O'Neill is another skiing fanatic inspired to launch his own beer company after a session in a Snowy Mountains resort watering hole.

He couldn't believe there were no local craft beers in the bar fridge and it set him on a journey to start Snowy Mountains Brewery.

Mont-Blanc Blonde is available at www.boutiquealpinebrews.com.au

Tasting notes

Mont-Blanc Blonde

5.8%. Clear, pale-gold.

Aroma: malty, sweetish, faint spice. Palate: soft carbonation, little hop bitterness but finishes dry and tannic. Overall: a top-fermented blonde beer with a firm nod to Flanders.

Charlotte's Hefeweizen

4.7%. Hazy, pale amber-gold.

Aroma: delicate spice and banana notes. Palate: fruity characters upfront with clove hints later, some tropical fruit notes mid-palate, finishes crisp.

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Fire and water collide in Daisetsuzan. Two massive volcanoes pin the national park at the center of Japan's northernmost island, Hokkaido, their steaming peaks dropping off into forested, snow-pillowed, river-washed slopes-half a million acres churned green, orange, red, and white by the seasons.

Japan rose from the sea in seismic violence. Tectonic plates slid and were subducted, mantle rock melted and pooled underground, volcanoes erupted. Quiet for centuries, Asahi Dake, the highest peak in Hokkaido, rises to the north. Tokachi Dake, to the south, last erupted in 2004. In the cold, wet climate of Hokkaido, summits built by Earth's internal fires draw snow, and snow turns to rushing water, forest, moss, and flower. Daisetsuzan means "big snow mountain."

Thick ground cover makes much of Daisetsuzan impenetrable, a self-preserving preserve, untrammeled except for the few specified trails. In a crowded island country-one of the most industrialized and densely populated in the world-the park offers rare open space, its peaks and forests bounded by neatly cultivated fields. The park is a haven for deer, birds, hares, and bears as well as trees, shrubs, and flowers. Japanese backpackers move in silent respect through the massif.

Occasionally in the summer and fall, Michiko Aoki, the daughter of a Buddhist priest, hikes eight hours up and over Asahi Dake, crosses a windy ridge, and descends into a secret valley to visit her boyfriend, who helps monitor the park's Hokkaido brown bears.

Early on a warm autumn day, I join her. As we approach Asahi Dake, the hollow breathing of volcanic vents tells us there is a mountain ahead, but, cloud-wrapped, it eludes us. In the mirrored face of a pond called Sugatami-ike, a distant patch of snow mingles with steam; strings of steam tie Asahi Dake to the kamuy, the Ainu spirits that live everywhere.

During the glacial maximum 18,000 years ago, Hokkaido was linked by land bridges to Asia, not Japan, and the ancestors of the Ainu people crossed to Hokkaido. Few indigenous Ainu remain, their forebears having been dispossessed and assimilated by the Japanese. Yet it is impossible to look at these rivers and mountains without thinking of their sacred view of the place.

The Ainu divided their lands into village gathering grounds, or iwor, where they fished for salmon, hunted bear, and gathered wood and berries. The living things that sustained them were gods in disguise, spirits visiting the earthly world. Kamuy came as inanimate objects as well: hunting knives and bamboo houses. To return kamuy to the spirit world, the Ainu performed rituals, with gifts of food and prayer. Their central ceremony honored the bear-provider of food, fur, and bone for tools. They called Asahi Dake peak Nutap-kamui-shir, which means "the god mountain which contains the inside area of the bend of the river."

Asahi Dake used to be a perfect cone, but an eruption long ago blew out its flank. The path skirts a chaotic cleft torn by eight sulfur-collared vents issuing steam. An 80-year-old man coming off the mountain tells us that during World War II people gathered the yellow mineral for gunpowder. Michiko and friends, a more fortunate generation, ski the concavity in winter. Now the path is steep with lingering patches of snow. Above, cloud swallows mountain; volcano swallows cloud. Finally the top of Asahi Dake stands clear.

Weekend hikers crowd the summit. They eat ham sandwiches and rice wrapped in seaweed, drink cold tea, and rest rock-sore feet. Fewer come here than to many of Japan's 29 national parks, far fewer than to Mount Fuji. That iconic peak draws a hundred million visitors a year. Daisetsuzan sees just six million, many of whom arrive by bus to soak in autumn's colors. Others test themselves on the slopes of Asahi Dake.

High above the fog, the domed top gives a 360-degree view of the park: mountains and rivers as numberless as dragonflies. One of the rivers is the Ishikari, which a local mayor, Ryutaro Ota, explored in 1910. He begged the government to set aside these mountains and forests lest they be sold to private buyers. Because of Ota's passionate entreaty, in 1934 Daisetsuzan became one of Japan's first eight national parks. No other had wildlife to match Daisetsuzan's, nor backcountry more remote.

The way down is red dust and weathered rock. But soon dappled sun reveals thickets of blue and red berries, flowering white tiger tails, and purple, belled blossoms that the Ainu once used to make poison for their arrows. A river flows alongside the trail, past basho (thread banana) and fuki (sweet coltsfoot). Beyond lies the hidden heart of these mountains.

The trail opens into a clearing. A hiker's lodge appears, and then Michiko's boyfriend, Tomohisa Matsuno. "There's one female bear with two cubs up there," he says, pointing to a far revetment.

Early the next morning we hike up toward the bear pastures. Beyond a last pitch lies an open bowl where the bear has just gone over the mountain. Waiting for her return, we sit all day at the edge of a drying pond, living in Daisetsuzan's trance, brought on by the sweet intimacy of this place. Bears are like mountains-they cannot always be seen. But their presence can be felt. Hours go by. The bear does not appear. Water bugs skate the pond. Time unspools: Preparations for the Ainu's reverential bear-sending ceremony took three years.

A cool breeze spins pond water into spirals, a reminder of typhoons to come. Splotches of red and orange appear in the trees. It is getting too late in the season to call this time summer, and too late in the day to stay.

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A mountain-top gabfest provided a spectacular show and a long guest list but few answers to the woes of the world

As diligent hosts, the Japanese made sure this year's G8 summit, grouping the leaders of the biggest industrial economies plus Russia, saw little of the angry protest that has marred so many similar gatherings. It all happened at a remote highland resort at Toyako on Hokkaido, Japan's northernmost island. Many foreign activists were turned away at the border, and such demonstrations as did take place were kept to distant cities where riot police outnumbered malcontents. Even the media horde and those non-government organisations (NGOs) deemed semi-respectable were interned in a holiday camp about 20 miles from the eight great leaders.

To Yasuo Fukuda, Japan's prime minister, whose domestic standing is extremely shaky, the summit's smooth passage was a huge relief. He even showed a flash of statesmanship. In answer to perennial criticism that the G8, a self-appointed steering group for global problems, was hardly representative of the world, he invited seven national leaders from Africa to join Japan, the United States, Canada, Britain, France, Germany, Italy and Russia to discuss the continent's development.

At another point, Russia's Dmitry Medvedev found himself hobnobbing not only with the old-time capitalist club but also with fellow leaders (see picture) of the BRIC gang of fast-growing giants-in other words, his counterparts from Brazil, India and China. By inviting that lot, plus Mexico, South Africa, Indonesia, South Korea and Australia, the Japanese were able to bring together the bulk of the world's greenhouse-gas emitters. This was easily the G8's biggest "outreach" to date, and Mr Fukuda skilfully ensured that disagreements among that disparate bunch did not break out angrily into the open. Carry on like that, people at the summit quipped, and the 71-year-old leader might one day make a competent foreign minister.

On substance, however, the summit was a let-down. A year ago, when the Heiligendamm summit took place in Germany, oil and food staples were at half their prices today, while Northern Rock was an unknown little bank. At the Toyako summit the G8 leaders rose to the challenges posed by the "three Fs"-food, fuel and the financial credit crunch-with platitudes, and little effort was made to resolve the contradiction between calls for larger oil supplies and the promise of a low-carbon future.

On Africa, higher food prices seemed to make a mockery of G8 pledges made three years ago to raise annual aid levels by $25 billion until 2010, even before NGOs warned that the commitment was already slipping. (Here, though, Japan can hold its head higher: in May it hosted a big African aid gathering, promising substantially to increase aid and technology transfer.)

The big disappointment was over climate change-despite some word games. Last year, Germany's chancellor, Angela Merkel, overcame the reluctance of George Bush and got the G8 to promise to "consider seriously" cutting greenhouse emissions by at least half by 2050. This time the G8 vowed to "consider and adopt" such cuts. Ms Merkel hailed this tighter language; the hosts called it the summit's biggest victory, coming just 18 months before 180 countries meet in Copenhagen to hammer out a successor to the Kyoto protocol. In effect, Mr Bush has at last committed America to a quantifiable target. With just 200-odd days of his presidency to run, this may be his final input to the climate-change debate; some would call it his only contribution.

Yet the strength of the G8's commitment starts to crumble under scrutiny-even without one cynical Russian diplomat pointing out how absurd it is for today's politicians to take responsibility for meeting goals four decades from now. The baseline from which the cuts are supposed to occur has been left vague. The European Union wants them to begin from 1990, while Japan (which unilaterally says it will aim for a 60-80% cut in emissions) thinks it more realistic to start from 2005 or perhaps this year. America hardly has an opinion.

To some, this obsession with distant targets is beside the point. The G8 could not come up even with nearer-term goals to cut emissions-say, by 2020. The lack of more immediate and concrete measures, says Michael Grubb of the Carbon Trust, set up by the British government to reduce reliance on fossil fuels, underscores an "abdication of responsibility". At the least, he says, the G8 leaders could have promised to treat cuts eventually agreed under UN auspices as legally binding. And they could have moved to bring the huge, dirty market in bunker fuel for shipping and aviation, hitherto excluded from discussion of caps, into the negotiations.

Without such marks of resolve, it is little wonder that the five biggest developing polluters, which account for a smallish amount of the man-made carbon dioxide now clogging the air but a fast increasing share of new emissions, refused to make any firm pledges. A Japanese diplomat worries that the relationship between the G8 and the so-called G5 (India, China, Brazil, Mexico and South Africa) over climate change may soon resemble management-and-labour stand-offs at their worst.

Perhaps such weakness was inevitable. Big challenges demand strong leaders. But if Mr Fukuda is weak domestically, Mr Brown looks little better. Mr Bush is a lame, unpopular duck. Nicolas Sarkozy of France struggles to comprehend how and why his voters' enthusiasm has evaporated. In all the big democracies (as well as elsewhere) the three Fs have played their part in creating a mood of dissatisfaction. Leaders find themselves punished, and also hobbled, by the low regard in which they are held by their voters.

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