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Real estate investing in Japan

Now this is an interesting market! Of course, investing in Japan is not for everybody, especially with the high prices of the real estate properties in Tokyo or Kyoto, however one can invest in this market in a simple manner.

But before we show up this investing trick, a couple of background information on the Japan real estate market. “Japan is increasingly seen by investors as a relatively good market to be in a time of rising inflation and inflationary expectations,” said Jonathan Allum, a London-based Japan strategist at KBC Securities. Inflation in Japan is very low (in May it reached 1,5% in May year-on-year), which makes it a very stable market. The benchmark Nikkei .N225 rose nearly 8 percent in the April-June quarter, compared with the Dow Jones industrial index .DJI, which looks set for a 7.5 percent fall, and the FTSE 100, which appears ready for a 2.5 percent fall.

On the other hand, the house ownership is quite small, whilst the property sense is more developed among the Japanese people than among the Westerners:

2.002 2.003 2.004 2.005 2.006 2.007
Population, mid-year (‘000) 127.590 127.741 127.778 127.769 127.756 127.710
No. of households (‘000) 47.593 47.945 48.252 48.523 48.760 48.978
No. of households (‘000)/capita 0,373 0,375 0,378 0,380 0,382 0,384

 Factors that had weighed on economic performance – for example, falling asset prices and declining bank lending – have been slowed or reversed, while corporate restructuring has improved the profitability of many industries.  Although the average salaries languished and the population is relatively aged (life expectancy is one of the highest in the world, reaching 86 yrs for women), the low ownership rates and the low stock of houses makes this a very interesting and attractive market for investing.

Losses from the U.S. subprime mortgage market and the global credit crisis have brought down Citigroup, UBS and other Western financial firms, but Japanese banks have avoided much of the damage and have therefore been able to step in with funding.  This means that the Japanese banks are actually ready to invest in the Western markets, since they have the two preconditions necessary for such acquisitions: the cash and the know how. See for example the Reuters article on MUFG (the core bank of Mitsubishi UFJ Financial Group Inc) here.

So what could a global investor do? The first option is to invest in the Japanese bank shares in a selective manner, especially in those who are in the market for a long time. Research should not be difficult, since there are a few of these, and the fact that the Japanese economy is coming back from a long recession in the wake of a US subprime and oil crisis is helping.

Of course, if the investor has even more cash available, he/she can go directly on the Japanese real estate market and buy some assets. This is not a cheap investment option, however it offers (especially for the main cities) a new exotic housing location combined with a relatively stable renting market. So, why not? You might like to give it a try…


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