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The Chinese descend on Japan's property market, pushing prices up

TOKYO — The trend has already hit Sydney, Vancouver and US. Now it’s happening in Japan: Busloads of real estate buyers from China coming in, buying up homes and pushing prices higher.

Commercial and residential buildings in the Shinjuku district are seen from the observatory in the Roppongi Hills Mori Tower, in Tokyo, Japan, on Sept 3, 2013. Photo: Bloomberg

Commercial and residential buildings in the Shinjuku district are seen from the observatory in the Roppongi Hills Mori Tower, in Tokyo, Japan, on Sept 3, 2013. Photo: Bloomberg

TOKYO — The trend has already hit Sydney, Vancouver and US. Now it’s happening in Japan: Busloads of real estate buyers from China coming in, buying up homes and pushing prices higher.

Realty agencies in Beijing are organising twice-monthly tours to Tokyo and Osaka, where 40 Chinese at a time come for three-day property-shopping trips, seeking safe places to invest their cash abroad. They’re being prompted by the yen’s decline to 22-year lows and excitement over the 2020 Tokyo Olympics driving up prices, as they did in Beijing in 2008. Property tours will soon start from Shanghai too.

Partly as a result of nascent Chinese buying, Tokyo apartment prices have reached the highest levels since the early 1990s, up 11 per cent over two years, according to the Real Estate Economic Institute.

“The demand is like water exploding up from a well,” said Mr Zhou Yinan, an Osaka-based agent at Chinese brokerage SouFun Holdings, who said his mainland buyers are about 20 per cent more numerous than at this time last year. “The Chinese buyers had mainly been from Taiwan until last year, but that trend reversed since October as the yen weakened against the yuan.”

Thousands more mainland Chinese are coming on their own, hitting real estate agencies in Tokyo’s Ikebukuro Chinatown district. Classified advertisements including properties for sale are piled up in free Chinese newspapers outside a Chinese supermarket that sells frozen dumplings and spicy sauces.

PAYING CASH

“There are so many Chinese buyers recently,” said Ms Song Zhiyan, a broker at BestOne realty in Ikebukuro, who uses the messaging application WeChat to reach thousands of potential customers in China, who can then fly to town to complete purchases. “I only work with clients who can pay cash. Why waste everyone’s time?”

She tells them to hurry: Properties are gone so fast that those who try to negotiate the price find them already sold. Her transaction volume exclusively for mainlanders buying in Tokyo has tripled over the past six months, Ms Song said.

Demand is so strong that some developers have put a quota on the number of new apartments sold to foreigners, said Mr Kenny Ho, Tokyo-based managing director at Sinyi Realty, a Taiwanese brokerage with outlets in Japan. Some developers won’t sell more than 20 per cent of total units to foreigners, he said, declining to name the developers.

“Japan has its own way of doing things,” he said. “Some people feel that if there are too many foreigner(s), that may affect the quality of the living environment.”

NEW MILLIONAIRES

Japan’s sluggish economy caused price gains in Tokyo to trail those in other urban centres like New York, London and Hong Kong since the 2008 global credit crisis. Buying from China, which created about a million new millionaires last year according to the Boston Consulting Group, has the potential to quickly change the dynamics of local property markets.

In the US, buyers from China, Hong Kong and Taiwan spent US$28.6 billion (S$38.6 billion) on homes in the 12 months through March, becoming the largest group of foreign homebuyers for the first time, according to an annual report by the National Association of Realtors.

Chinese already buy almost a quarter of new homes in Sydney, and their outlay will more than double to A$60 billion (S$61.1 billion) in the six years to 2020, Credit Suisse Group AG estimates.

HIGHER YIELDS

In Japan, sales to Chinese and Taiwan buyers jumped 70 per cent in the first three months of the year from the year-earlier period, or ¥11.1 billion (S$120.6 million) at Sinyi Realty. For every 100 new apartments sold, about 10 to 15 are to foreigners from Asia, according to Sinyi.

“I wouldn’t find a deal like this in China,” said Ms Lin Huan, a 35-year programmer from China’s north-east Liaoning province, who with help from her parents bought a three-bedroom flat in the Shinbashi area of Tokyo for investment, paying the equivalent of US$203,000. After recently relocating to Tokyo to work for a technology company, she noticed the weaker yen was making properties cheaper. She expects to make a 5 per cent return on the rent annually, whereas property in Beijing yields just 2 per cent.

Chinese buyers are typically purchasing in the 1 million (S$217,300) to 2 million yuan bracket, a range “tolerable to many Chinese”, said Mr Gui Liangjing, SouFun’s international sales director in Beijing.

‘SERIOUSLY UNAFFORDABLE’

It’s not as tolerable to Japanese. Prices in Tokyo have become “seriously unaffordable”, the annual Demographia International Housing Affordability Survey shows. The percentage of Japanese in the seven biggest cities who wanted to buy a home dropped to 15.4 per cent in December, the lowest level since Recruit Sumai started surveying two years ago. Even though it rose to 18 per cent in March, those who plan to “take action” by looking or buying declined, the survey showed.

Still, prices are lower than in comparable global cities. The average price of a three-bedroom apartment in Tokyo’s 23 wards and surrounding prefectures was ¥53.1 million in April, according to the Real Estate Economic Institute. It’s HK$8.4 million (S$1.5 million) for a 55.7sqm apartment on Hong Kong Island, according to calculations based on government records, and US$554,200 for homes in New York, according to Zillow.

REGULAR SALARYMEN

“Prices have risen while incomes and rents remain the same,” said Nomura Research Institute senior researcher Tomohiko Taniyama. “No regular salaryman will find apartments cheap in Tokyo.”

While the home price-to-income ratio – the cost of a home relative to a buyer’s average annual income – rose to more than 10 times in Tokyo last year, according to according to property appraisal company Tokyo Kantei, it’s still below the 18 times it reached during the bubble era in the late 1980s and early 1990s.

Homes are unlikely to become more affordable, with the yen’s 41 per cent decline over two-and-a-half years and investment yields higher than in some major cities abroad propelling foreigners to buy. While Japan remains small by total transaction value compared with the US, Canada and Australia, it’s now “comparable” to those markets in terms of the number of clients seeking deals, said Mr Gui of SouFun realty.

“Properties in Tokyo are cheap and the returns are relatively high,” said Nomura’s Taniyama. “The quality of buildings is high while investment opportunities are abundant, unlike Singapore or Hong Kong where the number of available properties is limited. In that sense, Tokyo is one of the best destinations for investment.” BLOOMBERG

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