Reason Japanese people do not love real estate; Price for the lost 30 years: ‘Mom taught well to spend all money and not to buy properties’

2021.05.10
Miss Yokoyama said she is not making any investments at the moment
Miss Yokoyama said she is not making any investments at the moment.

Japan is “home” for many people in Hong Kong, with more than 10 million people visiting the country every year, and the authorities had forecasted that the number would reach 33 million by 2020. In addition, property prices were the first to boom after the announcement of the Olympic Games in Tokyo. Unfortunately, the global economy has been in a state of stagnation for more than a year due to the pandemic of the century, and Japan’s economy has been badly hit. The much-anticipated Olympic Games Tokyo 2020 is now rumored to be held behind closed doors, shattering Japan’s dream of economic revival. In fact, Japan had surpassed the U.S. in the 1970s and 1980s in the automobile and semiconductor industries, and became “Japan as Number One” in the world. Regrettably, in the late 80s and early 90s during the Japanese economic bubble, a well-established developer in the Kansai region pointed out that there were only 90 developers left from the peak of 300, and the older generation in Japan encouraged the next generation to spend money rather than to buy a home.

Japan’s greatest moment was when it became the second largest economy in the world. After World War II, the U.S. and Japan signed the “Treaty of Mutual Cooperation and Security between the United States and Japan.” Since then, the U.S. has helped Japan rebuild its economy and purchased large quantities of military supplies, which led to a 20-fold increase in Japan’s export value in the 1960s. Japan switched to a floating exchange rate in the 1970s, encouraging capital to flow to international markets. The average per capita GDP growth rate of Japan in the 1960s and 1970s was over 9%, marking a period of high growth for the country, and by the 1980s, Japan had become the second largest economy in the world.

Unfortunately, in 1985, Japan signed the Plaza Accord with the U.S., the U.K., France, West Germany, etc., intervening in the foreign exchange market, which eventually led to the appreciation of the yen. Thus, the cost of exports increased greatly and directly affected the local manufacturing industry. Worse still, Japan kept lowering interest rates in order to stimulate domestic demand, causing a large amount of capital to flow into the stock and property markets, and land prices in Japanese cities skyrocketed by two folds. In the 1990s, the land price of Tokyo alone was equivalent to the land price of the entire U.S. In the past, it would take the Japanese three generations to pay off a house, but since the bubble exploded, the Japanese economy has sunk for 30 years.

Shinichi Okimura, executive managing director of Japan’s long-standing developer River Industry, said there were originally more than 300 developers in the Kansai region. After the Japanese economic bubble and several world economic crises, Japanese real estate market has been stagnant, coupled with the fact that banks are reluctant to lend to developers and want them to pay back immediately has forced many developers to close down one after another. In addition, Japan’s aging population and low birth rate have led to a decline in demand for home ownership. For these reasons, only 90 more robust developers remain in the Kansai region.

He also pointed out that these large corporations did not only develop real estate business, but also operated elevators, electrical appliances, telecommunications, urban infrastructure, finance, manufacturing industries and so on. They were companies with a market value of more than one trillion yen or about HK$71.1 billion (US$9.1 billion).

Japan’s social climate is risk averse, with the older generation hoping for an ordinary life for their children. As risk aversion continues to grow, the younger generation of Japanese has adopted an avoidant attitude towards housing and financial management as we enter 2021.

Miss Yokoyama, 29, who is a freelance worker, said she is not making any investments at the moment. She also said that she is currently renting a property in Nishi-ku of Osaka City. Rather than paying a monthly rent, she said she would like to buy a home if she has any money left over in the future.

Miss Kimura, 25, a clerk who rents a property in the Sakyo-ku of Kyoto City, said she has no intention of buying a home at the moment and has not made any investment because she has barely enough money to spend. Later, she also said, in the event of marriage, she is prepared to work hard to buy a flat together with her future husband. She agreed that real estate is highly profitable and the property can be liquidated in the future when she reaches old age.

Miss Kimura said in the event of marriage she is prepared to work hard to buy a flat together with her future husband
Miss Kimura said in the event of marriage, she is prepared to work hard to buy a flat together with her future husband.

Mr. Mino, 25, who lives in Kanagawa, is in the real estate-related industry, and he intends to buy a home only when he gets married. If he remains single, he can always rent an apartment, but by the time he is 60 to 70 years old, the pension he receives will be reduced, and it will be very troublesome and taxing to continue renting an apartment. He said he is very interested in investment, but he has no extra money on top of the current cost of living. He also said that he may have to wait until he is 40 to 50 years old to consider getting started.

Mr Mino said he is interested in investment but he has no extra money on top of the current cost of living
Mr. Mino said he is interested in investment, but he has no extra money on top of the current cost of living.

Chief executive officer and founder of Sakura Global Anvy Cheung admitted that there is indeed a group of young people in Japan who live from paycheck to paycheck and do not have a concept of “I should buy a flat” and savings, but they do envy other people who have properties. She also said that the older generation of Japanese people, particularly those who lived through the 1990s and knew too well the pains of the bubble economy when property prices plummeted, would certainly tell their children to spend their money rather than buy properties. When she was selling Japanese properties years ago, many Japanese people ridiculed her for being “stupid.”

Combined with Japanese xenophobia, initially the Japanese did not dare to distribute properties to her for sale, and generally the Japanese only wanted to sell them to local people. Even the more open-minded developers were concerned about whether overseas brokers or overseas buyers would understand the process of buying Japanese properties, and whether the reputation of Japanese companies would be affected by the aftermath.

With the rise of Japan’s tourism industry, Japanese properties are being sought after by many overseas investors. The number of visitors to Japan in 2013 was about 10 million, which rose sharply to 25 million three years later, and the Japanese authorities originally expected the number to hit 33 million in 2020. As for property prices, speculation began after the announcement of the Olympic Games in Japan, of which Hokkaido apartment property prices climbed the sharpest, up nearly 80% at the highest.

Shinichi Okimura said that before the pandemic, about 20% of his company’s properties were purchased by foreigners, most of whom were Chinese. Anvy Cheung also added that property transactions in Japan followed an “8:2 ratio,” meaning that 80% of the transactions came from the local Japanese population and the other 20% were foreigners.

She said that foreign buyers from different regions have different preferences when it comes to buying Japanese properties. For example, Taiwan buyers prefer stand-alone houses with gardens; Hong Kong buyers are investment-oriented, primarily investing in small properties under HK$1 million or small whole block properties over 100 million yen (about HK$7.12 million); and Chinese buyers invest in large units valued between 30 and 40 million yen (about HK$2.13 to $2.85 million). Properties at low, mid and high ranges all have their respective overseas investors.

However, the outbreak of the epidemic at the end of 2019 has impacted the Japanese economy. According to the latest data from the Japanese Ministry of Land, Infrastructure, Transport and Tourism (MLIT) as of January this year, the national property price index moved higher gradually, up 0.085% month-on-month to 117.1. Compared to the worst of 111.9 in June 2020, it has climbed nearly 4.65%.

Anvy Cheung pointed out that the epidemic has led to the closure of many veteran Japanese companies, large enterprises or department stores, and has now bottomed out. Recently, when large-scale premium properties appear, many funds or companies will enter the market to scavenge the goods.

The executive managing director of River Industry Shinichi Okimura L and chief executive officer and founder of Sakura Global Anvy Cheung R
The executive managing director of River Industry Shinichi Okimura (L) and chief executive officer and founder of Sakura Global Anvy Cheung (R)

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