Japan – Land of the Rising Sun

Located in the Pacific Ocean, Japan stretches from the Sea of Okhotsk in the north to the East China Sea in the south. Known as the "Land of the Rising Sun", the country has more than three thousand islands. Most of the islands are mountainous. The Greater Tokyo Area is the world’s largest metropolitan area.

Mastery over high-end technology and a motivated workforce has helped Japan to become the second largest economy worldwide, after the US, at around US$4.5 trillion in terms of nominal GDP.

More property deals point to price recovery

Evidence of rising property transactions in Japan, along with indications that the vacancy rates of office buildings in major cities are declining, has bolstered hopes that the five-year-long slump in the nation’s property and land markets is coming to an end.

Tokyo office rents have declined by around 20 per cent on average in central business areas over the past year. This has helped vacancy rates but there also appears to have been some hardening of underlying demand. Land prices declined by 2.5 per cent in the year to July - the fifth consecutive year of decline. The fall in commercial land values was 6.9 per cent and that in residential values 1.3 per cent with the heaviest falls seen in major cities.

These price declines appear to be giving rise to an increase in land transactions. Although this has yet to show up in official statistics, there is evidence in Tokyo that plots which have been vacant for many years are now being developed, in some cases with residential buildings rather than the commercial buildings they were reserved for.

Rising investment by foreigners

Foreign investment in Japan’s commercial property market has increased by more than 300% as low interest rates have created feasible money-making scenario. The lowest interest rates in the world have offered investors with a healthy yield spread.

Most of the foreign investment has taken place in prime "class A" office property in Japan’s largest cities. These high-rise buildings are attractive property targets because high demand from renters have driven the occupancy rates. Cap rates on Super Class A office buildings in Marunouchi - most desirable office property in central Tokyo – are up 3.6-3.8%.

The influx of foreign and Japanese investment has pushed commercial land rates in Tokyo, Osaka and Nagoya by almost 9%.

Buying Process

The Japanese regulatory framework has no legal restrictions on foreigners buying property in Japan. The process begins with the selection of property and then private surveys may be conducted.

A real estate agent is usually hired by foreign investors. The agent can also act as the buyer’s translator.

The real estate agent drafts a Juyoujikou- Setsumeisho (same as a Property Disclosure Statement or Seller’s Real Property Disclosure Statement). This is followed by a purchase draft.

Then the buyer pays a 10% deposit to the seller. The title is transferred to the buyer and both parties get certificates of seal impressions. Apart from this, government fees and taxes have to be paid to register the deed.

Paying the balance amount marks the closure of the deal. The whole process is usually completed in about 14 days.

Conclusion

The tightening supply of office accommodation points to a firming market. It will require only a few transactions confirming a recovery in commercial land values to set higher implied values on the remainder of the land stock.

Local and foreign business corporations in Japan have been taking advantage of relatively low post-bubble economy office rents to consolidate their scattered operations into large blocks in prime areas.

For more information on buying property in Japan take a look at these resources:

http://www.overseaspropertymall.com/regions/south-east-asia-property/japan-property/is-it-time-for-japanese-real-estate/
http://www.overseaspropertymall.com/research/going-up-real-estate-is-on-the-rise-again-in-japan/
http://www.moneyweek.com/file/20244/a-bull-market-in-property-is-just-beginning—but-where.html
http://www.jref.com/practical/property.shtml
http://japanrealestate.blogspot.com/

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