By Jinman Li
Tokyo–A Chinese celebrity venture capitalist, Manzi Xue, who has more than 11 million followers on Weibo, a Chinese social media resembling Twitter, announced in January that he had bought all 11 machiyas on a street of Kyoto to develop a rental lodging business. Machiyas are traditional wooden townhouses popular with Kyoto merchants and craftspeople.
Although Xue’s dramatic announcement triggered a new run of media coverage and public discussion, Chinese purchases of Japanese housing is not a brand new topic.
“Chinese investment in Japanese residential properties has been increasing rapidly since 2013,” said Toru Otaya, associate managing director at Japan Real Estate Institute (JREI), a global research, appraisal and consultation organization. Japan’s success in its 2020 Olympic bid, the recovering economy after the reelection of Shinzo Abe in 2012, and the cheap Japanese yen are identified by Otaya as the major drivers.
According to a survey conducted by JREI based on the expected return rate of the real estate market, Japanese housing prices dipped after the outbreak of the 2008 financial crisis, and the rate of return increased. The market remained dull until 2012 when Abe took office and implemented policies to stimulate the economy. The volume of transactions grew, prices went up, and the rate of return dropped, according to JREI.
Real estate agencies targeting Chinese investors facilitated the resuscitation. Arcion Co., a Tokyo-based corporation made up of Chinese employees, was founded in 2015 and has grown to a 20-person team from the original three-person crew. Its businesses include agent service for leasing and purchase, customized Japan tours, medical examinations and investor immigration.
One of the bases of businesses like Arcion is a solid amount of Chinese overseas students in Japan, who may be faced with difficulties including housing issues. Chinese overseas students accounted for 41.6 percent, the largest contingent, of international students in Japan in 2016, totaling 74,921 persons, according to Project Atlas, a global research initiative based in the U.S.
Another attraction of Japanese residential properties, according to Chengqian Jia, director of Arcion, is the high rental yield and rent to sales ratio compared with some other countries. A comparison of global apartment values and rents compiled by JREI shows that while Tokyo ranked as the eighth highest in the value of high-end condominium units among 14 cities including London, New York, and Hong Kong, it ranked as the fifth highest in rent.
“Although Japan is facing an aging population issue, Tokyo as the largest city in Japan will still have a large influx of people, thus guaranteeing the housing demand,” said Jia.
The reality, however, is less rosy. According to Japan’s Statistics Bureau in the Ministry of Internal Affairs and Communications, by 2013 there were about 8.2 million vacant homes in Japan, 13.5 percent of all residences. Even in Tokyo, the vacancy rate was 11.1 percent. The empty home rate is projected by Nomura Research Institute to reach 30.2 percent by 2033. By comparison, the 2017 rental vacancy rate in the U.S. was only 7.2 percent and the homeowner vacancy rate was a paltry 1.6 percent, according to the Census Bureau.
Apart from the high vacancy rate that may drag down rents and sales, a precipitous depreciation rate is another concern. Guiying Chen, a Chinese woman who studied abroad in Japan starting in 1998, bought a thirdhand apartment of 60 square feet in suburban Tokyo in 2016 for about $111,000. The property, now more than 20 years old, had gone for $652,000 to its original buyer and later about $372,000 to a second buyer.
“Japanese properties depreciate a lot over time, so they are more for living rather than investment,” said Chen.
In December 2016 China’s central bank announced that banks and other financial institutions must to report all same-day cash transactions larger than 50,000 yuan ($7917), a sharp reduction from 200,000 yuan ($31,670) previously. Same-day overseas transactions larger than $10,000 must also be reported. The yearly purchase quota of foreign currencies remains at $50,000.
“The air of China’s tightening regulations on overseas investment has been hovering over the market for a while,” said Otaya. This, together with the surging Japanese yen during 2015 and 2016, contributed to cooling Chinese investment in Japanese properties after the 2013-2014 heat, according to Otaya.
Jia, however, views it in a different way. “When people sense the uncertainty of policy, they tend to send their money to a more secure place in order to spread the risks,” Jia said. The transaction volume of Arcion’s real estate investment business in 2017 doubled in number in 2016, with expectations to go higher this year.
Waitou jia (which means overseas investors), a Chinese company that offers online Japanese property investment courses, appraises properties and connects clients with Japanese property agents, also saw its business growing after it was founded in February 2017. By the end of November it had assisted more than 200 Chinese investors to make transactions.
The founder, Shuimei, who is also the founder of ichangtou.com, a website that focuses on investor training and networking, traveled in Japan and subsequently published several articles on Japanese properties on social media. Unexpectedly, the articles went popular, which led to the new company’s formation.
Apart from conventional rentals, Bobo, on the operations staff at Waitou jia, said that many investors also employ the properties for private lodging.
“Private lodging facilities investment not only grew in the recent two years but also changed in form, from investing in single apartments to a whole apartment building,” said Jia, who also said that the number of transactions in private lodging facilities during the past nearly three months in 2018 has already equalled the transactions of the whole year 2017.
The upcoming 2020 Olympics are a definite boost to the industry. The number of inbound tourists has more than doubled after Japan won the Olympic bid, from 10.4 million in 2013 to 28.7 million in 2017, according to data compiled by Japan Real Estate Institute.
Meanwhile, the hotel room occupancy rate in several big cities including Tokyo and Osaka reached 80 percent in October 2017, according to Japan Tourism Agency.
Private lodging is a controversial issue in Japan, as residents harbor concerns that their living environment will be interrupted or even threatened. According to a 2016 survey conducted by JustSystems, a computer software provider, more than half of the respondents don’t like the idea that their neighbors run private lodging.
To balance the demand for housing more inbound visitors with those dissenting voices, the Japanese government introduced legislation in 2017 to set rules on private lodging. Owners now are allowed to offer their residences as fee-charging accommodation facilities for visitors only after getting permission and operating no more than 180 days per year.