Delphi Network Salon (location details below intro)
Title: The Strange Charm of Japanese Residential Real Estate
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Please note places are limited. DN members get guaranteed access, so unfortunately it may not always be possible to seat Non-DN members.
Speaker: Erik Oskamp President Akasaka Real Estate
Description: Erik Oskamp is a master entrepreneur, businessman and tech specialist. After many years in banking, the GFC forced him to look elsewhere for the lavish rewards he was accustomed to… Strangely at first glance, he chose Japanese residential real estate. He has become an expert in navigating the murky waters of this particular sector and will demonstrate how Japanese blind spots can lead cunning foreign investors to make exceptional returns by international standards. At one point, Erik was the biggest Air B&N operator in japan. He is a colourful and engaging speaker, and one of the sharpest business people I have encountered. His profile is here: https://www.linkedin.com/in/erikoskamp/ This Salon complements our previous Salon with John Cook on corporate real estate.
Tokyo’s real estate is surging. But for how long? And is it a good thing?
The Tokyo residential real estate market is “normalizing” after many decades as the sick man of Asia.
Savvy investors like Erik have long recognized that since the burst of the bubble in 1991, Tokyo has been a “high yield play”, that is, the city is a landlord’s market in terms of charging high rent, even if the property acquires negative value over the course of its expected 25 year life. Despite collapsing asset prices, tenants have had to pay the highest deposits and fees in the world, even when renewing the lease.
However, an underappreciated fact is that residential real estate has doubled in value in Shinjuku for example, in less than 10 years. This is is still far behind other global cities but buyers are taking out maximum mortgages in response to what is perceived as an investment opportunity. On the other side, monetary policy known as “quantitative easing” has encouraged banks to massively grow the home loan books.
It’s not clear how long the government will allow this rapid appreciation to continue. Stable prices have many advantages. Central Tokyo is still socially mixed, as opposed to the preserve of the super rich. The contrast to unhappy Hong Kong is clear: less than 25% of Hong Kong’s land is used for residential, and the severely rationed supply is dominated by collusion between the property barons and the government. Impoverished local have to wait 5 years for a spot in social housing.
The Japanese government achieved its happy outcome (in response to the high prices of the bubble era, during which Tokyo’s real estate was worth more than the whole of the United States’) by passing the Urban Renaissance Special Measure Law in 2002. This ingenious measure did not increase the supply of land. Rather, it made it easier to develop existing land.
Under the new law, zoning and other issues were placed under the aegis of the central rather than the local government. This prevented local governments and their real estate cronies from blocking modern, higher, and denser developments for “aesthetic” reasons (as this drives up prices). Consequently, unlike London with its “green belt” and “historical location” racket, ripping down buildings and putting up a mix of far denser residential or business properties is easy in Tokyo.
It’s not surprising therefore that in 2005, Tokyo could boast 110 dwellings per hectare compared to 60 in London. Indeed, Japan’s housing stock is growing at twice the rate of other mega cities like London, Paris and New York. (Surely an excellent reason for Japan’s less envious politics and great social harmony?)
Some argue Tokyo’s rising prices are being supported by demographics: as multi-generation households split, people need more but smaller homes. Seniors increasingly live alone, but so do young and middle aged people. Finally, Tokyo has a magnet effect on the rest of the country: Tokyo’s population is still growing, especially in the central 23 “ku”.
However, none of these issues are important: bubbles always find a good justification.
As mentioned above, the crucial question is how long will the good times roll? There have been recent scandals involving banks (like Suruga) granting loans to hopelessly unqualified borrowers. Japan’s bureaucrats have a long memory: they will never forget the malfeasance that triggered the biggest real estate bust in history.
PM Abe is likely in favour of the apparent wealth created by rising prices, but at some point the bureaucracy (and wiser minds) will surely push back…
Any CEO thinking of a real asset investment should attend this Salon.
Toh Ka Lin Chinese Restaurant
Okura Hotel 2-10-4 Toranomon, Minato Ku
6 Floor, Prestige Tower
03 3505 6068
Google maps: https://g.page/theokuratokyo?share
Cost: 6,000 members; 7,000 non-members.
DN Salons and Summits follow “Chatham House rules”. This means they are off-the-record. Attendees may repeat what they have heard but they should not attribute the comments to any person or company, to avoid embarrassment.
12 noon Doors open, networking and light food