Wednesday 16 August 2017

Chinese property spree moves from Australia and North America to Japan, as buyers put their cash to work

An aerial view of Tokyo. Chinese buyers are looking to snap up Japanese property
An aerial view of Tokyo. Chinese buyers are looking to snap up Japanese property

Kathleen Chu

The trend has already hit Sydney, Vancouver and the 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 organizing 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 11pc over two years, according to the Real Estate Economic Institute Co.

"The demand is like water exploding up from a well," said Zhou Yinan, an Osaka-based agent at Chinese brokerage SouFun Holdings Ltd., who said his mainland buyers are about 20pc 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.

"There are so many Chinese buyers recently," said Song Zhiyan, a broker at BestOne Co. 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, Song said.

Demand is so strong that some developers have put a quota on the number of new apartments sold to foreigners, said Kenny Ho, Tokyo-based managing director at Sinyi Realty Inc., a Taiwanese brokerage with outlets in Japan. Some developers won't sell more than 20pc 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 foreigners, that may affect the quality of the living environment."

Japan's sluggish economy caused price gains in Tokyo to trail those in other urban centers 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 $28.6bn 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$60bn (€41bn) in the six years to 2020, Credit Suisse estimates.

In Japan, sales to Chinese and Taiwan buyers jumped 70pc in the first three months of the year from the year- earlier period, or 11.1 billion yen (€81m) 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 Lin Huan, a 35-year programmer from China's northeast 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 $203,000. After recently relocating to Tokyo to work for an technology company, she noticed the weaker yen was making properties cheaper. She expects to make a 5pc return on the rent annually, whereas property in Beijing yields just 2pc.

Chinese buyers are typically purchasing in the 1 million to 2 million yuan bracket, a range "tolerable to many Chinese," said Gui Liangjing, SouFun's international sales director in Beijing.

It's not as tolerable to Japanese. Prices in Tokyo have become "seriously unaffordable," the annual Demographia International Housing Affordability Survey shows. The percencage of Japanese in the seven biggest cities who wanted to buy a home dropped to 15.4pc in December, the lowest level since Recruit Sumai Co. started surveying two years ago. Even though it rose to 18pc 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 yen, or $434,680, in April, according to the Real Estate Economic Institute. It's HK$8.4 million (€890,000) for a 600-square- foot apartment on Hong Kong Island, according to calculations based on government records, and $554,200 for homes in New York, according to Zillow.

"Prices have risen while incomes and rents remain the same," said Tomohiko Taniyama, a senior researcher at Nomura Research Institute Ltd. "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 41pc 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 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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