GOOD DEALS IN TOKYO DUE TO SLOWER GROWTH

Q :I read that the pace of growth in Tokyo has slowed considerably particularly for high-end residential properties, with inventory levels on the rise. Has Tokyo property market across all segments peaked and are now on the way down?

A: That’s correct – as noted in our annual summary and predictions article in January. The pace of growth all across Japan has either slowed (in larger metropolitan centres), stopped altogether or, in some places, even slightly reversed itself. This is a result of previous price hikes compressing yields over the last year or two – and without any substantial wage hikes and rent price inflation to accompany this growth, continued price rises are simply not sustainable. This is, in fact, a good thing from an investment perspective, as it prevents a property prices bubble and subsequent sharp correction from occurring – and also brings back the good deals which many of us have been finding harder and harder to source recently.

Whether this is a lasting trend or not is quite difficult to tell with any accuracy, and depends on far too many factors, both domestic and foreign. To hazard an educated guess, generally speaking, the uncertainty created by the US election results and abrupt change of global policies, as well as by Brexit and other European woes, coupled with the upcoming 2020 Olympics, all tend to push prices upwards in the short term.

However, Japan’s shrinking population, which all but negates any GDP growth or re-inflation the Abe administration succeeds in promoting, is a super strong counter-force to this trend – and until the population issue is tackled successfully, either via more lenient immigration policies, increased equality for females and increased family services infrastructure, we are more likely to continue experiencing very tepid growth, if any, in my opinion.

Bottom line – high rental yield in areas with stable or growing population areas continues to be the primary deal evaluation criteria for our clients – with potential growth being the icing on the cake, if and when it occurs.

Fortunately, Japan offers more than enough of that, even more so as property prices stop rising or even slide downwards, as they have been doing in the last year or so.

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