Investing Parking Lots in Japan

The scarcity of parking lots in a country where each family owns at least one car, is making investing in parking lots a profitable venture.

It is a well-known fact that the Japanese are city folks, and as a rule, tend to conglomerate into large metropolitan centres. Due to the country’s declining population, and the fact that smaller townships are slowly merging into the larger regional cities, this trend holds true even more in recent years – and as a result, inner city properties tend to be tiny compared to Western standards – with studio units as small as 18, 15 and even 13 square meters being the norm in the most densely populated areas.

Similarly, parking spots are an increasingly rare commodity in the hearts of big cities, and even in well-built suburbs – and since most Japanese families own at least one car, and in many cases two, the purchase, construction and management of parking lots have also become an increasingly popular investment category.

MONTHLY PARKING

While in more suburban areas, owners of vacant lots tend to lease parking spots to nearby building residents for a set monthly fee (in Japan, only a small percentage of larger and newer condominium units come with a parking spot), this type of business doesn’t tend to generate much beyond standard property rental revenues, namely 6-8% net pre-tax at best. There are several distinct advantages in this type of investment, as opposed to more traditional residential property leasing, however –

  1.  Owning land, as opposed to a single condominium unit in a residential block, carries with it a far higher appreciation potential. And, while capital growth in Japan is far from a given reality, considering the last two decades of deflation and property price drops – if the last 4 or 5 years are anything to go by, this deflationary period may have come to an end – and so, the potential for appreciation can play a major factor in property purchase and utilisation decisions.
  2. The other common ways of utilising land plots in Japan – namely, construction of houses or unit blocks – are far more costly than simply leasing (or paving and leasing) the land as a parking lot.
  3. Similarly, maintenance of houses and unit blocks can be an unpredictable and costly affair – whereas leasing parts of a land area for parking purposes is virtually maintenancefree – and the only labour or expense involved is collection of monthly payments from renters, or the placement of a few signboards advertising spaces for lease when these become available.

HOURLY PARKING 

Hourly parking, particularly in central areas of larger cities, on the other hand, can be a far more profitable business venture – and although it naturally requires more initial capital and monthly management, the rewards can be far higher than other types of property investment.

We spoke to Akira Katsuno (katsuno-lanation@road.ocn.ne.jp), senior managing director of “La Nation Co”, whose company provides asset management services in Fukuoka city which is one of Japan’s hottest property investment spots renowned nationwide for its vibrant startup and entrepreneurship-oriented environment and local governance. Mr Katsuno’s firm facilitates hourly parking lot construction, setup and management services through their network of local partners, and is one of the few companies which can also provide services in English and French – a rarity in Japan.

SETUP & MAINTENANCE COSTS

According to La Nation’s information, the initial setup and installation of parking facilities greatly depends on the size of the land plot – and in general, a small, ground level parking lot of up to 10 cars, would most likely generate a small profit, just over operating expenses and annual property taxation – unless capital appreciation of the land itself takes place during the investment’s lifecycle.

On average, each car spot requires 12.5 square meters, hence a 100 square-meter plot of land would be able to hold 8 such spots at most. A multistorey parking structure on the other hand can double or triple the capacity.

Smaller lots would normally involve a metal/rubber “flap” mechanism for each parking spot, as well as an automatic payment booth – the flap rises, locking the car in place, once it is parked over it – and is lowered once payment is made, allowing the driver to leave the premises within a set period of minutes after payment. The installation price for these flap spots is 150-250,000 JPY (1,400 – 2,300 USD at current rates) per parking spot installed.

For larger parking areas involving a larger land plot, or vertical structures with several parking floors, a more cost-efficient solution is the traditional entry/exit gate and automatic ticketing and payment booth system, which would cost between 1-3 million JPY (9,000-27,000 USD at current rates) to install. The companies installing these systems can also include construction or paving in their offers, at discounted rates.

Management costs vary, depending on how often the collection machines require emptying, and how many technical or operational issues occur on a monthly basis, but as a rule, tend to be anywhere between 30,000 JPY per month for the smaller 8 or 10 spot lots, and all the way up to 3,000,000 JPY per month for the bigger multistorey or large land complexes, which can hold hundreds of vehicles at full capacity.

REVENUE & PROFIT

Central areas in major cities, where legal parking spots are almost never free, even in shopping centres, for longer than 15 minutes on average, command a whopping 200-300 JPY per half hour, and enjoy a rate of 50% capacity utilisation (meaning, are occupied for 12 hours out of every 24).

This means that even a small, eightcar lot, can provide revenue of over 1 million JPY per month, assuming an attractive, central location. Of course, land is expensive in these areas, which is why, again, a multistorey parking structure is highly recommended, if one is to command higher monthly yields that would justify the investment beyond the potential for capital growth.

If such a land plot can be found at a bargain price, however, or if such a multistorey structure is constructed onsite, hourly parking lots in Japan can be a hugely profitable venture. Similar to other property investment scenarios, it is completely open to foreigners, including those who do not reside in Japan, without any licensing or visa equirements whatsoever.

Ziv Nakajima-Magen is Partner & Executive Manager, Asia-Pacific, Nippon Tradings International (NTI), which specialises in assisting investors in capitalising on Japan’s vast property market. He can be contacted at: info@nippontradings.com or +81 92 600 1613 . www.nippontradings.com

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