COUNTRY ANALYSIS OF JAPAN

February 6

2014

The country Analysis of Japan, What are the economical and geographical factors. And which business will be suitable for the county

EDIM Assignment PROF. JENNY SABU PULIKEN

Submitted By: WILSON D ARANJO PRN: 12092 PGDM: MARKETING (2012-2014)

Business of Real Estate In Japan

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INTRODUCTION:-JAPAN
BACKGROUND: In 1603, after decades of civil warfare, the Tokugawa shogunate (a military-led, dynastic government) ushered in a long period of relative political stability and isolation from foreign influence. For more than two centuries this policy enabled Japan to enjoy a flowering of its indigenous culture. Japan opened its ports after signing the Treaty of Kanagawa with the US in 1854 and began to intensively modernize and industrialize. During the late 19th and early 20th centuries, Japan became a regional power that was able to defeat the forces of both China and Russia. It occupied Korea, Formosa (Taiwan), and southern Sakhalin Island. In 1931-32 Japan occupied Manchuria, and in 1937 it launched a full-scale invasion of China. Japan attacked US forces in 1941 - triggering America's entry into World War II - and soon occupied much of East and Southeast Asia. After its defeat in World War II, Japan recovered to become an economic power and an ally of the US. While the emperor retains his throne as a symbol of national unity, elected politicians hold actual decision-making power. Following three decades of unprecedented growth, Japan's economy experienced a major slowdown starting in the 1990s, but the country remains a major economic power. In March 2011, Japan's strongest-ever earthquake, and an accompanying tsunami, devastated the northeast part of Honshu island, killing thousands and damaging several nuclear power plants. The catastrophe hobbled the country's economy and its energy infrastructure, and tested its ability to deal with humanitarian disasters.

GEOGRAPHY: JAPAN
Location: Eastern Asia, island chain between the North Pacific Ocean and the Sea of Japan, east of the Korean Peninsula Area: Total: 377,915 sq. km Country comparison to the world: 62 Land: 364,485 sq. km Water: 13,430 sq. km Note: includes Bonin Islands (Ogasawara-gunto), Daito-shoto, Minami-jima, Okino-tori-shima, Ryukyu Islands (Nansei-shoto), and Volcano Islands (Kazan-retto)
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Area - comparative: Slightly smaller than California Climate: Varies from tropical in south to cool temperate in north Natural resources: Negligible mineral resources, fish Note: with virtually no energy natural resources, Japan is the world's largest importer of coal and liquefied natural gas, as well as the second largest importer of oil Land use: Arable land: 11.26% Permanent crops: 0.81% Other: 87.93% (2011) Natural hazards: Many dormant and some active volcanoes; about 1,500 seismic occurrences (mostly tremors but occasional severe earthquakes) every year; tsunamis; typhoons volcanism: both Unzen (elev. 1,500 m) and Sakura-jima (elev. 1,117 m), which lies near the densely populated city of Kagoshima, have been deemed Decade Volcanoes by the International Association of Volcanology and Chemistry of the Earth's Interior, worthy of study due to their explosive history and close proximity to human populations; other notable historically active volcanoes include Asama, Honshu Island's most active volcano, Aso, Bandai, Fuji, Iwo-Jima, Kikai, Kirishima, Komaga-take, Oshima, Suwanosejima, Tokachi, Yake-dake, and Usu Environment - current issues: air pollution from power plant emissions results in acid rain; acidification of lakes and reservoirs degrading water quality and threatening aquatic life; Japan is one of the largest consumers of fish and tropical timber, contributing to the depletion of these resources in Asia and elsewhere

Real estate in Japan

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GOVERNMENT: JAPAN
Strategic location in northeast Asia Government type: A parliamentary government with a constitutional monarchy Capital: Name: Tokyo Geographic coordinates: 35 41 N, 139 45 E Time difference: UTC+9 (14 hours ahead of Washington, DC during Standard Time) Legal system: Civil law system based on German model; system also reflects Anglo-American influence and Japanese traditions; judicial review of legislative acts in the Supreme Court

ECONOMY: JAPAN
Economy - overview: In the years following World War II, government-industry cooperation, a strong work ethic, mastery of high technology, and a comparatively small defense allocation (1% of GDP) helped Japan develop a technologically advanced economy. Japan's industrial sector is heavily dependent on imported raw materials and fuels For three decades, overall real economic growth had been spectacular - a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Modest economic growth continued after 2000, but the economy has fallen into recession three times since 2008. A sharp downturn in business investment and global demand for Japan's exports in late 2008 pushed Japan into recession. Government stimulus spending helped the economy recover in late 2009 and 2010, but the economy contracted again in 2011 as the massive 9.0 magnitude earthquake and the ensuing tsunami in March disrupted manufacturing. The economy has largely recovered in the two years since the disaster, but reconstruction in the Tohoku region has been uneven. Newly-elected Prime Minister Shinzo ABE has declared the economy his government's top priority; he has pledged to reconsider his predecessor's plan to permanently close nuclear power plants and is pursuing an economic revitalization agenda of fiscal stimulus and regulatory reform and has said he will press the Bank of Japan to loosen monetary policy. Measured on purchasing power parity (PPP) basis that adjusts for price
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[COUNTRY ANALYSIS OF JAPAN] February 6, 2014 differences, Japan in 2012 stood as the fourth-largest economy in the world after second-place China, which surpassed Japan in 2001, and third-place India, which edged out Japan in 2012. The new government will continue a longstanding debate on restructuring the economy and reining in Japan's huge government debt, which exceeds 200% of GDP. Persistent deflation, reliance on exports to drive growth, and an aging and shrinking population are other major long-term challenges for the economy.

GDP (purchasing power parity): $4.576 trillion (2012 est.) country comparison to the world: 5 $4.488 trillion (2011 est.) $4.514 trillion (2010 est.) Note: data are in 2012 US dollars GDP - composition, by end use: Household consumption: 60.9% Government consumption: 20.5% Investment in fixed capital: 21.2% Investment in inventories: -0.6% Exports of goods and services: 14.7% Imports of goods and services: -16.6% (2012 est.) Agriculture - products: Rice, sugar beets, vegetables, fruit; pork, poultry, dairy products, eggs; fish Industries: Among world's largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods.

Real estate in Japan

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Unemployment rate: 4.4% (2012 est.) country comparison to the world: 38 4.6% (2011 est.) Population below poverty line: 16% (2010) Taxes and other revenues: 33.8% of GDP (2012 est.) Country comparison to the world: 73 Inflation rate (consumer prices): 0% (2012 est.) Country comparison to the world: 4 -0.3% (2011 est.) Exports - commodities: Motor vehicles 13.6%; semiconductors 6.2%; iron and steel products 5.5%; auto parts 4.6%; plastic materials 3.5%; power generating machinery 3.5% Imports - commodities: petroleum 15.5%; liquid natural gas 5.7%; clothing 3.9%; semiconductors 3.5%; coal 3.5%; audio and visual apparatus 2.7% (2011 est.) https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html

Real estate in Japan

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A KEEN EYE FOR REAL ESTATE

As Japanese corporate sentiment gets a boost from "Abenomics" the country's sluggish property market is showing signs of life, with office prices in Tokyo expected to surge 10 percent over the next 18 months, according to one of the world's largest real estate funds. AXA Real Estate, the property arm of Europe's second largest insurer that has 45 billion euros ($59 billion) of assets under management, is now looking at buying office space in Tokyo, says its global head of Asia Frank Khoo. He forecasts higher demand for commercial property in the coming months stemming from an improvement in corporate profitability in Japan. "The weak yen is going to help the exporters and smaller manufacturers as well; this should lift confidence and translate into higher demand. With higher demand we should see vacancy coming down and rentals going up," Khoo said. "Companies are going to use current low rental rates to move from outer Tokyo into inner Tokyo for better quality buildings [in turn pushing rentals up]," he added. He forecasts vacancy rates will fall to 4 percent in 2014 from 8 percent currently, adding that office rents, which have largely remained flat for the past three years, will climb 1-2 percent this year and 2-4 percent next year. Tokyo's central business district is currently ranked the world's fifth most expensive market to rent office space in, according to global real estate services firm Cushman and Wakefield, down from third place in 2012. Investors have flocked into Japanese real estate investment trusts (REITs) in recent months on hopes "Abenomics" - or Prime Minister Shinzo Abe's economic revival plan that pushes for both monetary and fiscal stimulus - would drive a recovery in the property market. Shares of REITs including Japan Real Estate Investment and Nippon Building Fund have surged more than 50 percent year to date.
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[COUNTRY ANALYSIS OF JAPAN] February 6, 2014 "The REITs are back in the market acquiring assets," Khoo said. In further evidence of rising optimism over the property sector, Japan's Nippon Prologis REIT, which owns and manages warehouses across the country, raised $1.08 billion through an initial public offering in February after pricing the stock at the top of the range. Khoo added that with Japanese government bond yields look set to remain low, there has been a shift in attitude towards investing in property among both institutional and retail investors. "If you look at the mom and pops, they are really hungry for yield. With 10-year Japanese government bonds below 0.6 percent, if you can get a 4 percent yield in commercial real estate, or 3.5 percent investing in a Japanese REIT, I think money will go that way," he said. Original Source URL: http://www.cnbc.com/id/100687192

INVESTMENT REQUIRED
Investing in Japanese real estate is better here on a cash flow basis than other countries. Basically what this means is you buy a property, find a renter and your expected yield should be net 8% to make it a worthy investment. If youre able to borrow 100% of the purchase price from a bank, then you basically own a property and get 8% cash in your bank at the end of every month using none of your own capital. Buy a building with many units and it spreads out your vacancy risk as an investor thanks to volume. Japanese tenants are moving from the rural areas into the suburban areas surrounding Tokyo. In adjacent areas like Saitama, Chiba and Kanagawa prefectures, there are many opportunities to purchase high cash flow producing real estate that can rent to tenants for under JPY 100,000.

REASON I CHOOSE THIS OPPORTUNITY

After almost two years of house price falls, Japans housing market is now gaining momentum, mainly due to the economic policies of Prime Minister Shinzo Abe, who came to power in December 2012. These economic policies, which are now affectionately referred to as Abenomics, include increasing public infrastructure spending, devaluation of the yen and aggressive quantitative easing by the Bank of Japan (BOJ).

Real estate in Japan

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In Tokyo Metropolitan Area:

The average price of new condominium units soared by 9.2% y-o-y to JPY686,000 (US$6,931) per square meter (sq. m.) in June 2013, based on figures released by the Land Institute of Japan (LIJ). The average price of existing condominium units rose by 5.9% to JPY399,700 (US$4,039) per sq. m. during the year to June 2013. The average price of existing detached houses was up by 1.5% to JPY32,130,000 (US$324,644) over the same period.

In Osaka Metropolitan Area:

The average price of new condominium units rose by 8.8% to JPY542,000 (US$5,476) per sq. m. during the year to June 2013. The average price of existing condominium units increased by 5% to JPY250,000 (US$2,526) per sq. m. over the same period. The average price of existing detached houses was down by just 0.5% to JPY20,000,000 (US$202,081) over the same period.

Land prices are also rising. During the year to June 2013, the average price of land in Tokyo Metropolitan Area rose by 5.2% to JPY204,500 (US$2,066) per sq. m., while in Osaka Metropolitan Area the average land price increased by 2.3% to JPY132,000 (US$1,334) per sq. m. Residential construction activity is picking up. The number of new dwelling starts in Japan increased by 8.6% to 451,063 during the first half of 2013, compared to the same period last year, according to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT). Property sales are rising sharply. In Tokyo, the total number of condos sold rose 16.7% to 19,070 during the first half of 2013 compared to the same period last year, according to LIJ. In Osaka, the number of condos sold rose by 14.4% to 8,758 over the same period. Total outstanding real estate loans in Japan increased 2.6% y-o-y to JPY444 trillion (US$44.86 trillion) in Q1 2013, according to the Bank of Japan (BOJ).

Real estate in Japan

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House prices are expected to continue to rising in the remaining months of 2013, according to local property experts. Moreover, Tokyos successful bid to host the 2020 Summer Olympics is expected to boost property demand and the construction sector during the next 7 years. The international rating agency, Moodys, has recently revised the outlook on the countrys real estate sector from negative to stable. The Japanese economy grew by an annualized rate of 3.8% in Q1 and Q2 2013. The economy is expected to expand by about 2.8% for the whole year of 2013, up from a 2% in 2012 and a 0.6% contraction in 2011. Analysis of japan Residential Property Market Yields continue to rise in Tokyo Rental yields in Tokyos five central wards have continued to increase. Its a trend we spotted last year, and it is strengthening. Yields in Tokyo range from 5.12% to 6.47%. Theyre a little higher on smaller apartments, but not much. Not bad for a city like Tokyo. Prices per square metre range from around $9,300 to $12,700 down on last year because the Yen has fallen. Expensive, but that is what global cities cost. In Yen terms residential prices continue to strengthen. Thats likely to continue so long as Abenomics is in place. More money in the system means lower interest rates means increasing asset prices, especially prices of assets that produce nice incomes, like Tokyo property.

Real estate in Japan

[COUNTRY ANALYSIS OF JAPAN] February 6, 2014 This is going to be interesting. Assuming that Abenomics really leads to a revival of the Japanese economy, rising incomes will continue to support rising rents. Looking good for Japanese residential property! Effective rental income tax is low in Japan Rental Income: Rental income of nonresident individuals is subject to 10% tax. However, effective rental income tax is low, ranging from 3.4% to 5.9%. Nonresident taxpayers are taxed on their net income; depreciation and income-generating expenses such as maintenance and repairs are deductible from the gross rent. Capital Gains: Net gains realized from selling short-term real properties, i.e. property held for less than 5 years, are taxed at 30%. Net gains on property held beyond five years are taxed at 15%. Inheritance: Inheritance is based on residency status but foreign individuals inheriting property located in Japan are still subject to inheritance tax, which is levied at progressive rates. Residents: A permanent resident taxed on his worldwide income at progressive rates, from 5% to 40%. Moderate roundtrip buying costs in Japan The total roundtrip transaction cost is around 9.26% to 9.45%, inclusive of the 3.15% agents fee plus an additional payment of JPY63,000 (US$682). The acquisition tax differs for land and buildings at 1.50% and 3%, respectively. Japanese landlords get key money Tenancy laws passed in 2000 shifted the balance of power from tenants to landlords, making Japan strongly pro-landlord.
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Rents: Rents are freely negotiable. Aside from two to three months security deposit, landlords receive key money worth one to two months rent. Tenant Eviction: Automatic renewals of leases were abolished in 2000, making eviction easier. If the tenant prematurely ends the contract the landlord can charge one months rent. Healthy economic growth in 2013 Japan is the worlds third largest economy, a major aid donor and one of the primary sources of global capital and credit, with a population of 127.6 million in 2012 and GDP per capita of US$46,736. The country is the worlds fourth largest exporter and fourth largest importer, and has the worlds largest electronics industry. From 2000 to 2007, the Japanese economy grew by an average of 1.5% annually. However due to the global financial meltdown, the economy contracted by 1% in 2008 and by another 5.5% in 2009. The economy returned to growth in 2010 with real GDP growth of 4.7%. Then Japanese growth contracted again, shrinking by 0.6% in 2011 due to the impact of the Great Tohoku Earthquake (magnitude 9.0) last March 11, 2011. In addition the economic slowdown in China, Japans largest export market, exacerbated the situation. Then theres the anti-Japanese feeling in China sparked by the dispute over Diaoyu/Senkaku Islands. In 2012, the economy had GDP growth of 2%. The Japanese economy is projected to grow robustly in the coming years mainly due to the economic policies advocated by Prime Minister Shinzo Abe, who came into power in December 2012. These economic policies, which are now widely referred to as Abenomics, include the following:

Inflation targeting at 2% Correction of the excessive appreciation of the yen Setting negative interest rates Radical quantitative easing Expansion of public investment
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Buying operations of construction bonds by Bank of Japan Revision of the Bank of Japan Act

Robert Feldman, head of Japan economic research at the Morgan Stanley, projects that the Olympic Games will add around 0.7% to 0.8% of GDP over 7 years. The Japanese economy grew by an annualized rate of 3.8% in both Q1 and Q2 2013. The economy is expected to expand by about 2.8% for the whole year of 2013. In July 2013, the nationwide annual inflation rate rose to 0.7% from a year earlier, its second consecutive month of gains and the largest increase in consumer prices in five years, mainly due to increased manufacturing. Consumer prices have continuously fallen in the past four years, with annual inflation rates of -1.3% in 2009, -0.7% in 2010, -0.3% in 2011 and -0.04% in 2012, according to the International Monetary Fund (IMF). Because of Prime Minister Shinzo Abes efforts to correct the excessive appreciation of the yen, the domestic currency weaken sharply to JPY97.82 = US$1 in August 2013. Abes decision immediately reaped rewards when exports increased by 10.1% in May 2013 from the same period last year, the fastest annual rise since 2010, based on figures from the Ministry of Finance. However, Japans trade deficit is growing, mainly due to the weaker yen and the countrys soaring energy import bill. In August 2013, the countrys trade deficit ballooned to JPY969.9 billion (US$9.8 billion). http://www.globalpropertyguide.com/Asia/japan

DEMAND
Housing demand and housing prices in Japan. Chihiro Shimizu, Reitaku University Japan has experienced the housing bubbles and subsequent collapses of the bubbles in succession. The house price in Japan continued to decline for 20 years after the collapse of bubbles. The one of reasons for this, housing demand based on population had dropped at the same period. We focused on the relationship between the demand for houses and house prices based the panel data in Japan. Shimizu and Watanabe (2010) indicated that there is no significant relationship between the demand for houses and house prices in Japan. In this sense, it is hard to explain whether there is a bubble and the size of the bubble according to prefecture (state) using demand elements. This suggests that it is possible that the concept of demographics having an impact on the demand for houses, which thus caused the house prices to increase, is not effective in explaining the price
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[COUNTRY ANALYSIS OF JAPAN] February 6, 2014 fluctuations in neither Japan nor the US. Is it correct or reasonable result? The purpose of this paper develops several housing population-based demand factors and focus on the relationship between these demand factors and housing prices on Japan.

COMPETITION
AD Works Co Ltd A.D. Works Co., Ltd. operates real estate business and provides due diligence services that evaluate values of real estate properties. The company also provides support businesses for real estate investment funds. Aeon Mall Co Ltd (8905) AEON Mall Co., Ltd. develops, manages, and maintains large-scale shopping malls throughout Japan. The Company develops shopping malls, rent the space, manages and maintains the shopping malls. Apamanshop Holdings Co Ltd (8889) Apamanshop Holdings Co., Ltd. maintains a real estate properties database and provides real estate agency services and information services through its franchises. The Company also publishes magazines for rental properties. In addition, Apamanshop Holdings leases and manages real estate properties. Ardepro Co Ltd (8925) ARDEPRO CO.,Ltd. sells, leases, and manages real estate properties. The Company also provides consulting services on real estate. Area Quest Inc (8912) Area Quest Inc. provides property management services on behalf of property owners. The Company also attracts and negotiates with new tenants for the owners. Area Quest also provides a total business solution, such as marketing activities and leasing contract by coordinating business outsourced mainly by tenant companies. Arealink Co Ltd (8914) ArealinkCo., Ltd. provides real estate leasing services. The Company also operates real estate businesses including storage and parking space rental. Arealink also develops and constructs custom-made and rental buildings. http://www.bloomberg.com/markets/companies/real-estate-mgmnt-servic/
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REFERENCES

https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html

http://www.cnbc.com/id/100687192

http://www.globalpropertyguide.com/Asia/japan

http://www.bloomberg.com/markets/companies/real-estate-mgmnt-servic/

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