TT-589 -- Where is Real Estate Going? e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, November 7, 2010, Issue No. 589


- What's New
- Short Takes
- News
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback
- News Credits

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Over the last few weeks the news media have been carrying
reports of improved numbers in the housing sector, with
housing starts up 20.5% year-on-year through to August, and
more recently house builder profits turning up as well.
Last week Daiwa House announced that it's first half
profits were up 31% over last year, reversing an earlier
forecast that they'd experience a 34% fall in profit --
making it effectively a 65% improvement, not a bad result.

So are things getting better in the Japanese property
market? It appears that in certain sectors things are
improving, while for the rest of us some sort of stasis has
been reached, whereby buyers and sellers are waiting and
seeing whether the economy is going to improve enough to
see a general trickle-down to everyone else..

The sectors that seem to be doing well in family housing
are owner-occupied homes in major cities, condo's downtown
in the biggest cities -- Tokyo in particular, and rental
housing in and around major stations. Basically, any major
urban area convenient to transport, shopping, and lifestyle
(i.e., parks, foreshore, and other facilities) is starting
to enjoy a resurgence of demand. Yes, this represents a
small sector of the overall home-buying market, but it is
one that people are willing to pay a premium for and thus
gets reported in the news -- which we presume creates a
feel-good factor in the greater market.

The government's tax breaks on mortgage loans and the wide
availability of home loans at low interest are definitely
having an effect, and with loans typically pegged at 5x
annual salary, anyone on a household income of JPY7m-JPY10m
can see how 2.06% interest for 35 years is much
cheaper to get a nice place not far from the city center
than it is to rent. This renewed surge of interest in
owning a new apartment or house is therefore most active
for properties in the JPY35m-JPY70m bracket.

Move above that number, though, the recession is still very
much in evidence. Just go have a look at luxury properties
online, and the same properties stay on the listings
forever -- especially for luxury rentals. This of course
makes sense, because those who can afford it are buying
their own homes, leaving those who can't wanting to live
cheaply. In Tokyo, "high-end" in rental properties means a
place costing more than JPY250K per month.

[Continued below...]

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[...Article continues]

This upper-end situation isn't going to change until company
presidents of domestic firms start making money again,
and/or the stock market picks up for smaller firms and thus
puts more capital gains in to the pockets of management and
staff who own shares. And that isn't going to happen until
the Japanese government figures out how to get money to
small, promising innovators instead of doling out long-term
loans to 50-year old zombie firms that keep the
unemployment rates down but not much more. :-)

We're not in the commercial real estate business, but since
we are in business and talk to other business people
(foreigners and Japanese) about their office move plans,
from what we can tell the commercial property situation is
quite different to private housing. It is still very
depressed and will be getting worse before it gets better.
While 20% of Japan's companies are making money from exports
and are consequently signing up for tony new buildings
(although most are not necessarily expanding, they're just
upgrading) in Marunouchi and Nihonbashi, the remaining 80%
of their domestic market-facing colleagues are still in a
deep funk. For this large slice of firms, there are very
few CEOs looking to expand right now.

In fact, we believe that there is still more shakeout to
occur, which will continue for the next 1-2 years as
companies who signed 3- and 5-year rental leases back in
the recovery years of 2005 through 2007 are freed of their
obligations and can start looking for cheaper alternatives.
We mentioned in a previous Terrie's Take that we have been
on a real estate search of our own, and were surprised to
find a large number of properties similar to our's for 25%
to 30% less rent, not including the 6 months rent-free
holiday landlords are still giving to get tenants in.

This bifurcation of the market, with the exporters and some
high-tech firms able to move to high-end buildings while
everyone else pushes further down the market ladder, is
showing up in the real estate market stats. Apparently the
office vacancy rate in September for Tokyo actually fell
slightly to 9.01%, but all the action was in high-end
buildings, and the vacancy rate in smaller and older
buildings is still sinking. Currently the average rent
across Tokyo's five central wards of Chiyoda-ku, Chuo-ku,
Minato-ku, Shinjuku-ku, and Shibuya-ku is JPY17,709/tsubo
(3.3 sq. m.), almost 10% down from the same time last year.

We have heard that there are a number of foreign funds
waiting for distressed property to come on to the market.
These types of properties are special in that the owners
borrowed money from foreign banks who now want their money
back. The much larger bucket of properties owned by
Japanese with Japanese banks' money are simply going to
hang on longer and hope that the market for their assets
comes back again.

It will take another Lehman Shock or perhaps 5-10 years of
deficits similar to the one the government had last year
before the Japanese financial and thus the property markets
will really break. Why 5-10 years? Well, although the
Japanese government is deep in debt, they have one
important ace up their sleeve -- the ability to suck an
extra 10% of the GDP out of the economy by way of increased
consumption tax. This will let them hang on for a while to
come in our opinion...

...The information janitors/



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+++ NEWS

- Trawler ramming leaked on Internet
- 2010 census done
- Major lease companies profits rise
- PET bottle trash export values up
- Samsung handset surpasses 32GB iPhone sales

-> Trawler ramming leaked on Internet

All hell has broken loose in the Japanese government over
who leaked footage of the ramming of a Japanese coast guard
ship by a Chinese trawler subsequently detained for fishing
near the Senkaku islands. The footage was posted Thursday
and was all over the major TV channels and even JR news
screens on the Yamanote by Friday. The release is highly
embarrassing for PM Naoto Kan, who obviously has been
hoping the ruckus over the incident would die down. ***Ed:
No coincidence, we suppose, that this leak happened just as
all the APEC top dogs were arriving in town? Have to say
that we were extremely surprised to see the footage on
every single JR train carriage for most of Friday.**
(Source: TT commentary from, Nov 6, 2010)

-> 2010 census done

The Ministry of Internal Affairs and Communications has
announced that the 2010 Population Census of Japan
conducted on October 1 is now officially completed. The
Ministry reckons that the census was a success, partly
because it offered on a trial basis (in Tokyo only) the
option of completing the census on its website. Apparently
8.4% of all households chose this method of submission,
much more than originally expected. The first results of
the census are due out in February 2011, with full data
available in October 2011. (Source: TT commentary from press release, Oct, 2010)

-> Major lease companies profits rise

Fewer corporate bankruptcies in the first half of this
year, coupled with lower interest rates and companies
wanting to conserve cash outflows, has contributed to a
major increase in leasing activity in Japan, and has meant
higher profits for the seven major listed companies in the
leasing sector. Fuyo General and NEC Capital apparently saw
profit increases of more than 100% each, while the others
all had double-digit increases. (Source: TT commentary from
Nov 5, 2010)

-> PET bottle trash export values up

Recycling used PET bottles is becoming quite lucrative,
thanks to the high demand for PET materials by Chinese
plastics firms. Apparently the per ton rates for used PET
bottles, once filling land fills in Japan, is now
JPY55,000/ton, about 2-3 times the price of a year ago and
the highest price since exports of such trash began four
years ago. In case you were wondering, Japan exported
218,550 tons of used plastic bottles to China in the first 9
months of this year. (Source: TT commentary from, Oct 30, 2010)

-> Samsung handset surpasses 32GB iPhone sales

Well, that's the headline anyway, and it made an impact on
media around the world -- as punters forecast the early
demise of Apple's dominance in the smart phone market.
However, a little checking shows that Samsung's
Android-powered phone only outsold Apple's leading iPhone
model, the 32GB iPhone. If you added sales of the other
iPhone models together, then Apple is still in the lead.
***Ed: Our take is that Apple will dominate the smart phone
market for another 1-2 years, then from there it will be
all Android, simply because dozens of companies supporting
the Android standard will eventually overwhelm Apple on a
price, performance, and variety basis. But until then,
Apple is likely to keep introducing enough functional
upgrades that it will keep the competitors on their toes.**
(Source: TT commentary from, Nov 4,

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.



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In this section we run comments and corrections submitted
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