Australian companies buying up Japan

Australian companies dealing with Japanese markets

by Steven Fairbrother of JETRO

Japanese real estate has a well-established reputation as being among the most expensive in the world. Yet Australian property developers like Rubicon, Challenger, Galileo, Allco Finance Group, Mariner Financial and more are challenging this reputation and making business headlines as they seize upon bargains in the Japanese property market.
The notion that Japanﾕs property market is overly expensive was borne from the bubble years of the 1980s, as prices were forced skyward due to massive amounts of capital being recklessly poured into real estate.
As the bubble burst in the early 1990s, financial institutions became saddled with debt as corporations and households defaulted on loans. To cover losses, many banks began to offload property.
Japan enjoyed brief property price stabilisation by 2002-2003, but a glut of vacant office space again hit the market as projects rubber-stamped during the bubble era reached completion. However as Japan moved into the present, promising economic trends suggest the economy is finally shrugging off the nationﾕs prolonged recession. In the meantime, property prices have fallen to pre-1980s levels.
The stabilisation of the property market can be attributed to increased GDP and business confidence against falling unemployment. Demand, through increased business activity, has centred on the economic giants of Tokyo, Osaka and Nagoya. Regional areas - enjoying similar trends without the rent pressures of bigger cities - are also catching the eye of investors.
These factors have set the scene for an influx of foreign investment, with players realising potential in modern and well-located properties throughout Japan.
The first Australian investors looking to capitalise on Japanﾕs post-bubble market were Babcock & Brown, Servcorp and Macquarie Bank. All three set up Japanese wholly owned subsidiaries, but employed differing business models.

Babcock & Brown established Australia's first Japan trust, while Servcorp dealt in serviced offices. Macquarie Bank set up two subsidiaries: Macquarie Properties Japan KK, for real estate acquisition and advisory services; and Macquarie Japan, for infrastructure.
Other new entrants like Rubicon and Challenger are leveraging off strategic alliances: Rubicon Japan Trust has teamed with European-based DTZ and Challenger Financial with Tokyo-based Kenedix. Their aim is to form Australian-listed Japan property trusts on the Tokyo Stock Exchange, which were first implemented in 2000.
Reid MacKay, an executive of global real estate firm CB Richard Ellis, noted the benefits of this strategy in an article in The Australian newspaper: "Australian investors need to appoint someone on the ground, or form partnerships with Japanese companies to source properties... Nothing is listed for sale, most purchases are sourced through contacts."
In other areas, Australian investors Nihon Harmony Resorts and Niseko Real Estate have been active in the ski resort area of Niseko, where redeveloped European-style lodging has attracted domestic and Australian tourists to what was once a near-bankrupt area of rural Japan.
Industry analysts remain divided on the long-term future of Japanese real estate. Some experts are concerned falling worker numbers will affect long-term demand for office space; others believe demand will be bolstered by the trend towards larger floor space and the influx of foreign companies into the country.
Regardless, the ﾒgreying nationﾓ demographic will considerably influence the property sector. Some seven million baby boomers will soon retire, while the Tokyo Metropolitan Government has predicted an 8.8 per cent drop in worker numbers in Tokyo alone by 2010.
Already, many retirees are seeking a lifestyle change away from the city. In Kyushu, Japanﾕs southern island, bankrupt golf clubs and other leisure resorts from the bubble years have become the focus of American and Korean developers.
JETRO considers Japanese real estate as a prime investment opportunity. Property value is at an all-time low, prices have stabilised and so too has the Japanese economy - and the Australian dollar has never been stronger.
However an understanding of the market, representation on the ground and a finger on the pulse of Japan's changing demographics are essential to take advantage of the numerous opportunities on offer.