Tokyo Tourism Trends and Whole Building Investment

The Japan Tourism Research Co. released yesterday the latest data on 2017’s tourism numbers and the inbound numbers are clearly marching ahead at an aggressive pace.

So far this year, each month has shown on average a 20% increase in inbound month to month compared to 2016.

Comparing the inbound number on a yearly basis all the way to 1964, the increase is even more dramatically demonstrated.

These increases in tourism numbers have had notable economic impacts ranging from increased revenue in the souvenir industries (sake etc…) to the burgeoning minpaku (AirBnB) market within the city.

The minpaku market has been looking forward to limited deregulation for several years now and in June of 2018, the federal government will allow properties in residential zones to operate 180 days of the calendar year.

Furthermore though, each prefecture and city within a prefecture are allowed to tack on rider restrictions to the federal regulations as each locality sees fit. This means that it is possible that Minato Ward and Shibuya ward might have completely different restrictions.

In fact, Shinjuku Ward has announced their limitations (Japanese only) recently stating that approved minpaku operators can only operate on Saturdays and Sundays, not weekdays.

Another issue that is becoming apparent however are home owner’s associations introducing language within their charters specifically not allowing minpaku whatsoever thus eliminating many condos city wide from taking part in the tourist boom.

For the investor looking to enter the Tokyo minpaku market, the absolute best way to do so is to purchase a whole building where you are the sole owner.

Tier 2 and Tier 1 whole building financing does exist for qualified borrowers and some reasons for choosing Tokyo to invest in over other cities is for three clear reasons:

Regular, long term rents are rising and are expected to do so in the foreseeable future.

Demographics in Tokyo will continue to rise for the foreseeable future

Whole buildings in central Tokyo appreciate the fastest in up markets and hold their value the best in down markets.

When looking at a whole building for minpaku use, your bottom line is the long term rental market. In fact, banks will only lend based on long term rental rates as opposed to higher minpaku or monthly estimates.

Another reason the long term rental market matters is because in all likelihood, the building you would purchase is second hand and thus will have existing tenants already.

These tenants could stay put for years prior to leaving to allow the unit to be converted to minpaku or monthly furnished rental use.

This week Savills World Research released their Q3/2017 rental report stating that rents in the central five wards in Tokyo have risen 2.7% YoY with occupancy comfortably sustained at 95%.

Quoting the report, “Mid-market asking rents continue their slow but steady ascent. If the recent growth trend persists, rents in the central five wards may surpass their 2008 levels sometime in 2018.”

This means that rents are increasing along with price appreciation which can keep Tokyo’s average rental yield of around 4.5% for longer than anticipated.

For those looking to explore options of purchasing whole building in the central Tokyo area, feel free to contact us at sales@housingjapan.com.

 
 

Editor’s Note: Robin is the Marketing Manager for Housing Japan. He is involved with property promotion and market analysis.