All Topics / Overseas Deals / Japan.. is collapse inevitable?

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  • Profile photo of TerrywTerryw
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    zmagen wrote:
    Yes, Japan has deflation, low prices, Chinese prostitutes (although, the amount of prostitution here compared to most other countries in the world is ridiculously minute), migrants and temp workers – and also $20,000 properties generating 10-15% Pre-tax return. What's your point?

    I was side tracked slightly. My point is that things are changing in Japan. I think prostitution is much more rampant there than Australia. I was just amazed at the number of chinese there taking over industries.

    There are properties with good returns from rent. But it is a completely different world to investing in Australia. Properties in Japan drop in value = its like buying a new car, once you drive it it is worth 20% less and continues to drop.

    My mother in law and auntie in law have properties that are sitting empty. They could rent them out but it would be too much hassle to fix them up. Its not worth the bother for them. Both are 10min from Osaka CBD too.

    But Japan is still an economic trading empire with an economy bigger than Australia.

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    Profile photo of FreckleFreckle
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    China and Japan combined take almost 50% of Australia's exports. A 10% decline means big trouble on the Ponderosa.

    Profile photo of FreckleFreckle
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    Ziv wrote:
    That's why it's so silly to be a one trick mining pony like we've been for the past decade or three…

    Au contraire my friend. A gross over simplification. Mining has always been a cornerstone of Australia's wealth and exports. Manufacturing has contracted as a component of exports and GDP activity in most wealthy western countries in favor of low labor cost and technological innovation in mass production and robotics.

    The likely next sector of the economy to get a lift will be food and energy over the next 20 years. In the past 20 years both Aus and NZ saw agricultural exports slip as a result of exporting our expertise and knowledge. The next shift up a gear is or will be in our favor because capacity and water are the key ingredients in this age.

    Tourism will fluctuate with the fortunes of chance and the global economy while services are likely to remain relatively stable.

    The 2 speed economy rhetoric is simply an MSM label and noise to sell papers. Every sector of every economy travels at differing speeds and those speeds vary over time as a reflection of demand, supply and innovation. It can take a decade to reshape and correct a sector and another to capitalise on those adjustments. That theme runs through the resource sector as booms and busts over the last century and half.

    Resources are likely to be Australia's savior over the coming years as the global economy corrects from its credit addicted behavior to something more sustainable. Regardless of what happens in the world Australia has 3 things the world will always need to some extent or other namely food, energy and minerals. The road might be rocky but it'll be far more comfortable than many economies will experience.

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    No argument there, I'm just wondering if "over the next 20 years" will be sufficient if things go south in Asia.

    as things stand now, if there's no demand for resources in the next year or three, I hardly see Australia being able to offer much else. I could be wrong of course, I'm no expert on Australia, but the media and government aren't the only ones raising these alarm bells, some fairly "switched on cookies", as you like to call them, have been saying the same things – http://www.marketwatch.com/story/australia-facing-a-hard-landing-andy-xie-2012-10-25

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of FreckleFreckle
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    I like Andy Xie's analysis for the most part. He's in a group of China experts who are probably some of the best and frankly honest brains in the business. Judging how Australia fairs will be relative to everyone elses predicament. 

    Australia is overpriced by global standards in every respect from currency to wages to property and anything related to productivity. The world's a big see saw and we're at the top of our trajectory. 2013 doesn't seem to be an unrealistic call as the end of that trajectory. It matches the system stresses in other economies. The only question is who will set it off and when.

    A challenge for Australian leaders. Will the descent to equilibrium be steep or a gentle glide path? Interesting times and opportunity ahead for those not leveraged up to the gills.

    Profile photo of PrimePropertyInvestorPrimePropertyInvestor
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    Been looking at this conversation for a while, I think you have a very good point Freckle.

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    I'm not familiar with your family's particular scenario, but the small/micro units we normally deal in cost app. $2,000-3,000 to renovate completely (on a $20-30k 15-25 sqm, built 1974-1995)- not that we ever even had to order a renovation, as we try to purchase in good condition and with good tenancy histories. Additionally, areas out of Tokyo, Osaka, Kyoto and Hokkaido ski villages are no longer dropping – in fact some of them are going up in value (ever so slightly, and only in recent years, but still – http://www.businessweek.com/articles/2012-11-29/japans-property-market-comes-back-to-life).

    As in any country, its a matter of where and what you buy.

    And even if the value drops (how much it drop below $20,000, I sincerely wonder ;)), but the investment capital has doubled itself in 16-20 years as a result of super high rental yields in hassle free safety – let it.

    regardless of all this, if we're already dealing in wild speculation regarding growth or lack of, as this thread does, here are a few others who think you may be slightly off the mark there (again, I deal in cash flow, but interesting reads nonetheless) –

    http://ir.prologis.com/releasedetail.cfm?ReleaseID=732588

    http://www.rreef.com/content/_media/Research_RREEF_Japan_Quarterly_Q3_2012_global.pdf

    http://www.ft.com/cms/s/0/03affdba-2720-11e2-9863-00144feabdc0.html

    this is just in recent months, and these guys are almost late to the party, so to speak. Others such as Goldman Sachs, black stone, Deutsche bank, TPG, and various sovereign and institutional investors have been quietly purchasing since mid 2011, when the first signs of recovery bloomed. I can paste more and more links of course, but you get the point.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    Here's another commentator who doesn't agree with the "follow foreign example at all costs" policy, stating, and rightfully so, that it hasn't exactly served the rest of the world all that well, and also pointing to the fact that Japan has done well (and not "barely survived", as freckle puts it) on the last few rounds of economic strife –

    http://economictimes.indiatimes.com/news/international-business/japan-shows-the-world-how-to-come-out-of-economics-of-stagnation/articleshow/18016340.cms

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of FreckleFreckle
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    Be careful about using opinion pieces from anonymous journo's whose work ranks along side that of the local village idiot. That has to be one of the worst pieces I've ever read. Column stuffer if ever I saw one.

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    I'd hardly call Paul Krugman, a Nobel memorial prize in economics sciences winner, an anonymous village idiot. And while I'm not one to crown someone the oracle of Delphi just because they hold a title (or several dozens, in his case), I actually agree with every word.

    (you can find the original article on the NYTimes archive, as the economic times credits at the start – it just loads a lot better there)

    you seem to care a lot more for who's writing than what they actually say, don't you? I didn't expect this to be the case with you, to be honest.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of Alistair PerryAlistair Perry
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    What this article is saying is that Japan has a policy of defaulting on their debt by proxy by reducing the value of the currency in which the debt is denominated. It then goes on to say this is good because it will help exporters, but what about bond holders and people in Japan with savings, they are the victims.

    In short, the Government has spent above its means and is now going to tax those who have supported it and those who have been responsible and not spent above their means, by inflating away the value of their Yen.   

    Profile photo of FreckleFreckle
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    Your link was an anonymous reprint and retitling of 'Japan Steps Out' (New York Times)

    PK is the village idiot of economics. Obama has Nobel for peace as does the EU. 

    PK thinks minting trillion dollar platinum coins are a good idea and if you have a debt problem more debt is the solution

    There's quite a few in the world of economics who tend to agree

    http://austrianeconomists.typepad.com/weblog/2008/10/you-cannot-be-s.html

    http://krugman-in-wonderland.blogspot.com.au/

    http://www.zerohedge.com/news/ultimate-krugman-take-down

    Profile photo of FreckleFreckle
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    As an aside the AUD/JPY is correcting. Last chance to buy Yen (at these prices) by the looks of it. Correction initially looks strong  and if breaks through 88 it could run to 84. My guess is the market sees the JPY as cheap and it'll be mostly about traders pushing the market. Have to wait and see.

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    No, i beg to differ, what this article says is that there's a wide range of mediums between the Austrian and Keynesian economic approaches regularly preached around the globe. There's no "one sure and absolute way" that works anywhere and for anyone to correct financial woes, as the last few years have demonstrated time and time again. I think this is best summed in this short observation of Krugman's –

    "…That said, Japan never had the kind of employment and human disaster we've experienced since 2008…"

    This in spite of the fact that the early nineties bubble burst and subsequent economic plunge should have turned them into the worlds worst civil war zone, if Greece, the Great Depression in the US, and Europe post WW2 are anything to go by. The Japanese concept of "being victims to their government's policies", as you put it, is quite different from that of other countries. While this works both ways (they'd be very hard pressed to suspect corruption or collusion with business, to name one of the downsides), it also means that they're quite far from the hands up, run for the hills, burn tires in the street that tends to happen invariably in the west at the first sign of fiscal crisis – and as a result, are also far more resilient to it, since they tend to work as a collective that stays cohesive in hard times as well as easier ones, and doesn't break into chaos at the first sign of trouble.

    as freckle puts it, the economies of the world are a seesaw structure (I see it more as a circle running back on itself, but from a subjective timeframe perspective the differences are minute). If a depreciating yen will help exports for a time, the Japanese people, including domestic bond holders and savers, will take it in stride, and wait for better times, guaranteed. There will be no national or financial collapse, rioting in the streets, or even bank rushes. There will be muted complaint, bitterness, and resignation, then a tightening (what is called here the "shoganai" mentality – very loosely translatable as "ce la vi" or "what can we do", normally followed by unbelievable perseverance. Something to learn from, for those, like Krugman's, who have the balls to admit when they're wrong).

    Incidentally, this is, again, why I believe the renewable energy initiative will be successful here as well, as mentioned earlier – because in this case, as opposed to the above, the Japanese public has actively, loudly and internationally spoken against its government policies – this was enough of an event (and you won't see this happening on the financial front, I promise you) for Japan inc. to take notice and invest a huge proportion of its wealth in renewable energy initiatives that are rapidly transforming it into a global clean-tech nation of not only world leadership, but gargantuan proportions even in an absolute perspective. Again, to ignore the significance of the Fukushima event and its effect on Japanese mentality is a severe error. Things are changing in Japan, and government debt, while not the least of Japan's urgent issues, is also very far from the top among them.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    Thanks for those (although one doesn't open for me) – the brilliant discussion in the comments sections actually illustrate my point perfectly – here's one sample –

    Quote:
    …Japan's fiscal policy in the 1990s did not involve "massive" Keynesian spending plans…Japan had some mild to moderate Keynesian stimulus from about 1993 to 1997 (the actual fiscal impact of the early ones is grossly exaggerated). And the result was mild to moderate growth from 1993-1996. Japan was not in recession from 1993-1997, but had a serious deleveraging and banking crisis, and debt deflation problems. But then from 1997 Prime Minister Ryutaro Hashimoto imposed sharp fiscal contraction and plunged the country into recession…Japan's first experiment in austerity policies began under Prime Minister Ryutaro Hashimoto (1996-98). Severe spending cuts were seen as needed to rein in budget deficits caused by previous efforts to recover from the 1991 Bubble collapse. Recession followed quickly. Tax revenues collapsed. The national debt increased…Under Prime Ministers Keizo Obuchi (1998-2000) and then Yoshiro Mori (2000-2001, Japan returned to fiscal expansion policies and the economy recovered rapidly…A major consequence of the recession induced by fiscal contraction was that the Japanese budget deficit soared by 68% as tax revenue collapsed. This must be counted as another fundamental reason why Japanese public debt soared so badly…When fiscal expansion was applied again on a large enough scale in 1998 the recession ended and growth resumed…Austrian solution of liquidationism would have induced utter economic collapse like the Great Depression, far worse than anything that actually happened…

    As for the JPY/AUD fluctuations – yes, thank you, we actually monitor those as well, believe it or not ;)

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of Alistair PerryAlistair Perry
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    The problem is that once a Gov goes down the path of solving a debt problem with money printing it becomes a very slippery slope. I would have to agree that the Japanese people and institutions will probably better receive what their Government is in the process of doing to them, but this does not change the fact that the Yen is most probably going to dive in value and cost of living pressures will increase.

    One of the effects of QE is the banking system lending a far higher portion of their funds to Government at the expense of businesses, this is happening in Australia too by the way. This is a problem as Governments tend not to be very good at allocating resources efficiently, and the only way to overcome inflation in this scenario is for large increases in efficiency.

    How this will effect property prices I wouldn't know, their will be upward pressure from inflation but downward pressure in terms of affordability. I think the greatest risk for Australian investors is with the exchange rate.

      

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    The exchange rate is only an issue when the investor wishes to transfer yields back home – as mentioned time (and time, and time, and time) again – overseas property investment is a dynamic endeavor, and not to be undertaken with funds that would require liquidation in a hurry – this is as true in Japan as in any other country in the world. To think that people investing in the US, Singapore or Europe are somehow less vulnerable to exchange rate fluctuations is outright wrong – people invest overseas with hedged funds that will not be needed in a hurry, and capitalize on market conditions – when the economy and rates are low, they purchase more property, renovate, or otherwise utilize their funds in the destination country.

    when the situation improves, they bring their money back home and make a(nother) neat profit in the transfer. This sometimes takes one year, sometimes five, and sometimes a decade – similar to a super fund which you can't touch until you retire, only you have to go by market fluctuations in the home and destination countries instead – this is what overseas property investing is all about, and why it's so important to steer your portfolio by cash-flow rather than wild speculation, which would leave you losing money when the destination economy fluctuates (3-4% turns to -3-4%, instead of 10-12% turning to 2-6%, for instance, to take an extreme example).

    The approach that dictates that one should only invest in a fail-safe, never fluctuating, rock-solid currencies and nowhere else is, quite simply, completely contrary with overseas property investment of any kind. The reason some foreign investors made a killing in the US for the past five years, to take the most common sample these days, is exactly because the economy turned to ****. And the reason they're now enjoying these profits in Australia is because it slightly recovered. This cycle will continue on and on (or seesaw on and on, however you choose to view it), with more volatility as the world becomes more and more intertwined, in my opinion (a wholly different discussion, albeit a very interesting one).

    what you label as risk I see as opportunity – provided one is well positioned, not leveraged beyond recognition, and not in a hurry to liquidate any funds. This is the strategy I stick by, and advise my clients to stick by as well. It's been working fine, and I believe will continue to work fine when the JPY devalues again, for however long it may be. The same goes for US, Europe, or anywhere else – but Japan has the best potential to provide a hassle free and strife less environment of doing so, regardless of economic circumstance, in my belief.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of Alistair PerryAlistair Perry
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    No, a loss is a loss. If you are moving a large amount of cash out of one currency into another that captial is at risk from exchange rate swings and they don't necessary go up and down over the long term, in this case i think it will simply be down for a very long time. Don't take this as meaning i don't think people should invest in Japan, I know little about its property market. But they should be aware of this risk on their initial capital when making a decision, as they should if contemplating investing anywhere overseas., it is an added layer of risk.

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    Agreed on the added layer of risk (or opportunity) inherent in all overseas property investment,

    I have to disagree about the gain/loss perspective though – a loss is only a loss when realized. Once a currency is exchanged into another, the rates make no difference – unless its transferred back. That's when loss or gain can be claimed as such, not earlier. It may be just a point of view or semantics issue theoretically and on balance sheets, but for those who deal in foreign currencies on a daily basis, such as international property investors, its a very significant difference.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
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    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of DubstepDubstep
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                          I know this isn't relevant but I couldn't help myself :

                       

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