All Topics / Overseas Deals / What to do with $300K? (Part 2 – Fukuoka, pref. Japan)

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  • Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    @zmagen
    Join Date: 2012
    Post Count: 523

    Ok, been away for a few weeks to Fukuoka, Oosaka, Shizuoka and Fukui. As promised, a summary of proposals for an approximate budget of $300K cash purchase in the land of the rising sun – I'll start with a general impressions, and try to drill down to actual purchase potential as conclusion –

    1) The area to invest in remains Kyushu, not for lack of potential and deals in other areas, but for unclarity regarding radioactive fallout dispersions – better safe than sorry, and there still isn't conclusive evidence to suggest the hot areas map has stopped migrating at what seems to be the eastern border of Nagano (mid-Japanish). Fukui, while clean and cheap to purchase in, suffers from slightly higher vacancy rates and feels a bit like a deserted seaside resort – empty shops, bored and cashless shop owners, eye down-cast local population. While good deals are to be had, it felt a bit too slow to consider for constant cashflow, and I couldnt find the numbers yet to support investment there. This may (and hopefully will, it's a beautiful place) change in the future – will keep you posted. Particularly for the cold, snow lovers out there, it's a dream country.

    2) Kyushus hottest; prefecture, realty-wise, still seems to be Fukuoka, where Fukuoka city (capital, 1.5 million app. pop) is still showing nice expansion trends, parciularly Chuo-ku and Kurume wards feeling vibrant to walk down, with new monster office complexes, hotels and condo blocks popping up left right and centre. A walk down the main business district street of Hakata shows no signs of economic slowdown and/or shops for lease, particularly compared to walks taken six months ago, where there was still what felt like a bit of uncertainty (nuclear and economical) in the air – no sign of that now, business seems, to the passing eye, to be booming.

    3) After meeting with several agents in Fukuoka city and Tokyo, confirmed the up trend in sales, with good deals being snatched a bit quicker than previously. While there are certainly several 9-12 blocks to be grabbed at the $300K range, all at 90% occupancy or more (including some nice ground floor long term commercial renters), returns seemed to be on par, or in most cases less than what we're used to see with the same number of separate, well-dispersed units across the city. While we'll be struggling to gain the 11-15% norm that we're used to with separate rental units, and there's still more funds that need to be set aside for future repairs/maintenance (things that are covered in monthly body corp fees when buying separate units), we were trying hard to understand why anyone would want to purchase such assets, rather than a geographically and economically dispersed range of units across town, mitigating risk far nicer in our perspective.

    4) The answer, according to the agents, lies in the rebuild/redevelop value, which block buyers normally aim for – something that requires firm, 24×7 firm feet onsite (be your own body corp, so to speak), familiarity with local laws and by-laws and public area design constraints and other issues that I personally wouldn't delve into, as I aim for immediate and maximal cashflow, and like to keep exit strategies flexible and modular, which would be difficult with a block. If I ever will, I'll be happy to share my experiences, but at the moment seems like a complete headache. So looks like it's going to be same as it's been so far – single, small-micro units in older, strategically placed condo blocks with immaculate maintenance fund collection records and tenancy. Hope to experiment with some holiday/student rentals at least one one or two of those, so will hopefully have more to share.

    5) While negotiation options are generally more limited by the nature of the purchase (9-12 units will not normally come from a single source, unless they're in the one block) – still, there are retiring investors, family inheritances and such deals that come in 2s or 3s, and can be at least slightly negotiated if purchased as a package deal (as opposed to foreclosures, money raisers and small upgrades to existing properties – these causes of sale will usually generate only one or two units per deal, and are the majority of deals out there). Alternatively, one watchs a particular interesting listing that doesn't quite cut it, and slips in a quick, substantially reduced offer as soon as the price goes down (which would happen if it's not applied for in 4-6 weeks normally, but then will be quickly snatched). Case in point see the deal breakdown thread.

    6) So the way ahead seems to aim for something like 3-4 deals, 2-3 units a deal of $20-35K each, negotiated down to as close as one can get to 15% pre-tax return, while maintaining maximum occupancy period potentials. Internal and external maintenance and renos/rebuild usually not required, and good tenancy seems to be the main cash factor – this is our goal, and not difficult to achieve with a good, Japanese speaking team on the ground.

    Hope this helps and answers some of the questions previously asked. Still looking forward to hearing what similar budgets will get me in the US? Anyone?

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
    http://www.nippontradings.com
    Email Me | Phone Me

    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of C2C2
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    @c2
    Join Date: 2002
    Post Count: 518

    Would be interested to see any links to any 9-12 blocks for 300K in Fukuoka city.

    How long did you spend on the ground in Fukuoka talking with business owners?
    Don't want to come across too negative but your views on the current situation in Fukuoka and Kyushu seem a bit different to most reports I receive.

    Most major retail stores and chains are reporting declines in sales across Fukuoka.

    Daimaru department recorded its 6th year straight decline in revenue.

    The Japan Department Stores Association released figures for the sales of Fukuoka City department stores for March omitting those of the new Hakata Hankyu at the JR Hakata Station building. Sales for those three stores totaled 16.680 billion yen, a 12.9% drop from the year-before period, and the 32nd consecutive year-on-year decline. Adding the figures for Hakata Hankyu results in a 17.4% increase, however. Meanwhile, total March sales for the 19 Kyushu and Okinawa Prefecture department stores outside of Fukuoka City fell 5.3% from the previous year to 27.351 billion yen, the 43rd straight monthly decline.

    The Kyushu Bureau of Economy, Trade, and Industry released its figures for September sales at large retail stores in Kyushu and Okinawa Prefecture. Sales totaled 111.8 billion yen, a 1.3% year-on-year decline and the 26th consecutive monthly drop. Sales at supermarkets and convenience stores rose for the first time in 16 months, however, fueled by the demand created by the sharp increase in cigarette taxes that went into effect in October.

    In regards to construction.

    There are always large projects under way across Japan but this no indication of a good economy.

    The Fukuoka branch of West Japan Construction Surety released its study of trends in public works construction projects in Kyushu and Okinawa in FY 2011, which shows that the aggregate value of the projects during the year fell 11.3% from the previous year to 1.4309 trillion yen. There were 42,869 projects during the year, a year-on-year decline of 6.0%. It was the second straight reduction in both categories. The insurer noted that public works projects in the region have been steadily declining since 1999, with the exception of FY 2009, when there was a stimulus designed to offset the economic downturn.

    Next time your heading to Kyushu or Fukuoka let me know would be happy to join you for a walk and introduce you to some business owners to hear what they think of the economy at the moment.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi Guys

    I am heading to Osaka next week. If you will be in town let me know. Prob won't get to kyushu though.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of C2C2
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    @c2
    Join Date: 2002
    Post Count: 518

    Terry, will try and catch you on skype.  Are you coming during golden week?  Traffic will be a nightmare.

    Heading backwards and forwards over the next few months between oz and rising sun so might be able to organize something.

    Profile photo of TerrywTerryw
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    @terryw
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    Not sure when I am going yet. I am staying in Thailand now, and may wait till golden week is over.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
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    @zmagen
    Join Date: 2012
    Post Count: 523
    C2 wrote:
    Would be interested to see any links to any 9-12 blocks for 300K in Fukuoka city.

    As mentioned, haven't seen the need to delve deeper personally, due to lower returns and no interest in redevelopement – will happily forward the agent's details to you, if you wish, you sound like you've got Japanese speaking feet on the ground there, so you can probably take it from there yourself – let me know if you want his contact info (@Moderator – please note that this is a direct response to a direct request for information, NOT advertising, and NOT selling my product – this is a referral to a third party).

    This particular agent doesn't normally post online, so not sure if he can help with a link, he usually provides us with PDFs or communicates by phone (in this case he showed us a printed copy while we were visiting his office), but if you check with him I'm sure he'll forward the listing and others like it directly to you – he certainly communicates by email readily enough (in Japanese of course).

    C2 wrote:
    How long did you spend on the ground in Fukuoka talking with business owners?

    In this particular case, one week, and most business owners or employees I speak to are typically hotel / real-estate / insurance / accounting / legal personnel etc, that is to say, people directly connected to my niche (the buying and selling of older condo units of particularly high rental returns) and I reported their impressions above – these are further supported by real-estate and salary trends in the area in the last 8 years or so, and particularly in what's been happening there in the last year, post-3/11.

    C2 wrote:
    Daimaru department recorded its 6th year straight decline…Japan Department Stores Association released figures…omitting those of the new Hakata Hankyu…a 12.9% drop from the year-before period, and the 32nd consecutive year-on-year decline. Adding the figures for Hakata Hankyu results in a 17.4% increase, however…March sales for the 19 Kyushu and Okinawa Prefecture department stores outside of Fukuoka City fell 5.3% from the previous year to 27.351 billion yen, the 43rd straight monthly decline…Kyushu Bureau of Economy, Trade, and Industry released its figures for September sales at large retail stores …a 1.3% year-on-year decline and the 26th consecutive monthly drop. Sales at supermarkets and convenience stores rose for the first time in 16 months, however, fueled by the demand created by the sharp increase in cigarette taxes that went into effect in October…

    A great collection of informational tidbits, thank you, but hard to really point at a trend there, particularly without comparison to the rest of Japan. And again, as mentioned above, not directly related to anything that we deal with from a residential property owners' perspective. Not to say that this information has no merit, it does, but as per my original post, it needs to be taken into context with comparison to where things stood several years (or even one year) ago, and compared to information from other parts of Japan for any direct sense to be made of it. While I can (and will) ask Chikako, my Japanese partner to read, verify and expand upon the numbers you've provided when she has a bit of time to spare, they don't seem to me, at first glance, to bear a direct relevance to the topic here, unless taken into account compared to the rest of the country, not to put too negative of an emphasis on the point.

    C2 wrote:
    In regards to construction.There are always large projects under way across Japan but this no indication of a good economy.

    Never suggested it was, nor do I think the lack of building is necessarily a sign of a bad economy. I was merely mentioning this as an impression of a walk down the street, and not as concrete evidence of anything except the lack of same app. six months ago, on a previous visit, and in other areas, such as Fukui, which we visited on this occasion. Again, this was mentioned in passing and bears no direct relevance to our interests there, so pardon me if I don't address the rest of the statistics regarding construction and projects. :)

    To summarize, please note that at no point did I say Kyushu or Fukuoka are in any way separate to the economic state of the rest of Japan, or that Japan is in any way separate to the economic state of the rest of the world. What I was suggesting, and still do, is this –

    Kyushu area, Fukuoka prefecture, and Fukuoka city – particularly compared to 6-12 months ago, and certainly in aspects relating to the sales and rentals out of older, micro/small condo units – are doing well in comparison with other CLEAN areas of Japan, which is doing well in comparison with other areas of the world. I think a 5% decrease in average sale value between 2008-2011 is pretty darn good, considering the state the world's in atm, as well as the fact that salaries in Fukuoka prefecture have been steadily climbing back towards their pre-2008 values, and are now only 5-6% under that. To me, as a property owner who's looking for singles/couples, youngish company or office employee tenants (core family numbers, btw, meaning couples with young children, have been rising in Fukuoka, while the rest of Japan is suffers from an ageing population syndrome) – this was good news a year ago, and remains doubly so today.

    Comparing this scenario to anything I can get, investing the same amount of money anywhere else in the world, from a cashflow perpective, at this point in time – Fukuoka wins hands-down. And again, I'm still waiting to see alternative numbers from the US or anywhere in Aus. (I'm getting a feeling the US comes close or possibly does even better on potential returns, but the hassle compared to Japan is astronomical…)

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
    http://www.nippontradings.com
    Email Me | Phone Me

    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
    Participant
    @zmagen
    Join Date: 2012
    Post Count: 523

    Terry – Chikako just came back from a month or so there, and looks like the next trip for both of us will be late may to early june – will post here before we go and see if you're still around. haven't taken the little one anywhere near Tokyo since last year, but we often land in Osaka then head to Fukui, Fukuoka etc, so should be easy to touch base.

    C2 – where in japan do you normally take them slippers off? ;) could be nice to catch up when we come next, as well

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
    http://www.nippontradings.com
    Email Me | Phone Me

    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of C2C2
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    @c2
    Join Date: 2002
    Post Count: 518

    Terry

    Pm sent but will be oz end of GW for about 2 weeks.

    Zmagen, thanks for the clarification.  Mainly Northern Kyushu for now but will probably change after the next 2 month holiday.
    Will send pm with contact details and happy to catch up anytime.

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
    Participant
    @zmagen
    Join Date: 2012
    Post Count: 523

    C2 – btw – would be very interested to hear your impressions on food/water/air safety in Kyushu, if you've got any? Private measurements seem to be very rare there (which is probably a good sign), but I hate having to rely on those unreliable Jap govt "all is well, send the kids to school and shut up" reports…

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
    http://www.nippontradings.com
    Email Me | Phone Me

    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    C2 wrote:
    Terry

    Pm sent but will be oz end of GW for about 2 weeks.

    Zmagen, thanks for the clarification.  Mainly Northern Kyushu for now but will probably change after the next 2 month holiday.
    Will send pm with contact details and happy to catch up anytime.

    C2 no pm received.

    I will be getting into Osaka next tuesday

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Ziv Nakajima-MagenZiv Nakajima-Magen
    Participant
    @zmagen
    Join Date: 2012
    Post Count: 523

    Btw, speaking of Fukuoka – an interesting city consortium it's a member of, largely funded by Boeing and Microsoft, has some interesting commercial real-estate development projects going there, as the place becomes more and more pronounced as a techy-academic semi-silicon valley type place (check out http://www.internationalregions.org/).
    Servcorp, one of the world's leading virtual office firms, was just interviewed as to 3/11's implications on its business clientelle, and verified large migrations of Tokyo business clients to Osaka and Fukuoka post Fukushima. That and the China-Fukuoka ferry line, the bullet train expanding there, and the business this all generates and signifies further enforce my strong confidence in this area.

    And the best part is, all this future speculation is just the icing on the cake – the steady cashflow there in the older condo blocks is the bread and butter for me, personally.

    Ziv Nakajima-Magen | Nippon Tradings International (NTI)
    http://www.nippontradings.com
    Email Me | Phone Me

    Ziv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property

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