Is Japan the go right now?
Hmm, it's pretty good from some perspectives.
But like most markets, if you go in there purely with a macro strategy, with no idea about the micro, you lose your competitive advantage. Take Sydney for example. Even though it's quite pricey, I can spot the exact fundamental reason why one house sells for less or one sells for more, despite being one street away from each other, and that allows me to swoop on something that's mispriced by the market (irrespective of whether the market as a whole is fundamentally overpriced). I'd know the history, the owners for the past 200 years (maybe that's an exaggeration), other buyers, other sellers etc. That's a competitive advantage I'd lose in Japan.
That said, I have been talking to various buyer's agents in Japan. This is what's going for Japan:
- Tokyo population continues to increase;
- Rates are dirt cheap and LVR can be high (locals borrow at 0.7% to buy PPOR and can borrow 100% sometimes);
- Yields can be high (if you looked hard enough, this is where the competitive advantage points comes in);
- Yen is low (I'm holding primarily USD and RMB so it looks even cheaper to me);
- Abe and his Abenomics looks like they'll romp back into Diet;
- Olympics in 2020;
- Tokyo has retaken the big 3 behemoths (NYC, HK, London) as the most traded commercial property market in the world
- American hedgies are swooping onto the city (eg Blackstone etc)
- Tokyo is frankly an awesome city
Problems include:
- It is difficult to borrow for foreigners;
- If you manage to borrow (and it is possible), you end up borrowing at maybe 2-2.5% interest rates, with low LVRs, which defeats the whole purpose of the strategy;
- There are no IO loans, only P&I, reducing IRRs on most propositions to something I can easily achieve in Syd/Bris/Melb and possibly even NYC/London/HK;
- Japanese economy is up **** creek
- Is the mild 'inflation' Abe generating good for the economy, or is he simply importing higher energy prices?
- Japan has the biggest public debt to GDP in the world (but this is mostly held by the Japan Postal Bank and some other Japanese institutions);
- But Japan has a declining population
- So what happens when the old people need to withdraw their deposits? Does that mean Japan needs to fund the debt externally and end up like Greece/Italy/other garbage countries?
- If Japan does not amend ties with the biggest market the world is yet to see (China), what economic future does the country really have in the Asian region?
- In short, all these problems stem from the fact that Japan is the biggest welfare state the world has ever seen (apart from the United States). Can they really continue to sustain all these egilatarian laws and get away as the world tilts towards the Chinese model and countries like Sth Korea, Indonesia, Vietnam and India with a much smaller welfare bill and cheaper salaries continue to compete? Where's Japan's future?
- The place has radiation (?)
