Investor says timing's right for playing Tokyo property game

Fifteenth in a series of occasional articles on venture businesses

Staff writer

The nation's economy remains stagnant and economic magazines are warning of a further dive in the Japanese properties market.

But, Osamu Yamazaki, president of Japan Access Management, says it is prime time to invest in Japanese properties. "At a time when deposit interest rates remain below 1 percent, you can expect an investment yield of 7 percent to 8 percent," he says. "Such a situation won't last forever."

He is focusing on the performance gap between rents and property prices -- a yield, based on rent income vs. property price, that is higher when the gap is greater.

Thus, in April, Yamazaki, 42, quit a highly paid position as the group head for Asian/Japanese equities and global emerging markets at CIGNA International Investment, Tokyo, and set up his own investment firm specializing in the Japanese properties market. Simply put, he is raising money overseas, buying so-called income properties, such as residential flats and office spaces in Japan, and renting them out so that his overseas customers can expect ample returns.

"Japanese property prices today are performing below the level of the nation's economy, while rent prices are very much in line with the country's nominal gross domestic product," he says. Indeed, Japanese property prices shot up during the bubble economy of the late 1980s and then dived roughly to the level of 1985 with the subsequent burst of the bubble.

In the meantime, however, Japan's nominal GDP has grown about 40 percent since 1985. This means that the capacity of Japanese to pay rent is substantially higher than in 1985, even if it is not 40 percent greater, Yamazaki says.

He acknowledges that rents, too, have been affected by the bubble economy, but only to a limited extent. "Banks used to lend you lots of money to buy properties, and that's why property prices soared to an unrealistic level. But that didn't happen to rents," he explains.

Yamazaki, who has 12 years of experience in fund management, admits that he is earning far less than he used to as a salaried fund manager. But he says he feels much happier now that he is once again playing his favorite game. "It used to be an anticipation game," he says, recalling his early days as a fund manager. "You anticipate what will happen two or three years later, predict the industries of countries that will do well and those that will decline, and form a portfolio.

"In due time, you will know how accurately you have anticipated the future," he says. "The result is shown in specific figures, and there's no way you can make excuses when it turns out that you've been wrong."

What he calls "British hegemony" in the world of fund management, however, came to an end in the early 1990s. Yamazaki says it was overwhelmed by the "American-style power reaction game," which is to respond to confirmed data and information."

"What matters in the power reaction game is how quickly you respond to certain information and how powerfully you gear up that response with derivatives," he says. "It's a highly efficient and sophisticated world." As a fund manager who grew up in the era of the anticipation game, however, Yamazaki says he could not feel the "real taste of investment."

"But I've found that I can still play the anticipation game in the Japanese properties market, which remains insufficient and primitive," he says. At this moment, he says, his anticipation calls for forming a so-called barbell portfolio -- investing in residential apartments with floor space exceeding 100 sq. meters or less than 50 sq. meters while avoiding those in between.

Yamazaki predicts that property prices, which remain stagnant, will eventually reflect the real state of the economy. "When that happens, yields on property investment will naturally shrink. But then you will be able to sell the property and earn a capital gain," he says.