Salarymen sidelined as Chinese descend on Japan property market

The trend has already hit Sydney, Vancouver and the U.S. Now it’s happening in Japan: busloads of real estate buyers from China are coming in, buying up homes and pushing prices higher.

Realty agencies in Beijing are organizing twice-monthly tours to Tokyo and Osaka, where 40 Chinese at a time come for three-day property-shopping trips, seeking safe places to invest their cash abroad. They’re being prompted by the yen’s decline to 22-year lows and excitement over the 2020 Tokyo Olympics driving up prices, as they did in Beijing in 2008. Property tours will soon start from Shanghai too.

Partly as a result of nascent Chinese buying, Tokyo apartment prices have reached their highest levels since the early 1990s, up 11 percent over two years, according to the Real Estate Economic Institute Co.

“The demand is like water exploding up from a well,” said Zhou Yinan, an Osaka-based agent at Chinese brokerage SouFun Holdings Ltd., who said his mainland buyers are about 20 percent more numerous than at this time last year. “The Chinese buyers had mainly been from Taiwan until last year, but that trend reversed since October as the yen weakened against the yuan.”

Thousands more mainland Chinese are coming on their own, hitting real estate agencies in Tokyo’s Ikebukuro Chinatown district. Classified advertisements including properties for sale are piled up in free Chinese newspapers outside a Chinese supermarket that sells frozen dumplings and spicy sauces.

“There are so many Chinese buyers recently,” said Song Zhiyan, a broker at BestOne Co. realty in Ikebukuro, who uses the messaging application WeChat to reach thousands of potential customers in China, who can then fly to town to complete purchases. “I only work with clients who can pay cash. Why waste everyone’s time?”

She tells them to hurry: Properties are gone so fast that those who try to negotiate the price find them already sold. Her transaction volume exclusively for mainlanders buying in Tokyo has tripled over the past six months, Song said.

Japan’s sluggish economy caused price gains in Tokyo to trail those in other urban centers like New York, London and Hong Kong since the 2008 global credit crisis. Buying from China, which created about a million new millionaires last year according to the Boston Consulting Group, has the potential to quickly change the dynamics of local property markets.

In the U.S., buyers from China, Hong Kong and Taiwan spent $28.6 billion on homes in the 12 months through March, becoming the largest group of foreign homebuyers for the first time, according to an annual report by the National Association of Realtors.

Chinese already buy almost a quarter of new homes in Sydney, and their outlay will more than double to 60 billion Australian dollars ($46 billion) in the six years to 2020, Credit Suisse Group AG estimates.

In Japan, sales to Chinese and Taiwan buyers jumped 70 percent higher in three months through March from the year-earlier period, or ¥11.1 billion ($90.8 million) at Sinyi Realty Inc., a Taiwanese brokerage with outlets in Japan. For every 100 new apartments sold, about 10 to 15 are to foreigners from Asia, according to Sinyi.

“I wouldn’t find a deal like this in China,” said Lin Huan, a 35-year programmer from China’s northeast Liaoning province, who with help from her parents bought a three-bedroom flat in the Shinbashi area of Tokyo for investment, paying the equivalent of $203,000. After recently relocating to Tokyo to work for an technology company, she noticed the weaker yen was making properties cheaper. She expects to make a 5 percent return on the rent annually, whereas property in Beijing yields just 2 percent.

Chinese buyers are typically purchasing in the 1 million to 2 million yuan ($161,000-$322,000) bracket, a range “tolerable to many Chinese,” said Gui Liangjing, SouFun’s international sales director in Beijing.

It’s not as tolerable to Japanese. Prices in Tokyo have become “seriously unaffordable,” the annual Demographia International Housing Affordability Survey shows. The percentage of Japanese in the seven biggest cities who wanted to buy a home dropped to 15.4 percent in December, the lowest level since Recruit Sumai Co. started surveying two years ago. Even though it rose to 18 percent in March, those who plan to “take action” by looking or buying declined, the survey showed.

Still, prices are lower than in comparable global cities. The average price of a three-bedroom apartment in Tokyo’s 23 wards and surrounding prefectures was ¥53.1 million, or $434,680, in April, according to the Real Estate Economic Institute. It’s 8.4 million Hong Kong dollars ($1.1 million) for a 600-sq.-foot apartment on Hong Kong Island, according to calculations based on government records, and $554,200 for homes in New York, according to Zillow Inc.

“Prices have risen while incomes and rents remain the same,” said Tomohiko Taniyama, a senior researcher at Nomura Research Institute Ltd. “No regular salaryman will find apartments cheap in Tokyo.”

While the home price-to-income ratio — the cost of a home relative to a buyer’s average annual income — rose to more than tenfold in Tokyo last year, according to property appraisal company Tokyo Kantei Co., it’s still below the 18 times it reached during the bubble era in the late 1980s and early 1990s.

Homes are unlikely to become more affordable, with the yen’s 41 percent decline over two-and-a-half years and investment yields higher than in some major cities abroad propelling foreigners to buy. While Japan remains small by total transaction value compared with the U.S., Canada and Australia, it’s now “comparable” to those markets in terms of the number of clients seeking deals, said Gui of SouFun realty.

“Properties in Tokyo are cheap and the returns are relatively high,” said Nomura’s Taniyama. “The quality of buildings is high while investment opportunities are abundant, unlike Singapore or Hong Kong where the number of available properties is limited. In that sense, Tokyo is one of the best destinations for investment.”