20 October 2018
Flats in good school districts in Shanghai (left) have become expensive. In Tokyo (right), the law favors tenants over landlords. Photos: CNSA, Bloomberg
Flats in good school districts in Shanghai (left) have become expensive. In Tokyo (right), the law favors tenants over landlords. Photos: CNSA, Bloomberg

Risks in buying a flat in Japan and mainland China

The Japanese yen has kept weakening after hitting 75.35 against the US dollar in 2012.

It weakened to 125.50 to the US dollar this year.

The depreciation in the yen has not only stimulated Japan’s tourism sector but has lured more foreign investors into its property sector.

Most Japanese buy a home to live in themselves rather than for speculation.

They value the community environment as well as thoughtfulness among neighbors.

For example, no one is allowed to cut trees or even grass without permission.

There are also strict rules for sorting garbage.

Some neighborhoods set a specific date for collecting certain sorts of garbage.

Each garbage bag has to be marked with the owner’s address for tracking.

Some foreigners have found their garbage sitting outside their door because they failed to comply with the rules.

Everyone has to obey the neighborhood rules.

There are specific regulations for the colors of doors or windows and on keeping pets.

In some cases, when owners have rented out their flats over the Airbnb flat-sharing network, that has stirred up strong opposition from neighbors.

Though the Japanese are renowned for the seriousness with which they approach most endeavors, investors should also dig into the background of developers and contractors.

Not long ago, a property project in Yokohama was caught up in a short-piling scandal.

Developers had to compensate the residents, who had to evacuate.

Most local regulations and laws are in favor of tenants.

Therefore, it’s difficult to raise the rent or get rid of “rogue tenants”.

Investors should also be wary of taxation and foreign exchange risks.

Since the Japanese yen has moved up and down dramatically over last 20 years, investors should engage in good risk management.

Meanwhile, lower-tier cities in the central and eastern regions of mainland China are still grappling with housing oversupply.

More cities have removed home purchase restrictions, and property developers are keen to offer discounts to boost sales.

The central government has repeatedly emphasized the need for destocking in the housing sector.

It’s expected that there will more supportive measures early next year.

Beijing is set to maintain a loose monetary policy amid the downturn in economic growth.

However, housing prices in first-tier mainland cities remain very resilient despite sharp falls in office rents.

The country’s property industry index, compiled by CITIC, has soared 40 percent so far this year, compared with the gain of less than 7 percent in the CSI 300 index of major stocks.

The property sector has outperformed the benchmark, and its stock prices almost doubled during the market peak in June.

Parents have been chasing flats in particular neighborhoods to land a place for their offspring at a well-regarded school in the area.

As a result, flats in these districts are becoming more expensive, as so many middle-class families are vying for high-quality education.

However, navigating school zones has become much trickier, as the authorities intend to overhaul the placement system.

Those who spend a big fortune for a tiny flat to get their child into an ideal school might find themselves being zoned for another school.

This article appeared in the Hong Kong Economic Journal on Dec. 16.

Translation by Julie Zhu

[Chinese version中文版]

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General Manager, Head of Investment, Investment Management, Bank of China (Hong Kong)

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