Sumitomo Realty banks on Singapore’s appetite for Tokyo property

January 7, 2015 3:16 PM SGT

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SINGAPORE: Shintaro Hayashi, director of Sumitomo Realty & Development (Singapore), believes resort properties do not make very good investments.

“Resort areas are very risky, so you should invest with care because the trends are always changing,” he says.

Hayashi speaks from experience.

Thirty years ago, his parents purchased a property near Hakone, a countryside resort town less than 100km from Tokyo.

It is popular with both Japanese and foreign tourists because of its natural beauty, hot springs and picturesque views of Mount Fuji.

When Hayashi’s mother passed away several months ago, he inherited the house.

“I was surprised by the valuation,” he recalls.

The value of the property was down to just 10% of what it was worth 30 years ago.

He therefore advises investors to stick to buying properties “in the centre of the city”.

Sumitomo Realty, one of the biggest real estate companies listed on the Tokyo Stock Exchange, was an early mover that capitalised on foreign demand for Japanese real estate.

It all started in 2011, when Sumitomo Realty’s sales offices in Japan started to see a stream of Taiwanese visitors expressing interest in buying property.

Sumitomo Realty’s sales offices in Japan were damaged in the earthquake and tsunami in March 2011.

The company’s response was to explore opening sales offices overseas, says Hayashi.

As a result, sales and marketing offices were opened in Taipei, Hong Kong, Shanghai, Singapore and Bangkok three years ago.

As a leading property developer in Japan, Sumitomo Realty also develops and owns many large-scale projects in the Tokyo CBD, and currently manages more than 200 commercial buildings for lease.

It also develops and sells more than 5,000 condominium units a year.

According to its annual report for 2014, the company intends to increase the delivery of such units to about 6,000 a year from 2015.

Sumitomo Realty’s condo operations are located in the six largest urban areas in Japan: the Tokyo metropolitan area, Osaka and Kobe, Sapporo, Sendai, Nagoya and Fukuoka.

In recent years, the property developer has also expanded its presence to other major cities such as Niigata and Hiroshima.

A diversified company, it also has a leasing arm that handles 2,800 luxury apartments in Tokyo for lease.

Therefore, the company is able to extend its property management and leasing service to buyers of its condos and apartments in Japan.

In Singapore, Sumitomo Realty markets its own residential developments in Tokyo for sale.

It conducts property seminars at least once a month.

This practice is a departure from the norm, where most overseas residential develop ments, including those from Japan, are marketed by property agencies in Singapore.

The prices of its residential properties range from ¥45 million ($494,000) to ¥50 million for a one-bedroom unit of about 40 sq m (431 sq ft).

Such units are referred to as one-LDK (living, dining and kitchen).

While some people opt for the assurance of a rental guarantee, others prefer to ride the rental market.

Generally, rental yields of residential property in most major cities in Japan are in the range of 6%, estimates Hayashi.

The timing of Sumitomo Realty’s entry into Singapore could not have been better.

In January 2011, the Singapore government increased the seller’s stamp duty across the board for residential property to 16%, 12%, 8% and 4% for those who sell their property within the first to fourth years, respectively, of purchasing it.

This move was followed by an increase in the additional buyer’s stamp duty in January 2013, which included lower loan-to-valuation limits for those buying their second, third and subse quent properties.

That has led to an exodus of property investors from the Singapore property market, actively seeking alternative investment opportunities overseas.

With the lacklustre sales in Singapore, even property agencies that had previously concentrated on marketing local projects began shifting their focus to overseas properties.

Tokyo became an increasingly popular investment destination over the last two years, especially since the announcement of the 2020 Olympics in September last year.

In fact, Sumi tomo’s best-selling project in Singapore this year was its Deux Tours Canal & Spa, comprising twin 51-storey blocks of a total of 1,450 apartments.

The strong interest can be attributed to the location of the high-rise towers on the manmade island of Harumi in Tokyo Bay, the site of the 2020 Olympics Village.

Hayashi notes, however, that most Singaporeans tend to favour areas they are familiar with and have visited before — such as Shinjuku, Ikebukuro, Roppongi and Ginza — and they also prefer large-scale signature developments.

As the yen weakens against the Singa pore dollar, Tokyo has become an even more popular holiday destination.

Weekend exhibitions and property seminars showcasing projects in the city have become more frequent.

“We are very happy that there is strong interest here for Japanese properties,” says Hayashi.

As there are more choices available, he advises investors to be discerning.

“Investors need to know that there is no free lunch out there,” he emphasises.

“If there are developers promising them free property tours to Japan, high yields, low entry levels, there is usually a catch.” In June last year, the total debt servicing ratio (TDSR) of 60% was introduced in Singa pore, effectively curtailing the purchasing power of investors and affecting sales of both local and overseas properties.

“TDSR is indeed a concern for some Singaporean investors,” notes Hayashi.

Still, there are investors who are prepared to pay in cash for their investment properties in Japan.

Singapore banks such as OCBC and UOB also provide financing for Japanese property purchases, but buyers are subject to the TDSR limits as well.

The private banking arms of some of the major Japanese banks have started to extend financing to foreign investors of Tokyo property recently.

As the banks are in Japan, Singaporean investors will not be subject to the TDSR.

The buyers will have to be of a certain net worth, however, and the maximum financing ranges from 50% to 60% of the purchase price.

The announcement at end-October of Japan’s introduction of both quantitative and qualitative easing has helped push down the yen, which in turn led to strong export figures.

With Japan once again in recession — its third in four years — the government has also delayed a second sales tax hike originally scheduled for April 2015.

This has gone some way in easing concerns about consumer spending.

Anecdotal evidence is that even more Singaporeans are holidaying in Tokyo and shopping for a property there.

Some potential investors have expressed concerns about Japan’s economy, admits Hayashi.

Property is a midto long-term investment, however, and Japan is still a “safe and stable market like Singapore”, he says.

According to a recent Barron’s report, Tokyo apartment prices have appreciated 17% since bottoming in December 2012.

With the Tokyo Olympics, demand for raw materials is set to rise, which will lead to an increase in construction costs.

That in turn will push up property prices.

“We believe property prices will continue to increase steadily in 2015,” says Hayashi.

This article appeared in the City & Country of Issue 655 (Dec 8) of The Edge Singapore.

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