Q & A: Selling Before the Olympics / Effects of the 2016 Kumamoto Earthquake
Q1: Some Japanese experts are advising that you should sell your Tokyo properties just before the Olympics if you bought them within the last few years. What is your take on this?
The short-term view : Capital gains tax in Japan is doubled if properties are sold in the five years after purchase, so from a purely financial perspective, and taking into account projected sales costs (normally 3-6%, unless you're lucky enough to have a direct buyer lined up), you need to make sure it's worth your while, which would depend entirely on the price at purchase and sale.
The medium-term view: Factoring in the above, the general trend for property prices in Olympic cities is that they tend to build up in the years leading up to the event, then slump slightly afterward. So if the numbers are in your favor, and you're in it for the long haul, yes, selling just before the Olympics may be a prudent course of action.
The long-term view: The multi-trillion dollar question, as always, is what the future will bring, not just for your own personal holdings, but for the entire region and its local economies. I’m not holding a crystal ball, but noticing the volatility in the area and the reluctance of the current government to address some of the deep-seated social and demographic issues underlying Japan's economics, I would advise a less speculative and more monthly-yield-oriented approach. Stick to the buy and hold basics—if it's not generating enough to justify holding it compared to what your money could be doing for you elsewhere, simply don't.
Q2: How has the deadly 2016 earthquake in Southern Japan affected the property market in Japan?
photo: Ziv Nakajima Magen
Japan's property market is well-versed in natural disaster, as are its insurers and property holders. In that sense, it's business as usual for individual property owners, with no effect to the overall market.
From a more local perspective, a singular earthquake or even a series of closely occurring earthquakes and aftershocks would not cause any serious dent in market fundamentals. Kumamoto was, and will most likely remain, a very attractive market with a growing population, as well as a socially-aware local government that supports its aging population much better than many of Japan's municipalities. There are also some interesting local industries to watch out for, not the least of which is one of the world's largest mega-solar farms, built in rural Kumamoto prefecture and drawing many employees and businesses to the area. However, if this were to become a repeated occurrence, with the area officially declared more earthquake-prone than others, it would most likely have a deeper localized effect on the property market.
About the author:
Ziv Nakajima-Magen is a partner and executive manager at Nippon Tradings International, a proxy and buyers’ agency representing foreign investors with purchasing, selling and managing real estate property investment portfolios. For more information about investing in the Japan real estate market, phone or email Ziv Nakajima-Magen, Partner/Executive Manager at Nippon Tradings International.