By Priti Donnelly
If there is one city in Japan to watch for, it is Kumamoto, the capital city of Kumamoto Prefecture on the Kyushu landmass. Here you will find a property market in which opportunities are rare and sell almost as soon as they hit the market. Most investors familiar with the Japanese property market focus on high yields and affordable prices. A city such as this, in its growth phase also has the potential for increased land value. Hence, Kumamoto is one of those markets with the potential for the best of both worlds.
Kumamoto has experienced remarkable growth. Notable for one of the largest solar farms in Japan and positioned as a hub with a port for people and import/export of cargo. In this satellite city, population has grown from 670,348 in 2008 to 734,917 in 2015. That’s 9.63%! Compare that to 3.91% growth in Fukuoka, 1.31% in Kobe and 1.13% in Sapporo during the same timeframe. The location continues to draw tourists to its natural hot spring resorts and to the impregnable, defensive designs of the historical Kumamoto Castle dating back to 1467.
Affordable High-Yield Properties
Where there is a surge of population in a developing area, investors can find affordable, high yield properties. It’s first come first serve for the rare availability of one room apartment units (“mansion” in Japan) on the market in Kumamoto. Prices can be as low as 2.4 million to 2.8 million JPY (USD $21K to $25K) at between 7.5% to 9% yield net pre-tax, approximately USD $150 to $240 net income per month.
Governance in Kumamoto supports subsidized employment and volunteer opportunities as well as rehabilitation and housing services for first offence ex-cons, the destitute and homeless. Therefore, along with great price and high yield, unlike other parts of Japan, the government pays rent directly to the landlord. In fact, some realtors and property manager offices specialize in buying vacant buildings to rent entirely to welfare recipients because of the high and secure returns.
From our experience we have never had a vacancy longer than two months in this city. Part of the reason is that properties are generally within ten minutes walking distance to the nearest train station. By comparison, Sapporo has five to six month vacancies, despite its size, high returns and white collar industries, and similar vacancies in Nagoya, the industrial powerhouse city.
Investors often ask us about the effect of earthquakes in the area. Again, from our personal experience, on the 14 properties under our management, approximately only USD$500 in damages and that was to one window frame and some flooding under it. Even if there had been more damage, investors would have been protected under insurance.
One of the reasons that Kumamoto does not tend to disappoint is that many of the properties were built after 1981when the building standards act was revised for earthquake resistant construction methods. While 1981 is a turning point for some investors, some older buildings built prior to 1981 can be retrofitted to bring them up to code by renovating, repairing and re-strengthening exterior walls. In assisting buyers with their due diligence, we look to see if the building has sufficient accumulated funds for repairs to cover the cost for work, or alternatively we look for completed work to justify depleted funds. Either of these cases tells us that the building is well managed, common in Kumamoto.
For these reasons, investors say Kumamoto is one of the best high return locations in Japan. if you see an opportunity don’t ponder over it too long. Properties there don’t come up often enough and when they do they most certainly don’t last.
Priti Donnelly – Manager, Sales and Marketing
Nippon Tradings International (NTI)
Priti Donnelly is the sales and marketing manager at Nippon Tradings International, a proxy and buyers’ agency representing foreign investors with purchasing, selling and managing real estate in Japan. She helps real estate investors, new to the Japan property market understand both the value of the cash flow property market, the challenges, as well as assisting with individual needs in growing cash flow portfolios.