Thursday, May 19, 2022
Industry & Trade | Asia-Pacific | Japan

Japan

Vertex: your ideal partner for Japanese real estate investments


11 months ago

Yuji Kajio, President of Vertex
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Yuji Kajio

President of Vertex

Yuji Kajio, president of leading Japanese real estate firm Vertex, gives his insight into the Japanese real estate sector and the opportunities for foreign investors, as well as more info on Vertex's role and what it can offer.

Since Abenomics was introduced in 2012 with a fiscal stimulus package and monetary policies there has been census stability created in the Tokyo market. The land prices and the value of metropolitan commercial and real estate properties were rising for four to five years, but in 2020 the coronavirus brought huge destruction in the market. Could you give us your present outlook for this year and for the years to come?

With regards to the Tokyo market we do not see any reason to change our strategies even during this covid-19 pandemic. Our company’s major activity on real estate involves dealing primarily with condominiums and the demand for this kind of market is steady. On the whole, families are moving to the suburbs from Tokyo. However we think the demand is strong because single-person households continue to grow as of now. We are also seeing good indicators with the inflow of people inhabiting Tokyo; the number of households is increasing. In addition, although there are movements from Tokyo to the suburbs regarding the family group, some families living in other prefectures want to have their kids study here.

In fact, we see a lot of changes in the infrastructure such as an increase of school facilities or industrial improvements here in Tokyo. Furthermore, there is a steady proportion of supply and demand even during the coronavirus pandemic. For these reasons our business is showing positive results and the future for our company seems to be promising. We also do not believe that the corona shock will cause a financial crisis. Although it is expected that lifestyle shifts such as the telework shift will have some impact on each industry, the economic recovery accompanying the improvement of corporate fundamentals due to improved productivity, in addition, there is possibility of inflation in Japan due to the current strong monetary policy. We believe that the attractiveness of investing in high-spec and good location single-person real estate will be further enhanced. In addition, we would like to briefly introduce the Special Zone for Asia Headquarters, which is one of the attractive policies of Tokyo in the real estate market. The government started an initiative last year that around five hundred foreign companies are allowed to settle down here in Japan where they can open offices with tax low rates, as of March 2021 only ten percent of these companies have joined the program and have started doing business here in Tokyo. After the corona pandemic calms down, we expect that the number of attracted foreign companies will increase and the population will also increase accordingly.

 

Back in 2019 and 2020 there was an outcry in Japan stating that there was an oversupply of rental spaces and that the demand will not be able to catch up. During our interviews back then the companies told us that the media was wrong and that this idea of oversupply is due to the lack of information. In this interview you have mentioned more people and companies are coming in. Who should we believe in, the Japanese investors or the industry leaders?

We recognize that the supply of offices has increased. In addition, home became a workplace and office demand decreased due to the shift to new lifestyles such as teleworking. We were seeing a plunge in the occupancy rate, people left their offices and started working from home. We also see a drop in rental fees for offices because the demand has gone down. Now, we could see that the office rental market is severe in the current situation. On the other hand, the vacant space in the city center of Tokyo is limited and the number of construction starts for single-person condominiums (assuming 50 square meters or less) is limited, so the supply and demand of single-person condominiums is stable.

 

We know that the inflow of people in Tokyo will peak by 2040 and then will start to decline. With this aging population in Japan it is expected that by 2050 almost one-third of the Japanese will be over sixty-five. What is your outlook on this decline in population in Japan?

What I am about to say is based only on my personal opinion on how the market is going to be, especially because nobody really knows the exact number of the population in the years to come. One thing that I can say for sure is, before this covid-19 pandemic the number of people coming to Japan on a temporary basis decided to stay here and it was in fact increasing. We see a lot of foreigners investing and acquiring some assets here in Japan. At present, the population is expected to be further concentrated in the city center of Tokyo. In addition, we believe that the outlook for the real estate market will be even more positive if Japan and Tokyo promote policies aimed at accepting foreign nationals and becoming a tourism-oriented country. Currently, more than 3 million foreigners live in Japan, and the population of foreigners in Japan is on the rise. In addition, it is expected that the population of foreigners will increase by promoting policies to attract foreign-affiliated businesses, therefore we are thinking that not only Japanese but also foreigners in Japan will become important

 

Your business can be split into six different segments: consulting, development, renovation, real estate agency, rental management and property management. Can you tell us about the synergies that you have created between these six different business segments? Which of these six are you focusing more of your efforts on?

Our main business is to develop and acquire condominiums for singles and to sell the real estate with our consulting skills. In addition, our real estate products are excellent in security and soundproofing. We provide consistent services to customers from searching highly profitable land to buying and selling properties. The services that we provide are continuous; we get feedback from our customers on what they want for the design of the properties and then we build them with a perfect living condition in mind. The properties that we build must meet specifically the needs of our customers. We believe that adding value to customers can be improved by linking purchasing, product sales, rental management and property management. In addition, our distribution channels aim to reduce the cost by purchasing everything that is needed for the construction of property by dealing directly with different suppliers and manufacturers. We are actually flexible in creating a synergy between being a real estate company and being a developer. Our customer satisfaction is very high, in fact we are proud to say that the occupancy rate of our properties in Tokyo is 99.6%. In 2020, we also won the Good Design Award. Furthermore, we won the triple crown in three segments (Client reputation) in Japan Trend Research: "Satisfaction with after-sales follow-up of real estate investment companies in Tokyo", "Real estate investment companies that can make proposals tailored to customers", and "Satisfaction with seminars at real estate investment companies". Vertex makes the customers’ ideas come true.

 

Looking towards the future, are there any projects or new developments that your company will undergo?

The demand is stable because we have a successful track record in this industry due to the positive feedback from our customers. Currently we are working over twelve new properties that will be released sometime soon and we would like to be sustaining the same level of occupancy rate.

 

You use AI technology to assess the risks for customers and provide them with a clarified purpose of investment. Could you tell us more about how you are using digital technology in your business?

The digital technology that we use allows for transparency and gives a simulation on what the property would look like. Before even purchasing the property, our customers are the ones who input the data according to their vision and needs and they can do this anywhere and at any given time, they just need to use a browser and log into our website. As a part of our service we give our customers a consultant who could give them advice, this is very crucial for our customers’ decision-making process. We are also holding seminars for beginners online, therefore, we recommend that you participate in the seminar first of all.

 

Your Verfund is interesting because it helps beginners to start investing in the Japanese real estate market with a minimum amount of capital. Why did you create Verfund? What has been the response of the market to this particular type of investment?

Verfund is for the people who are novice in the real estate investment activities, those who are just starting off and are trying to see what these are all about. With Verfund our potential customers can start investing for only ¥100 thousand and are given choices. One reason why we created this particular type of investment is to attract customers in order to have a better cash flow. Another reason is, we actually have our customers decide whether they would like to use their ¥100 thousand as some kind of reimbursement of the initial loan that they acquired or use that same amount of money and see where that would take them and see the possible returns from the investment. We give full transparency to our customers in order for them to understand what the investment is all about and they make decisions by themselves. Real estate in Japan is now very attractive in many ways for people who are interested in investing. The reason is the financial institutions are giving low interest rates, usually about 2%.

The returns of this real estate that you are investing into is 4% on the average. This kind of investment is a win-win situation. In addition, life insurance effects and tax-saving effects can be expected, and depending on the person, it may be possible to reduce income tax by 80%. Our company’s corporate philosophy is to turn anxiety into dreams and hopes where our customers gain assets in the future through our real estate business. We regard this as our mission and the very essence of our existence.

 

I would like to know more about the close relationships your company has with financial institutes. We know that your company has partnered with up to twenty financial institutes with preferential loans at 1% interest rate. Could you tell us more about this ability to give favorable conditions to your customers and how it made you a go-to partner?

The thing that makes this attractive to potential or existing customers is the alliance that has been created by some of the biggest financial institutes here in Japan. This created synergy allows us to introduce better interest rates starting off with 1.2%. This is just the tip of the iceberg, there are many other factors that we take into consideration before we introduce any services to the customers. These factors are such as age, workplace, length of service, annual income, etc. On the other hand, the brokerage rate in our company starts at 0%  and the down payment starts at ¥100 thousand. We explain to our customers the benefits that they can get depending on their desires specifically on the kind of property that they prefer. 

 

There has been an increase in tourists and foreign investors coming to Tokyo. Your company could perhaps offer these people an integrated service where you are able to provide them with loans and a place within Tokyo Central Wards. What role does the growing market of foreign investors coming into Japan play in the development of Vertex? What more can be done to attract more foreign capital?

As for our customers, the number of foreign investors who have been working in Japan for the past five years and are starting to invest using loans is increasing. For the most part we attracted investors to the areas in Tokyo where we have a good track record, however we are not just limited to Tokyo because there are many other areas currently that have received great interests from foreign investors. We are thinking of introducing more aggressive IR activities in order to provide as much information about places, lands, and infrastructure for people to have full understanding on what they are buying or renting. These activities should be laid out perfectly for foreigh investors. We would also like to utilize an interpreter to make the agreements more understandable, as you know language barrier is still prevalent in real estate companies and the documents that contain provisions are written in Japanese. Working with affiliated companies would be very helpful to build that bridge towards better understanding between us and foreign investors.

There is an increase in resorts in Japan which is also a type of real estate that foreign investors may find interesting. Speaking of potential investments, whether domestic or foreign, since Japan is a country that attracts a huge amount of people the returns would be favorable. I am speaking of a situation before the covid-19 pandemic. There are many projects running right now and when this pandemic is over, more tourists will be coming to Japan. Investing in resort or recreational properties is promising. In Hokkaido, Niseko is one gem, a resort area that is highly visited by people who love skiing. The price per square meter of land area is increasing and our company is keen on putting in a lot of investments. These are some of the things that we would like to be focusing more on in the near future.

 

If we look at transportation costs we know that low-cost airlines such as AirAsia or Peach are now flying to major areas like Hiroshima, Osaka or Nagasaki. Can you tell us the impact that these low-cost airline transportation companies bring to the real estate market in attracting foreign investors especially from Asia such as Singapore and Taiwan?

We cannot say that the convenience in the air transportation is the only key factor that causes the growing number of investors. Shinkansen also plays an important factor connecting one city to another which attracts the tourists. It is the convenience of the overall transportation system in Japan that attracts investors to come here aside from the fact that this is a beautiful country that is rich in culture and with remarkable landmarks.

 

Imagine we come back to interview you again in ten years, what would you like to tell us? What are your dreams for the company and what would you like to have accomplished by then?

We are currently designing a plan for our company to be in the Tokyo Stock Exchange and I plan to have this accomplished in less than ten years. This will possibly allow the company’s further growth in terms of size, sales, and margins. We want to build more space locations, the big ones with cutting-edge facilities.


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