As the number one investor in properties up to ¥1 billion ($8 million), the Tosei Corporation has found a niche market to capitalize on in Japan and sees a bright future for the sector as it works to attract more foreign investors to its operations. Seiichiro Yamaguchi, President & CEO of the Tosei Corporation, outlines why the company believes Tokyo’s real estate sector is a “blue ocean” for small to mid-sized asset investments with enormous untapped potential.
How can the Tosei Corporation expand its revenues and profits?
In our opinion, we are swimming in a blue ocean: the ocean of limitless opportunities by focusing on the investment in small to mid-sized assets (those less than 1 billion JPY).
The market is still quite large and big companies have hardly competed in this field. There are few competitors. That is why we have named our strategy the “blue ocean strategy”, through which it we have become the number one investor in this area.
As I mentioned, the market is quite large. The area’s stock amounts to around 2.5 billion JPY, and the private sector holds around 470 trillion JPY.
We have analyzed the annual volume of the transactions for the small to mid-sized assets, which is about 8 to 10 trillion JPY. This means that by raising our market share just 1%, our revenue would increase by 100 billion JPY. Accordingly, this is an ocean of enormous potential for us.
What effect has Abenomics had on the real estate sector and Tosei?
Abenomics has had a good impact on the economy: a weaker yen, for instance, has been attracting foreign investors. It has caused a historic rise in stock prices, which has, in turn, stimulated consumption, especially among high-class end-users.
In relation to the real estate business, the sales of high-class condos (which is more than 200 million JPY) have been going well.
How have you been tapping into foreign investment?
We have already managed to get funding through AUM – Assets Under Management – for 500 billion JPY, where the amount of private funds and J-REIT is more than 300billion JPY, which comprises more than 70% foreign investments.
We can also tap into foreign investment through the SGX listing, which we achieved in 2013. Thanks to that, we have been enhancing our brand recognition in Southeast Asia.
Before the listing, people in Hong Kong and Singapore already knew about the big Japanese estate companies, but not us. Now, they have come to recognize us.
We also set up a subsidiary in Singapore in 2012, which has enabled us to attract foreign investment more easily.
How have you been growing the business?
Our revenue this year has nearly become 1.5 times as much as that in 2013: from 35 billion JPY to 51 JPY. This could be ascribed to our success in our revitalization business, which is our driving force.
Meanwhile, three stable business segments have supported the revitalization business, covering all the costs in administration and interest.
We have set a vision for 2020 of 100 billion JPY in annual sales. 2020 has a particular significance to us, as it is the year of the Tokyo Olympic Games, which will arguably bring us substantial business opportunities.
Moreover, the market is quite large and there is big room for the revitalization business in the Greater Tokyo area. We are confident that reaching the 100 billion JPY target would be achieved with the 1% growth in the market share, as we mentioned before.
In addition to this, we established Tosei Reit in November last year. We have a great opportunity to purchase assets, revitalize them by raising the occupancy rate, and sell them. Tosei Reit gives us a window for wider opportunities.
The 100 billion JPN sales vision itself would be our biggest challenge. However, we are certain that it is achievable under our blue ocean strategy by means of increasing our market share by 1%.
What would you ascribe the company’s impressive growth to?
2014 was certainly an impressive year for us for a number of reasons. To begin with, our business is well diversified as it operates in six different segments.
This allows us to support revitalization business by securing stable profitability. In other words, revitalization and the other three stable business segments are the inseparable two wheels for us to go forward.
Moreover, our strategy to focus on small to mid-sized properties bore fruit. This was further fortified by making Tosei Reit listed on the J-REIT market last November, by providing Tosei with stable ground for continuous growth.
These factors are also reflected in our new mid-term plan for 2017, through which we have set the target of reaching 100 billion JPY in annual sales by 2020.
How is Tosei’s “Heart into the City” brand part of the company’s activities?
Certainly, this motto is at the core of our corporate culture. Based on this, we strive to respond to social expectations by strengthening our business foundations to maintain sound growth, while taking initiatives to reduce any environmental impact and carrying out all other necessary corporate activities.
Abiding by our corporate principles, at Tosei we will fulfill our social responsibility, aspiring to become a company that is even more trusted by society.
In particular, minimizing environmental burdens is our utmost priority in this regard, which can be realized by actively promoting resource and energy conservation in both the revitalization and development business.
We have already implemented a series of energy conservation measures, which have been highly appreciated in the form of receiving the CASBEE (Comprehensive Assessment System for Built Environment Efficiency) A grade from the governmental-related institution, as well as a Good Design Award.
What is your relationship with NAI Global?
One of our strengths lies in a strong track record and a strong tie with domestic lenders, trust banks, and brokerage firms. Thanks to them, we can obtain vital information on real estate and can conclude favorable asset deals exclusively, which is valued by NAI International.
NAI’s clients are wealthy individuals who are rather interested in small to medium-sized assets, our own specialty. In general, except for certain cases, they are hardly interested in big assets over 2 billion JPY, but their target is under 1 billion JPY.
What separates Tosei from other competitors?
Among our advantages are our financial transparency, accounting and legal measures. The fact that we are listed in Singapore as well as on the TSE enables us to raise our profile as a globalized company.
What are the future ambitions for the global reach of Tosei?
We have a varied set of strategies. First, we endeavor to attract more foreign investors, and we also intend to expand our AUM.
Second, we are interested in out-bound business as well. We have done research for expansion in Southeast Asia, including Singapore, Malaysia, and Indonesia.
We hope to extend our business model – revitalization – to these countries as well.
We are currently focusing on attracting investment from Southeast Asia including Singapore, Hong Kong and other Asian countries. We have kept sending messages why Japan and why now.
So, why Japan and why now?
First of all, Japan has financial transparency. Secondly, we can expect property prices and rents to go up, leading to heightened market liquidity. Abenomics is improving the economy.
Japan has a large stock market and the volume of the real estate market is the second largest in the world. Abenomics has resulted in lowering the interest rate of the Japanese Government Bond, which stands at 0.3% at the moment.
Moreover, if you invest in real estate in Tokyo, you can get a 5% cap rate, which is the second highest in the world after Sydney.
Against this background, Tosei can be the trusted partner for international investors to capitalize on these impressive opportunities.
I also believe that now is the ideal time to invest in Japan’s real estate sector for several important reasons. In the first place, the current government led by Prime Minister Abe has given Japan much needed political stability and policy continuity, which give both domestic and foreign investors enormous confidence.
Moreover, there is extremely attractive debt financing from Japanese financial institutions at the moment, which, coupled with a 50% depreciation of the yen, has created an exciting environment for foreign investors.
Taking these positive signs, we anticipate that there will be a tremendous opportunity for investment into the real estate sector in Japan, and we would be more than happy if we could be of help for foreign investors to capitalize on these attractive opportunities.