CapitaLand Japan will grow to be recognized for its strong development capacities

In the first quarter of 2018, Tokyo overtook London as the world’s busiest real estate market, with investment volumes reaching USD9.1 billion. Many factors influenced these investment waves, such as the Tokyo 2020 Olympics, the decreasing demographics or the increasing influence of Asia on the world scene. Could you give us a brief analysis of the Japanese real estate market?

Japan’s economy has been growing and corporate profits have been steadily increasing. In 2017, corporate profits reached an estimated JPY22 trillion. This is a JPY7 trillion increase in comparison to the pre-crisis level which stood at JPY15 trillion. This positive development created wealth. When corporates gain more money, they naturally want to invest more, move to larger offices and hire more staff.

The trend in office rental closely follows that of corporate profits. As a matter of fact, we saw that office rental picked up since 2014. In early 2017, we were worried that there would be an oversupply of offices in 2019 and 2020. However, demand has picked up  and the vacancy rate of offices has remained relatively low.

We think that urban development in Tokyo will continue for the next 10 years. Locations such as Shibuya, Toranomon area, and Tokyo Bay area will be developed beyond the 2020 Olympic Games. For example, the Shinagawa area is preparing to receive the Maglev. These developments are not temporary, they are aimed at the long term. Furthermore, Japan’s regional areas are also undergoing major redevelopments, like Fukuoka’s “Tenjin Big Bang” initiative which aims to nearly double the office space and more than double the workforce in Tenjin area. In Osaka, the next phase of Kita-yard redevelopment project has started and in Nagoya, the upcoming Maglev is creating opportunities and reshaping the urban landscape.

Foreign observers are alarmed by the effects of the shrinking population. From a national level, that statement is indubitably true. But if one looks at Tokyo alone, one actually witnesses a steady demographic increase. Since 2000, the 23 wards where Tokyo’s population lives has welcomed an extra 1.4 million inhabitants. The Greater Tokyo area is the world’s most populous metropolitan territory, with over 30 million individuals. If we look at Japanese cities individually, such as Tokyo and Fukuoka, their populations are growing. The Government predicted that Central Tokyo’s population will continue to grow till 2035 . And that is considering that the Government does not take into account the new immigration policy.

Young and wealthy individuals are moving to Tokyo for two reasons. Firstly, the bursting of the real estate bubble has reduced land prices and driven urbanisation. Secondly, Tokyo is appealing in terms of work-life balance. People want to live close to their office, they want to work and live, not work and commute. Young people are attracted by this comfortable lifestyle. Furthermore, the median  salary of people living in Central Tokyo is getting higher, and that is driving real estate prices.

The number of rich individuals (10 million JPY annual salary) living in Tokyo is increasing and it is creating solid prospects for high end apartments. Employees’ salaries are expected to increase given the tight labour market. This will further contribute to individuals’ rising income and by extension, real estate.

What will be the long-term influence of the Tokyo 2020 Olympics?

The Olympics is a catalyst that will spur tourism, but the increase in number of tourists coming to Japan will not solely be because of the Olympics. The main reason is that Japan has many things to offer and getting bored is not an option. In 2011, eight million tourists visited Japan. Last year, that number reached 28 million, and I am looking forward to Japan hitting its target of 40 million by 2020. Furthermore, around 60% of tourists are repeated visitors.

When the country announced it was hosting the 2020 Games, it created hope. People started investing in infrastructure, from hospitality to offices. This increased investment in office building isn’t directly linked to the Olympics per se, but it reflects the optimism created by it.

Furthermore, tourists are visiting regional cities other than Tokyo. They are going to places like Okinawa, Osaka, Kyoto, Nara, etc. These inbound visitors are revitalizing regional economies, and investments will follow where visitors go. By 2020, the Government expects visitors to spend JPY8 trillion. This growth is sustainable, and it will go beyond Tokyo 2020.

What do you expect from the new immigration policies?

With the rise of technology, we witness that business people come to Japan more frequently but for shorter periods of time, restricting the growth of expatriate residents.

More important than the high-end expat is the mass-market immigrant. With the construction boom preceding the Olympics, Japan has attracted many foreign construction workers. In the longer term, with the population growing old, Japan has a real need for caretakers, construction workers and factory workers. While PM Abe did pass policies to encourage female workers and elderly involvement, in the meantime, we also have a choice to welcome foreigners. At CapitaLand Japan, we have many foreign staff, particularly in Ascott Japan, our lodging business entity. The influx of immigrants will generate economic growth and create housing demand. As Japan is trying to embrace globalization and break away from its “island mentality,” there is a need for such skilled immigration. Because of the language barrier, it is hard for foreigners to start working here. One way to mitigate this is to bring in more students and encourage them to work in Japan after their studies. The Government of Japan has a "300,000 Foreign Students Plan," which calls for the number of foreign students in Japan to increase to 300,000 by 2020.

CapitaLand began its Japanese operation in 2001. Could you please highlight the key milestones of your company since inception?

Generally speaking, Japan is a difficult market to penetrate, particularly in the real estate industry, which is capital intensive and where good location is important. We therefore began by collaborating with national partners, such as Mitsubishi Estate Company Limited (MEC), with whom we jointly developed serviced apartments, condominiums and office buildings. Our greatest milestone occurred last year when we established our most exclusive brand and property in Japan: Ascott Marunouchi Tokyo in the Otemachi / Marunouchi area.  Subsequently, we also work with other major corporations like NTT Urban Development and Takashimaya to explore opportunities to develop serviced residences in cities like Osaka and Fukuoka.

Our partnership with Japanese corporates extended beyond the borders of Japan. We also have joint venture projects in Singapore and other countries with Japanese partners.  

Can you give us a quick overview of your Japanese portfolio?

We currently invest in and operate 24 serviced apartments and rental apartments, 4 office properties and 5 shopping malls in Japan. As at end of 2017, our total assets under management (AUM) was S$2.5 billion.In 2017, we announced that we aim to double that number.

What is your strategy to double your assets under management?

We will increase our AUM via direct investments as well as management of third party properties. Previously, we focused our efforts on direct investment, which is capital intensive and time consuming. Now we also  emphasise on managing for third parties and leasing from other landowners, which will allow us to expand our AUM quicker.  Ascott Marunouchi Tokyo is a leased property from MEC and we are going to lease another serviced residence from Takashimaya in Osaka that is planned to start operation at the end of next year.

We are also interested in acquiring platforms to further increase our presence here. Ascott recently acquired companies in Australia, USA and Indonesia  which rapidly increased our size and we hope do the same in Japan.

How would you convince a potential client to use your services?

When someone first comes to Japan for business, they need to live. In Japan, finding an apartment can get complicated.  We offer our serviced apartments under different brands and configurations to meet your needs. From a Studio to a 3-bedroom apartment in Ascott`s portfolio, just give us your requirement and we will find you a place. Once you have settled down, you will need an office. While we do not have many offices yet we can be the bridge between our partners and yourself. Whatever you need, we can refer you to our partners and assist you to find you a place to work.

Last year, foreign investors represented around 20% of all real estate transactions. Why do you think that foreigners are so scared to invest in Japan?

While the percentage of foreign investment is relatively low in comparison to other cities, the final amount remains massive. Nevertheless, I believe that the first factor is the language barrier. Because of this linguistic limitation, foreign investors believe that Japan is a difficult region to place their capital. However, the rules of the game are clear and simple, and there are no heavy regulations for outsiders. You are literally treated like a local and all properties are freehold. This ease-to-invest coupled with the positive macro-economic outlook creates a market full of opportunities.

What ambitions do you have for CapitaLand Japan?

I hope that CapitaLand Japan will grow to be recognised as a developer with strong development capabilities, fund raising and fund management platform, on top of its successful operating platforms.