Bountiful Japan

By Ku Swee Yong

/ Century 21 Singapore, The Edge Property |

June 25, 2015 9:00 AM SGT

The Japanese government and their business communities are on a global outreach to engage with businesses and investors all over the world. In the recent 2 years, JETRO, or Japan External Trade Organization, supported by IESingapore, or International Enterprise Singapore (formerly and better known as Trade Development Board of Singapore), co-organised several “Invest Japan” symposiums in Singapore.

At the most recent symposium held on 29May15, the Chairman and CEO of JETRO, Mr Hiroyuki Ishige, updated about the progress of Abenomics and the positive changes in the Japanese business environment. He stressed that Japan has been widely and wrongly perceived as a high-cost business location. He cited the example of a bowl of ramen in Ippudo restaurant in Singapore costing S$15 (before tax and service charges) which compares with the same in Tokyo retailing for less than S$8 (taxes included).

The key advantages of Japan highlighted by Mr Ishige are:

1. Opening up of the electricity market (i.e. potential reductions in energy costs)

2. Making the agricultural sector more efficient (i.e. the dismantling of the Japan agriculture system which prevented farmer from raising their productivity)

3. Improving the approval process of medicine and medical appliances

4. Joining the Trans Pacific Partnership negotiations

5. Improving corporate governance standards

More importantly, many companies in Singapore have recognised the attractiveness of the Japan market and a few of them shared their successes at the symposium: The Ascott Group, Sichuan Dou Hua Restaurant, MyOutlets (supplying halal food across Japan) and Winrigo (a Singapore recycling technology company with several factories in Japan).

IESingapore’s Deputy CEO Mr Chua Tiak Him (who obtained his BEngg degree from the University of Tokyo), was positive about the improvements: higher base wages, higher corporate profits, export competitiveness, etc. But he cautioned that the market is relatively opaque from the eyes of an international investor who faces language barriers and unfamiliar business rules (e.g. company structure, tax laws, etc).

Mr Chua said, “As a result, while Japan is an established economy in terms of per capita income, technology advancement and consumer sophistication, it is still an emerging market for foreign direct investments. There are policy ambiguities and operational challenges for foreign investors to venture into this mature, yet relatively new frontier.”

Mr Chua revealed that today we are seeing a new wave of Singapore investments into Japan due to the growth in Japan’s domestic demand. In 2014, Singapore-based companies quadrupled their investments into Japan. The total of US$1.43 billion investment made Singapore the 3rd largest foreign investor, behind the USA and Hong Kong.

The beginning of a structural uptrend

What impressed me most about Mr Abe’s government is Japan’s strong push to open up their inward-looking economy to the world. The regular engagements with international businesses to pull investment interest into Japan will generate more employment. The authorities have also started to reduce corporate tax rates from around 35% to below 30% over the next few years. Companies are also allowed tax breaks for raising staff wages. Such moves will boost employment and household income, and subsequently demand for residential properties will rise.

The opening up their mindset towards acceptance of foreigners is not limited to business investments alone, we expect many more foreigners to reside in Japan due to a slew of recently enacted policies.

Rules pertaining to the work permits for international healthcare workers have been relaxed, and the government is willing to recognise more overseas degrees and qualifications to attract foreign talent working in advanced technologies and biomedical sciences.

The qualifying period to apply for permanent residency has been shortened from 5 years to 3 years. And to attract affluent retiring foreigners to enjoy Japan, a special long stay visa was introduced this year.

More than 20 top universities are offering undergraduate and postgraduate programs fully taught in English. This is a significant policy shift that will help to reverse the shrinking workforce as foreign students join the Japanese workforce after obtaining their degrees.

Since early 2013, travel visas to Japan have been relaxed for many countries and visitor arrivals doubled from 6.2mil in 2011 to 13.4mil in 2014. Tourism growth has also been spurred by the weakness in the Yen. On top of that, a traditionally quiet industry segment in Japan is flourishing overnight: Halal food suppliers are quickly making inroads across major cities together with Halal-certified restaurants to cater to the demands of Muslim tourists.

More importantly, the demand for staff and accommodation has risen. Many have forecast a shortage of hotel rooms and serviced apartments way before Tokyo 2020 Olympics. Already we are seeing some of the demand for short term accommodation is now taken up by time-share dwellings and home sharing portals such as Airbnb.

Chart 1: Tokyo Condominium Price Index climbed 20% after Abenomics was introduced in early 2013.

Source: Japan Ministry of Land, Infrastructure, Transport and Tourism; Century 21 Singapore

Demand for real estate increased

In a research paper published at the end of April 2015, Bank of America Merrill Lynch equity strategist Kenji Abe listed 5 catalysts that will propel Japan’s stock market further: (1) end of deflation is upon us; (2) new management mindset and restructuring of corporations; (3) record high corporate profits arising from cheaper energy costs and the weak Yen; (4) substantial room for valuation expansion and (5) public money inflow into Japan equities.

In most developed markets, a strong performance in the stock market index will lead to an increase in real estate prices as some of the wealth made in the financial markets will diversify into real estate assets. The Nikkei 225 Index has doubled from 10,000 in early 2013 to over 20,000 today and over the same period, the condominium price index in Tokyo has increased at a slower pace of 20%, or about 8-9% per annum.

This article appeared in The Edge Property Pullout of Issue 682 (June 22) of The Edge Singapore.

Ku Swee Yong is the CEO of Century 21 Singapore. The views expressed here are his own.

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