I am spending this week in Tokyo where I’m witnessing a degree of over-excitement in the financial community. The cause? Speculation that numbers out next week will show that land prices in Japan are flat and anecdotal evidence that house prices in central Tokyo may be rising slightly. This may not sound like particularly riveting news, but for those who have seen the prices of their homes fall by a steady 1-2% a year for a decade, I can assure you it is.
Imagine having been in negative equity for ten years and finally seeing salvation. Imagine then being able to buy into a property market where not only are prices not falling, but you can take out a fixed mortgage at 2% and buy an apartment that yields 6%. This makes a rather better investment than taking out a mortgage at 5% and buying a flat that yields 4%, for example (as so many of the UK’s buy-to-let investors do).
It is also an environment that may herald the long-awaited return of consumer confidence in Japan – note that in February, department store sales in Tokyo were up 0.3% year on year. Again, that might not sound thrilling but it is the first positive move since 2001. Add this to the many other convincing statistics out recently and things look pretty good for Japanese markets.
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Yet the fund managers I’ve been speaking to since I arrived earlier this week aren’t convinced. They may have been rushing into equities to keep their performance up, but they’re covering themselves with mutterings about Japan being the best of a bad bunch among global markets as they do it. The fact is that Japan’s managers and brokers have been caught out many times before. They proclaimed a turnaround in 1995 and another in 2000. On both occasions they were totally wrong. The upshot? They aren’t keen to stick their necks out a third time.
“It seems a little bubbly to me,” one Japan old hand told me today of the property market. Bubbly? A bottoming out of prices and a 4% yield gap? Doesn’t sound like a bubble to me – sounds more like a buying opportunity.
I will be looking into the ways from which to benefit from this apparent turnaround over the next few days – in between careful inspections of the interior of Tokyo’s fantastic new Prada shop – and I will let you know my conclusions when I am back next week.