Investors looking beyond Tokyo

The Nakanoshima district in Osaka city, Japan.

Overseas investors are shifting their attention to Japan’s regional cities such as Osaka for better opportunities. 

By Michelle Yee

While the city of Osaka is often overshadowed by Tokyo when it comes to tourism, Japan’s third-biggest city is rapidly emerging as an attractive place to invest in as it offers investors with better opportunities as compared to the country’s capital city, where prices have been increasing due to rising labour and construction costs ahead of the 2020 Tokyo Olympics. 

Just a few months back, Haswell Holdings – a local leading provider of consumer essentials in Singapore – was reported to have acquired a property in Osaka, Japan for JPY 575,000,000, in line with its strategy to redeploy capital into potentially higher return real estate opportunities.

Among the various asset classes, analysts observe that quality office buildings rank high on investors’ list as supply is scarce but demand is high. 

“Osaka has been seen lagging behind Tokyo economically, but its office market is now showing stronger rental growth backed by solid demand and limited supply in the market, attracting both domestic and overseas investors,” said Akagi Takeshi, head of research at JLL Japan.

Echoing similar sentiments, the research team from Savills Japan shared that Osaka has been steadily attracting strong investor interest due to good rental growth. 

“In March, Hulic purchased the Midosuji MID Building from MCUBS MidCity for JPY9 billion at a net operating income (NOI) yield of 3.7 percent. Hulic also acquired four office and retail buildings in Shinsaibashi for a rumoured JPY38 billion in June. The company had previously shied away from investments outside of Tokyo; these recent transactions in Osaka signal a policy shift,” Savills said.  

Average rents for high-grade office space in Osaka, too, have been inching upwards. A recent Savills report revealed that average rents for high-grade office space in Osaka have risen 4.9 percent year-on-year to JPY17,800 per tsubo, while rents of several high-quality assets now reach JPY30,000 per tsubo. Average rents for all-grade rents, too, have been growing for four consecutive months. 

With vacancy rates continuing to tighten, experts believe that rental growth is likely to further accelerate. 

“As rents have started showing signs of growth, more investors may turn to Osaka and seek office properties at more attractive prices relative to Tokyo. The local government is hoping to secure the rights to host the 2025 World Expo – if successful, it would be a boost for the market,” said the research team from Savills. 

International Spotlight

CBRE Research Asia Pacific Investment Guide

Why invest in Osaka

Tourism hotspot

A former industrial city and one-time financial centre, Osaka has evolved to become a popular tourist destination, offering great food and shopping, as well as rich culture. Tourists were also quoted as saying that Tokyo is a little too busy, and Osaka offers a more relaxing holiday experience. 

According to the Osaka Convention and Tourism Bureau, a record 9.41 million foreign tourists visited Osaka in 2016, a 31 percent jump over the previous year.

“The Dotonbori/Shinsaibashi area is popular with overseas tourists even on weekdays and many of our clients can see the potential value,” said Akihiko Mizuno, head of JLL’s capital markets business in Japan. 

Another reason for the huge improvement in tourist arrivals is due to the increased flights by low-cost carriers. 

With the increase in tourist arrivals, the local economy has received a huge boost – the central bank reported that duty-free sales at department stores in the region were up almost 60 percent in the first eight months of 2017 from the same period in 2016. 

As a result, the area’s unemployment rate has also dropped considerably, to four percent last year, while the number of companies in Osaka grew 16 percent in the 12 months through March, faster than in Tokyo or across the whole nation.

Affordable price tag

While the cost of purchasing a property in Osaka today is around 30 to 40 percent higher than in 2013, foreign buyers, especially those from Hong Kong and mainland China, still find the prices more affordable for freehold land as compared to homes in their own country, where all the land is on government leases.  

The average price of an apartment in Osaka city is about JPY45,700,000 (US$405,000), compared with HK$8.4 million (about US$1 million) for a 600 sq ft apartment on Hong Kong Island, or US$554,000 for homes in New York.

“Comparing to the other metropolitans in developed nations, the price is low and the rental yields are relatively high, especially in major cities like Tokyo, Osaka, Nagoya and Fukuoka where rental incomes are very stable due to low vacancies and strong internal migration,” an HJ Real Estate report said. 

Data by the Haseko Research Institute also showed that the average unit price of an apartment in Osaka city is about 31 percent lower than in the 23 wards of Tokyo. 

Easy accessibility

Home to two airports: Kansai International Airport (serves both international and domestic flights) and Itami Airport (only domestic flights), which are both easily accessible from the city centre via public transportation, Osaka provides convenient access to major cities around the world, as well as to the neighbouring areas of Kyoto, Hyogo and Nara, among others.

Osaka castle is a UNESCO world heritage site.

Osaka set for more growth

Looking ahead, Osaka looks set for further growth as its local government has laid the groundwork to bid to host the 2025 World Expo, as well as to build an integrated casino resort. 

If everything goes according to plan, the integrated casino resort will also include international conference halls, art museums, tourist centres and other cultural facilities, and is expected to help boost the city’s tourism and economy. 

Bright prospects  

In light of surging inbound tourism in Osaka, coupled with a slew of upcoming new major developments in the city, experts predict demand for properties in the city to remain strong. 

“Osaka is one of the leading economic centres in Japan following Tokyo, and demand for real estate is growing rapidly boosted by a flourishing economy,” explained Yuko Akiyama from JLL’s capital markets team in Kansai.

According to Oxford Economics, real GDP is expected to grow 0.2 percent this year and 0.4 percent in 2018. 

The research team from JLL Japan, too, also believes that the outlook for Osaka’s property market looks promising. “Healthy demand and limited supply are expected to see the vacancy rate remain below five percent and this should support further rental growth in the remainder of 2017. In the investment market, capital values are expected to grow, reflecting rent growth and further cap rate compression,” they said. 

FAST FACTS

Population: 2.7 million  

Total area: 223 sq km 

Currency: Japanese Yen

GDP per capita (Japan): US$39,000

GDP growth (Japan): 1.0 percent

Future transport: Bullet train from Tokyo to Osaka  

Distance from Singapore: 4,948 km

INTERNATIONAL HIGHLIGHTS

Here are our top picks of investment properties in Osaka.  

CURRENT PROJECTS 

Grand Mansion New Osaka

Grand Mansion New Osaka

Nishimiyahara, Yodogawa Ward

Looking to own a freehold property in Osaka that offers good yields? Consider Grand Mansion New Osaka in Yodogawa-ku, which offers convenience and a host of amenities.

The development is within proximity to Shin-Osaka (Midosuji Line) and Shin-Osaka (JR Tokaido Main Line). The units for sale are approximately 58 sq m (624 sq ft) in size each, and priced at JPY15.5 million.

The estimated gross yield that investors can expect is about 6.8 percent.

Type: Residential apartment

Nearby Key Amenities: Shopping malls, convenience stores and train stations

Nearest Transport: Shin-Osaka (Midosuji Line) and Shin-Osaka (JR Tokaido Main Line) 

Starting Price: JPY15.5 million ($187,000) for a two-bedroom apartment

Grandeur Hirano

Grandeur Hirano

Nagayoshideto, Hirano Ward

Another Osaka property that keen investors can look at is Grandeur Hirano, a freehold development located at Hirano-ku.

Offering relatively good yields, about 9.2 percent gross yields, the property for sale, which is approximately 17 sq m (183 sq ft) in size, is priced at JPY5.2 million (S$62,754).

To get to the other parts of the city, residents can utilise the Nagahara (Tanimachi Line), situated about a 10-minute walk away.

Type: Residential apartment

Nearby Key Amenities: Shopping malls, convenience stores and train stations

Nearest Transport: Nagahara (Tanimachi Line) 

Starting Price: JPY5.2 million (S$62,754) for a one-bedroom apartment

 

 
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