Shinjuku beckons

DORIS Tan, head of international project sales at Jones Lang LaSalle (JLL) has been marketing overseas projects, especially UK properties, in Singapore for more than 20 years. Every so often, her clients ask her whether she will be showcasing any Tokyo projects. "I used to tell them that it was impossible because Tokyo properties are usually sold by blocks in the international market, and unless you're an institutional investor with deep pockets, there's very little chance of getting hold of assets in Tokyo," she says.

However, it looks like there is now an opportunity for individual investors in Singapore to gain a foothold in the prime Tokyo real estate market. Over the weekend of Nov 17 and 18, JLL's Japan Capital Markets and Tan's team in Singapore will be jointly marketing The Park House Shinjuku Tower. This marks the maiden launch of a Tokyo condominium project in Singapore.

The 20-storey Park House Shinjuku Tower comprises 298 apartments and was completed in March. The residential tower is part of a mixed-use development called Shinjuku Front Square, which also includes a 35-store commercial tower called Shinjuku Front Tower, which has more than a million sq ft in office and retail space, including car parking in the basement floors. The commercial tower was completed late last year.

Shinjuku Front Square is a collaboration between Singapore-listed property giant CapitaLand and joint-venture partners Mitsubishi Estate Co Ltd, Mitsubishi Jisho Residence Co Ltd and Heiwa Real Estate Co Ltd formed five years ago.

In Singapore, Mitsubishi Estate is a joint-venture partner of CapitaLand in two projects: the 40-storey CapitaGreen office tower, a redevelopment of the former Market Street Car Park designed by renowned Japanese architect Toyo Ito; and Sky Habitat, a landmark 509-unit condo project in Bishan designed by celebrated architect Moshe Safdie.

"Since the partnership with CapitaLand, the intention of the partners was to sell some units at Park House Shinjuku Tower to offshore buyers," says Akihiko Mizuno, regional director of JLL Japan. However, the rationale was to sell the units after the project was completed so that buyers could receive rental income right after the purchase, he adds. While the project had already been launched in Japan and units have been sold, the develop­ers held on to 50 units for its international project launch.

Shinjuku Front Square is locate on a 1.4ha site in Kita-Shinjuku, north­west of the prime Shinjuku Ward, a bustling business, entertainment and shopping district. It is also in the vicinity of the Tokyo Metropolitan Government Office and other prime office buildings, as well as a 10- to 15-minute walk to the Shinjuku Station, considered the world's busiest train station. It is also within six to seven minutes' walk to Nakano-Sakaue Station and Nishi-Shinjuku Station, which are on the Tokyo Metro Marunouchi Line and Toei Oedo Line respectively. Tan says the area is popular with expatriates from North Asia, including Taiwanese, Koreans and Hong Kongers, as well as Westerners.

The units are a mix of one-bedroom units of about 500 sq ft and two bedroom units of 800 to 900 sq ft. One-bedroom units are priced from S$700,000 and two-bedroom units from S$850,000. "The prices are simila to those of apartments in South London," says Tan. "This gives Singapore investors an additional choice in terms of overseas property investment besides London."

The developers have also roped in Ken Corp, a Tokyo-based real estate company and specialist in leasing luxury property, to assist buyers in leasing out their units. While there is no rental guarantee, Tan estimates gross rental yields at 4% a year, with net yields of 3.5%.

The question for most investors is the prospect of future capital gains. Residential property prices in Japan have continued to fall as the country's recovery fades, owing to weakening exports, the appreciating yen and deflation, according to the Global Property Guide in an Oct 10 report on the country's housing market.

According to figures released by the Land Institute of Japan last month, the average price of new condos in the Tokyo Metropolitan area fell 6.3% y-o-y from ¥622,000 (S$9,518) to ¥583,000 psm in September. Meanwhile, prices of existing condos in the Tokyo Metropolitan area fell 2.9% y-o-y to ¥377,000 psm in September.

Mizuno believes, however, that quality assets in Japan should be viewed as "safe, recession-proof" investments with stable income. "Although the overall economy does not have a promising story, the Tokyo property market has a more promising one," he says. "We expect prices to rise, especially for quality, well-located assets."

Japan is still recovering from the great asset bubble burst of the late 1980s, and the "lost decade", following the 1991 crash, when banks were saddled with bad loans of close to US$1 trillion. However, Tan sees a silver lining in the slow recovery. "With prices in Tokyo residential market stagnant for 20 years, there's only one way to go, and that's up," she proclaims.

There are no restrictions in buying; for instance, there is no additional buyer's stamp duty for foreigners buying residential property in Japan, unlike in Singapore and Hong Kong. The stamp duty payable upon signing of the sale and purchase agreement varies, depending on the purchase price, and this applies across the board, regardless of whether the buyer is local or foreign. For instance, if one were to buy a S$1 million condo unit, the stamp duty amounts to S$700, explains Mizuno.

However, foreign investors have traditionally faced challenges when buying property in Japan. For one, there is the language, as all the agreements are in Japanese. Also, depending on the holding period, buyers could be subject to a capital gains tax. There are no restrictions when it comes to selling in the sec­on­dary market, though. Mizuno says owners can sell their units to individuals or corporations, either local or offshore.

The single-largest challenge, however, is in getting a mortgage. At the launch of Park House in Singapore, National Australia Bank in Japan will be able to provide financing with a loan-to-value ratio ranging from 50% to 70%, depending on the borrower's credit worthiness, says Mizuno.

The Park House Shinjuku Tower was launched in Japan only, although some units were sold to Taiwanese residents because of Mitsubishi's past alliance with a Taiwanese sales agent. Still, Mizuno says, no developer, including Mitsubishi, has launched a Tokyo project in Singapore so far.

The upcoming launch of The Park House in Singapore will be a litmus test, says Mizuno, and if successful, Mitsubishi will launch more projects in the city-state, with other major Japanese developers following suit.

This story first appeared in The Edge Singapore weekly edition of Nov 12-18, 2012.