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Property

Foreign buyers slam brakes on Japanese real estate deals

China slowdown seen contributing to 34% drop in transactions

Tokyo waterfront condominium towers like these had been popular with Chinese investors. (Photo by Kazuya Hiruta)

TOKYO -- Japan's once-buoyant real estate market has seen a sharp pullback in foreign buying, sending property deals falling by a third in the second half of 2018.

Property transactions declined 34% on the year to a six-year low of 1.72 trillion yen ($15.78 billion) in the six months ended December, according to the Tokyo-based Urban Research Institute.

Foreign buying, which made up more than 30% of all transactions a year earlier, tumbled 90% on the year to 91.9 billion yen. Relatively low prices had made Japanese real estate an attractive asset compared with property on other markets, but that perception has changed.

"We haven't been able to buy very many properties recently," said an executive at the Japanese arm of a U.S.-based real estate fund. The number of properties on the Japanese market began to decline in the second half of 2018, and those that were on sale were too pricey, this person said.

A real estate broker reports that Tokyo waterfront condominiums that Chinese investors had bought up aggressively are now up for sale. With China's economy slowing, making the government clamp down tighter for fear of capital outflows, Chinese money appears to ebbing from once-brisk overseas real estate deals.

Japan's property deal drought is particularly noticeable at the high end.

Last year's most expensive purchase, excluding sites for development, was the roughly 150 billion yen acquisition of the Shiba Park Building in Tokyo's Minato Ward by a group of investors. This was well below the big deals seen in 2017, when China's Anbang Insurance Group bought about 200 rental condominium buildings from U.S. investment group Blackstone for roughly 260 billion yen.

Analysts say already-high Japanese property prices have less room to rise than before. Investment returns based on rental income have fallen to the low 3% range, and "few investors will accept any lower returns," said Hiroshi Okubo, head of Japan research for real estate services group CBRE.

Meanwhile, Japanese financial institutions have grown more cautious about lending for property deals in the wake of a loan scandal at Suruga Bank, which was found to have exercised lax oversight in a home-share investment scheme. A Bank of Japan gauge of financial institutions' lending attitude toward real estate and big corporations fell to 20 in December from a near-term peak of 29 in March 2017. A lower reading indicates a tougher stance on lending.

With buyers wary of paying too much, "the weakness in the deal environment looks likely to continue in 2019," said Shigeo Hirayama, an executive at the Urban Research Institute.

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