Property Investment For Foreigners: Distance from Stations
The following is an excerpt from "Japan Real Estate Property Investment For Foreigners Part 2" by Ziv Nakajima-Magen – Partner & Executive Manager, Asia-Pacific Nippon Tradings International (NTI)
It’s a well known fact that Japan’s public transport systems are among the world’s most efficient – from subways to trains, bullet trains and even tram and bus services, they tend to be frequent, convenient (barring rush hours) and almost always on time. And, when they’re late, more often than not due to a track suicide attempt, commuters will receive an official note to their bosses, wives or other VIPs, as well as a deep bow and sincere apology.
What not many know, however, is how crucial the vicinity to public transport is for property investment purposes. A long walking distance to the nearest subway or train station can vastly reduce the price of a property, as well as significantly increase vacancy times, since many tenants will prefer to rent at a more convenient location – even at the price of paying far higher rents.
Not All Transportation is Created Equal!
While there are more than a few cities in Japan, such as Nagasaki and Kumamoto, where overground or subway trains are not the norm, the latter are by far the preferred means of transportation. While many Japanese own cars, these are often just used on weekends or when commuting out of town (and even then, the price of motorway travel in Japan is very steep, so domestic flights or bullet trains are often used instead) – also because traffic and parking, particularly in the larger metropolitan centers, can often be an expensive and time consuming nightmare.
Bicycles (and, to a lesser extent, scooters & motorcycles), which are also owned by a huge portion of the population, are the preferred method of transportation over short distances, but when one needs to go to work, often more than a few kilometres away from home, many people will prefer to use the train, to avoid arriving at work sweaty, tired and ragged-looking. Similarly, when carrying many or particularly large items, a bike is simply impossible to use. In cities where trains aren’t convenient or non-existent, as mentioned above, people will default to the most common and convenient public transportation method, such as trams or buses – but if they have the choice, they will always choose to live as near as possible to a train or subway station – with the general rule of thumb being that, anything over a ten minute leisurely walk is considered in-convenient
Exceptions to the Rules
Being in the business of rental property investments, we here at NTI have been following this rule of thumb religiously, with the following few exceptions –
1. If the walking distance to the nearest station is between 10-15 minutes, but the station is one of the city’s main transport hubs, the longer walking time may be acceptable for tenants, since the added value of being within reasonable walking distance to the most convenient public transport station in town is well worth the extra few minutes of walking per day.
2. If the property is a larger property in the city’s quiet residential suburbs, which comes with convenient car parking, it is likely to be rented by a family, which will most likely own at least one car, and often two – in those cases, the tenants are likely to prefer a large and comfortable home, and are very likely to be commuting via their vehicles in any case – so public transport becomes less of an issue.
We have learned the hard way, however, that when the above rules aren’t followed, the property’s profitability can be hugely impacted as a result, as the case study below will demonstrate –
Case Study: When you Get it Wrong
First, a bit of background – since we take great care in our customer service, and also due to the fact that we are, in the vast majority of cases, going to be the ones managing our clients’ portfolios on their behalf, our primary directive is always to keep properties tenanted and as profitable as possible, in a hassle-free environment. In one case, however, due to a compounded error which occurred in communication between our research staff and sales management, we have recommended a property in Jonan-ku, Fukuoka city, which lies at a distance of 17-19 minutes’ walk to the nearest train station. A typing error presented this property as being only 9-10 minutes’ walk, however, and considering its’ other redeeming factors – 10-12 minutes’ walk to Fukuoka university’s main campus – top floor location – corner unit – freshly renovated – high return – it seemed like a no-brainer, and the client, based on our advice, went ahead and purchased the unit.
Six months after purchase, the tenant has informed us that they will be vacating the unit. We took care of the cleaning, small repairs and basic renovation required (new wall paper, wooden floor polishing, etc), and were confident that we will have it re-populated in no time at all. Only after three months had passed without any potential tenant coming to even view the unit, let alone apply to rent it, we started realizing something was very wrong. Taking a closer look at the building itself, we recognized how badly we've stuffed things up– approximately 28% of the units in the block were vacant, and a quick look at a maps website revealed the real distance to the nearest train station. Reducing the rent significantly also did not help, and in order to prevent the client from losing money through our faulty representation of the property, we volunteered to pay all building fees on their behalf, until we find a tenant. A quick survey with other property managers revealed this will not be forthcoming, and so we recommended a quick fire-sale, to minimize losses and re-invest the funds in a more attractive property. Fortunately for the client and ourselves, we were able to secure a buyer within several more months, and between the six months of rental income and the only slightly reduced sale price, we were able to provide the client with his funds back, at close to break-even status.
The experience of having a property stand vacant close to a year, however, is a very unpleasant one, and in most cases, far more costly. Point well taken, and lesson learned – in Japan, distance to convenient and efficient public transportation is one of the most important criteria when purchasing investment properties - and overlooking it can be one of the worst mistakes a buyer (or buyers’ agent, in our case) can possibly make.