Aussie investors not turning Japanese anymore

Property developers in Niseko, the Japanese ski village discovered by cashed-up Australians in the mid-1990s, are confident it will retain its appeal as a lifestyle destination as they battle the fall-out from the March 2011 earthquake and tsunami.

 Up until the GFC, Niseko, encompassing six ski slopes on Hokkaido's northern island, attracted a wave of property investment from wealthy Australians.

 Many were spurred on by now departed property developers like Colin Hackworth and Roger Donazzan (husband of former Qantas chairwoman Margaret Jackson), who bought Niseko’s Hanazono ski field in 2003.

 Although Niseko is more than 600kms away from the site of the tsunami and nuclear disaster, concerns over radiation and general fears about travelling to Japan have kept visitors and investors away. The tsunami affected the latter part of the ski season, which traditionally runs from November to May.

 Developers like Niseko Property director Peter Murphy say Australians are by and large holding onto their properties.

 “There are a few people who want to get out, but there is currently no liquidity in the market, as there are no buyers,” he told Property Observer from Niseko.

 Murphy is advising people not to reduce their selling prices and expects things to get better in the next six to 12 months.

 Julian Bailey, from Hokkaido Tracks Resort Properties, says many Australians would love to sell, but are being put off by the strong Australian dollar (offsetting any appreciation in properties bought pre-GFC) and a lack of buyers.

 As Australians don’t qualify for Japanese loans, they have had to buy their properties for cash, and most are unwilling to take the cash hit.

 “Niseko is a cash market. Sellers are struggling to achieve prices comparable to what they paid in 2006. Rather than sell, they are hanging on. There are not many people out there wanting to buy in Japan at the moment,” Bailey says.

 For new Australian investors, besides the hefty cash investment, health, safety and travel concerns remain inhibiting.

 In 2003, a three-bedroom apartment in the desirable Hirafu upper village sold for about 32 million yen, an investment of $420,000 at the time. At the current exchange rates, this equates to $368,000, before taking into account any possible price depreciation as a result of the GFC.

 Searches by Property Observer found modern three-bedroom apartments in the upper Hirafu village on the market for 41 million yen ($470,000), two-beds for 32 million yen ($368,000) and a studio for 24 million yen ($275,000).

 Niseko Property has received the green light for two investment projects. But Murphy says the company anticipates it will have trouble selling the stock over next winter. “We need a village full of people. Then people will feel comfortable about investing,” he says.

 Bailey says he has no concern about the fundamental desire for property in Niseko, but admits it is now a much tougher market to get into because of the cash requirement. “People who were our bread and butter five years are finding it a much tough prospect. And returns are not as good as they were, given the increase in supply.”

 But as he points out that buying in Niseko is much more a lifestyle choice than an investment decision. “It’s like any aspirational life-enhancing investment, a weekend home, a boat or a sports car.”

 Bailey is betting on Niseko, “based on a decade or more of ownership”, believing that the “destination's growth as a brand and its simple geographical location will underwrite property value.

 “The alternative for would-be investors appears to be trying to read or second-guess debt-driven property markets elsewhere, which have proven to be unpredictable even for the most skilled of analysts,” he says.

 GFC recovery, Asian invasion

 Before the March 2011 disaster, Niseko had battled through the GFC. Prices had fallen by about 20%, but the village was on the rebound, driven by a wave of cashed-up Western expats living in Asia who were discovering the region.

 According to both Murphy and Baily, expats living in Hong Kong, Singapore, Malaysia and to a lesser extent, Indonesia have all pumped money into Niseko, buying up properties as both summer and winter holiday retreats.

 Hokkaido Tracks sells property off the plan. Most recently the company sold six units as part of a seven-unit development. Two have been bought by UK residents based in Shanghai, three by Australians residing in Hong Kong and Malaysia and one by a French expat living in Hong Kong.

 “There is still one available. By our standards this is a bad situation. In the past we sold everything,” Bailey says.

 As this sale demonstrates, Australians are still a big part of the market, but the next wave is coming from Asia.

 “There are lots of very wealth Asian developers with lots of experience coming into the area. They have significant development plans, and an evolution is happening here. We are going from smaller, entrepreneurial Aussie investors to much bigger Asian-led resort construction,” Bailey says.

 Australians first ventured into the valley in 1995, but it was only around 2003 – sparked primarily by Hackworth and Donazzan – that they started buying houses and apartments. 

In September 2007, Hackworth and Donazzan sold their business, Nihon Harmony, to Hong Kong tycoon Richard Lee's Pacific Century Premium Developments.