What was a few months ago a promising opportunity – buying up completed unsold condominium buildings and portions of buildings on the cheap from distressed sources and then moving them to the public at `outlet` sale prices – has suddenly seen a burst in asset bidders.
It seems that the defunct developers that have now found sponsors and those that were able to escape trouble unscathed with credit or cash remaining, have all jumped onto this bandwagon as low-hanging fruit rather than buying land to start the development process again. It may be that lenders have also pushed in this direction also as the risk of development is seen to be very great in the current market. What were discounts of 50%+ off the retail line have now been bid up to where there is very little profit left in selling at 20-30% discounts. This is the case for Tokyo area, recent word has it that up to 50 bidders are arriving at some of these opportunities whereas there were only a few just a few months ago. Have not heard the thing for regions yet – maybe Kansai will be the next to pick up.
This is great news for the condominium market which has been in the doldrums. Our take on the market is that somewhere in the next 12-24 months when a near complete halt to new supply arrives, there could be a very quick strengthening of prices. That may be quicker than most expect – it looks like sentiment on prices hold we are near the bottom. Again, the world outside of greater Tokyo still has another year or so and some of the regions where aging populations are really setting in are doomed unless something major is done to create new demand – but positive signs for the Tokyo condominium market seem to be increasing. A good time for the individual investor.
Eastedge Partners, Japan Real Estate & Energy Advisory 