Feb 10^th 2007. Nikkei News.

Surge In Real Estate Stock Prices Fuels Fears of Overheating

That’s was quick, seems like the real estate boom is just getting going and now those “built for the general populace” products are ready to call it quits. I would say if you are a speculator in Japan for a quick real estate buck then pay close attention to what is being said within this Nikei article however if you are more interested in steady positive gains from rental income then I don’t see it as this news does. Still lot’s of miles here in ‘normal real estate Japan”

TOKYO (Nikkei)--Shares of real estate developers are advancing to levels last seen during the high-flying asset bubble of the late 1980s, driven by speculation that rents and land values will rise further.

This quote is from Nikkei News Feb 10^th 2007.  Indicates to the writer that there is even more reason than ever before to look to the solid, positive return on investments derived from well built private developments.

When we start discussing overheating my hackles stand up and ask for just a little moderation in publishing. The reality is that there is no doubt we are seeing cowboys riding around the streets of Japan real estate again. As predicted builders are up to there necks in work and offering unworkable lead times to new clients. Some of the building prices I have seen offered to new comers in the last month are based on capital gains and not positive rental returns. Speculation of capital gains is rife and buildings that should be demolished (if they could figure out the asbestos problems) are being snapped up by immature investors at ridiculous prices that can only offer negative income (losses) to those who buy them. In this respect I agree that the market is overheated.

In the last weeks I have seen a new trend literally roaring through the real estate sector. Small buildings that have been passed over as ‘too hard’ are being put on the market and selling. I am talking about buildings priced at US$30,000, another at US$45,000 and yet another at US$158.000. The three buildings in this discussion never made it to the window of any real estate agent. All it took was a couple of calls and word of mouth had them sold within days. No time for setting up a loan here and no such thing as “subject to finance” clauses. You have the cash and buy now or it’s gone.  These sales indicate that small investors are joining the market and jumping on for a speculative buy.  Once again this makes my hackles jump up and yell out stop and think a little before you buy!

Time will tell which way we go from here however my money stays with residential properties that show a positive net cash return from day one. My money says does not leverage too heavily as we must see interest rates rise. Good solid buys that have been leveraged out at no more than 70/30 or 60/40 are still the way to go and there are still many to be had.