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Japanese Property: Fear, Greed, or the Best of Both Worlds?

September 15, 2007
By Ken Worsley


A few weeks after Goldman Sachs announced its record 37 billion yen purchase of the Tiffanys building in Ginza, Seeking Alpha’s Darrell Whitten has weighed in with a timely piece entitled Japanese Property: Fear Has Overcome Greed. As he puts it:

As some Japanese industry insiders talking about a property “bubble”, and banks are becoming more cautious on real estate financing because of the BOJ/FSA regulators snooping around in recently rapidly growing non-recourse loans and special purpose real estate company-related financing (i.e., structured finance) for any signs of excess, some domestic and foreign investors are beginning to suspect that Japan’s real estate boom may be ending.

We know the cycle can only last so long, and we’ve seen what’s happened in other urban locations where these same large American firms have speculated in property. At this stage, I think it’s worth pointing out that “Japanese property” is not really so hot at all; rather, property values in Tokyo and Osaka have shot up as speculators aim to approach the price limits set by their risk management wings.

Rumor has it that the Goldman purchase will be setting that upper limit, in a way that can be scaled to other purchases in other areas. Rumors, however, are not always true, and we have to wonder if conditions might really become harsh for longer-term property investors, or if the downside risk only applies to the short-medium term buyers without deep enough pockets.

Filed Under Real Estate 

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Comments

2 Responses to “Japanese Property: Fear, Greed, or the Best of Both Worlds?”

  1. matt on September 17th, 2007 12:22 am

    Goldman is usually pretty smart, but I have to wonder if this one will come back to bite Goldman in the ass. Goldman is playing the greater fool game, but there might not be a greater fool around with enough money or access to that much credit.

  2. Ken Worsley on September 17th, 2007 3:02 am

    They’re hard to second guess Matt…even if the property goes down to zero, what do they lose? Drop in the bucket. Besides, any negative consequence you bring up will be countered with, “You don’t get it.”

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