Real Estate in Japan: Analyzing an investment decision

Journal of Real Estate Practice and Education, 2003 by Geurts, Tom G, Gagne, Margaret L

One of the solutions that was mentioned in the Master Concept was to promote local shopping facilities, and Jim wondered if his employers would convert the building into a small American-style shopping mall. The location would be perfect. On the other hand, Jim thought, Kyoto differs from American cities in that there is no "Euclidean Zoning." Given the relatively old age of the city, shops and workshops, residences and office buildings are all mixed together. Businesses are intermingled. The few large factories, mainly producing industrial ceramics, women's garments and medical instruments, are more on the periphery, for example along the Meishin Expressway linking Kyoto with Osaka. A positive effect of this hodge-podge is that there are many green areas, given the prevalence of Buddhist temples and Shinto shrines. There are some 1,600 Buddhist temples, more than 400 Shinto shrines, and even approximately ninety Christian churches. In fact, the building in question was across from such a green oasis in the city and Jim wondered how this should show up in the analysis.

Another attractive aspect of the city is its rich cultural life and strong educational basis. Besides its religious heritage, Kyoto also has many musea and is considered to be the birthplace of traditional Japanese drama. In addition, there are a number of unique cultural institutions, like the schools of tea ceremony (cha-no-yu) and flower arranging (ikebana). In terms of education, Kyoto has, after Tokyo, the largest number of higher learning institutions, thus guaranteeing a steady stream of highly-educated consumers. In particular, Kyoto University (Kyoto Daigaku), founded in 1897, is considered to be the second most prestigious school in Japan.

The investment group Jim is working for judged that the Japanese real estate market had bottomed out. The economy of Japan is in a decade long slump, with the government seemingly unable to provide any effective stimulus. Indeed, there has been much political upheaval over economic policy without any real changes. Fragmented parties, shifting alliances and a deeply entrenched conservative bureaucracy have created a lethargic political system. Jim smiled when he recalled the phrase he read in one of the books he studied before undertaking this assignment: "From the start, the Japanese bureaucracy was based on the premise that the citizenry was ignorant and needed leaders, and since parliamentarians were chosen by an ignorant electorate they too were ignorant. Under this assumption, the bureaucrats felt it was natural and proper that they become the de facto national leaders," (Miyamoto, 1994:10). Many observers indeed see them as the main obstacle to entry into the Japanese market, through their myriad of rules and regulations. On the other hand, though, their aim is definitely to strengthen the Japanese economy.

Kyoto attracted the interest of the investment group since it has historically been a fertile ground for venture businesses. Thus, when the Japanese economy improved, Kyoto was likely to be one of the first cities to benefit.