Now it’s time to diversify your assets for family business, why FB is active?

The background to facilitate their activities are as follows;

1 Prime asset acquisition

For long time, they have been analyzing which areas/ locations have been stable over the middle to long term. The assets they have acquired are,for instance, an office in Kanda, a residential apartment in Akasaka, and a residential and retail complex in Shinjuku. All of them are core and stable areas in terms of investment. Over the middle to long term, the prices would not be volatile and asset values would not be hit so severely.

2  Decent price

Since the Lehman brothers clash in 2008, and its recovery around 2013,  Japan’s economy has been in boom and bubble. The market has been very competitive, and yield had been compressed. Therefore, it had not been the right moment to invest real estate even though the assets and finance were available. Now that the COVID has brought the new life & working style to us and real estate occupiers’ demand has been changing. Off market price can be negotiated and those family firms who acquired good properties are the ones who exploited their network and used the utmost leverage as explained below.

3 Liquidity, cheap finance

Those JPs established family businesses have strong network among financial institutions and several mega banks are their main banks. Those mega banks have financed them a large amount. In case those family businesses want to buy properties say, 5-10 billion JPY, which means 5-10 mil USD, those financial institutions are happy to finance as corporate base at the cheap interest rate say below 0.5 %. Depending on the terms and condition but sometime amortization may not be required. Thus, those family firms can basically enjoy the high leverage for low risk properties. This is one of the ideal real estate investment schemes.

4 Tax incentive

Needless to say, the amortization for those properties can be deducted as expense items for the owners to calculate corporate tax. Therefore, many of family businesses have invested into properties which are newly built or the remaining amortization year is relatively long. To reduce their corporate tax, they can use this properties and as time passes, they spend some renovations whose amount also will be deductible.

5 Stability of their business portfolio

Leasing operation has been taken as one of the most stabilized businesses in the world. Initial stage of their business growth, they had to invest a lot on their core business however, as time passes, they may consider more on asset diversification. Property investment means a part of their business areas and also their wealth management. When it comes to wealth management, real estate investment is one of the solid and stabile products over middle to long term.

Further queries or doubts, please email to ytomizuka@abrilsjp.com

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