PODCAST - Exploring the opportunity in Japan

SnowOnly Property Podcast

Mark: Hi, I'm Mark Lightfoot from SnowOnly. In episode 2, I'm talking to Paul Butkovich from H2 Real Estate. Paul talks about the current property trends in Japan and gives us some top tips on buying your dream ski property.

Mark: This week on the SnowOnly Property Podcast, we are diving into the Japanese real estate market, where we are speaking to the very knowledgeable Paul Butkovich, who is the director of sales for H2 Real Estate. We will cover topics such as the enormous amounts of snowfall in Japan, the history, the future of real estate in the area, and asking if the bubble has burst for property appreciation. Paul, welcome to episode 2 of the SnowOnly Property Podcast.

Paul: Thanks, Mark, for having me. I'm honored to be here.

Mark: Pleasure. So, an easy one to start with, can you tell us a little bit about H2 Real Estate, the history of Niseko, what you specialize in, what service you offer to buyers and sellers, flights, etc.? Give us your introduction.

Paul: Okay, great. Why don't I start with a little bit of the history of the area, of Niseko and how it's developed into the market it is today. So basically, the area itself was discovered by the international market, let's say, in the '90s and probably even earlier than that, by some early international skiers that maybe discovered it well before that but kept the secret to themselves. But in the '90s, we had a number of Australians, explorers, who kind of came and actually set up small businesses here, running rafting and guiding companies, namely guys like Ross Cardy, Ross Finley, these are some of the more well-known guides that got established here. They started this adventure tourism concept in the region and were doing that year round: summertime - whitewater rafting, at wintertime they were offering ski lessons to school groups and maybe some of the international people living in Tokyo and whatnot. And eventually, we started to see some Australians establish travel businesses over here, guys like Peter Murphy, who established Ski Japan, which originally was known as Snow Wave. Ski Japan and Deep Powder Tours, these early travel companies, they started to bring over really wealthy Australians who would come over for their ski holidays in that peak January powder period. And those Australians that came over here, they fell in love with it, and what they quickly recognized was that the property where they were staying, whether it was a Japanese pension or Japanese hotel, it was just really dated and it wasn't designed to deal with a one or two week holiday. It was designed for domestic market, where you'd have people normally stay one night or two nights traditionally in the domestic market.

Mark: Was the resort set up?

Paul: Absolutely. The ski resort was here, okay. What we know today, Niseko is Annupuri or Mt. Annupuri or the Niseko United was established and you had all five ski resorts including Moiwa, Annupuri, Niseko Village, which was originally called Higashiyama, Hirafu and Hanazono which is known as grand Hirafu. That was all established. And Tokyo, which they really established the Hirafu ground, Hirafu area and they developed Hanazono and Higashiyama, that area which - again, all these ski resorts originally were established by farmers in different sections and they ran ski lifts and eventually they were taken over by various corporations. So Higashiyama originally was I think taken over by Prince Hotel or the Cebu Holdings Group, and they built, they brought the Prince Hotel which is now the Hilton, they brought that to the area. And then Annupuri which is run by Chuo Bus, they probably established the gondola. And there's - I can't remember the name of the big hotel over there, but they would have helped bring the big hotel over to Annupuri that's there. And then Moiwa, which is over on the far bookend, which is little Moiwa, that's again always been a very locals hill and is now is being controlled by another outside international interest.

Mark: Is that part of the Niseko United yet?

Paul: It's not, no. Moiwa was not Niseko United just yet. But fingers crossed in the coming years as the area expands that’s likely-

Mark: I mean, there's some rumours of some very high end brands coming into that area that's obviously going to be expected, right?

Paul: Absolutely, absolutely. We'll come back to that, in a little bit. But yeah, so the area was established as a ski resort, and the zones that everybody knows now they've always been here. But back in the early 2000s, when the Australian market discovered this area, and developers from out of Australia started to discover it, the opportunity was there was a lot of old pension owners who were looking to retire. They had these older 30, 40 year old Japanese properties, they needed a lot of love and attention to maintain them, and the domestic market, the tourism market was coming down. So what originally was probably a great lifestyle choice for these guys jumping into Tokyo in the late '80s or early '80s, now all of a sudden they had these old structures that they really didn't want to operate anymore, and they were getting tired.

So their opportunity was to acquire those assets and either renovate them or tear them down and build new condominiums. And in the first instance, there was plenty of land actually, ski in, ski out land that you could acquire. And so the guys started to develop, Australian developers started to develop condos there, like Elephant Ridge, First Tracks, and the Vale. That was the first wave of development here.

And then as the tourism, as the Aussies discovered and fell in love with it, and as the word got out, we started to - eventually Hong Kong discovered it, because eventually, we started to get some international flights that came directly into Chitose, and Hong Kong was the lead on that with Cathay Pacific and Dragon Air, they started to fly in directly. And I eventually, that was influenced quite a bit by pilots. So often, what we see in some of these ski resort towns around the world, pilots often discover these destinations first. They do have a lot of influence in where flight patterns go. And so that's a good way to - that's one way of actually finding out where the next the next spot may be when you start hearing pilots investing into areas. Yeah, it's very easy to track, okay, that information. You just go and ask that to your local real estate agent.

So, the first generation, first wave of international Niseko was 2002 through to 2009. That was the first real push into the Australian market. We started to see signs of Hong Kong getting interested. And then, of course, we hit into the financial crisis, and that put the brakes on development, but allowed the tourism to really take off in that stage. So, from 2009 to 2012, what we saw was tourism just kept going, and these properties we had built and sold, they were starting to fill up more and more. And the returns were really strong despite what had happened with the financial crisis, that was really going well.

And then, of course, unfortunately had another small disaster in 2011 with the earthquake, which kind of put us back a little bit again from a real estate perspective and the holiday perspective. But then two years after that, 2013 is when we started to see the recovery. In that recovery, what we saw were the big Singapore and Hong Kong developers come in and stake their claims in the upper village, upper and middle village. Those guys, funny, they always told us from 2009 to 2011 while we were on the road, on the road talking to some of these bigger real estate developers in those markets, they always told us they said, "Just wait. Don't worry, we're coming but it's just a timing thing." And now we're starting to see some of those guys come to fruition now with their projects.

So, the second way was 2013 to up to 2019, really. That was the coming of age for the Asian market. We started to see not only Australian developers but now we have Hong Kong, Singapore, you’ve still got probably some Aussies doing stuff here. But we're seeing all walks of life of developers coming into the area looking for their opportunity, because as you know, the beaches around Southeast Asia are pretty well-developed. And so these guys are looking for an opportunity to develop and to sell into their markets. And so we're now contending with those developers.

In the meantime, here locally, the real estate agents and real estate companies, they're constantly looking for opportunities as well, which were always looking ahead to the future, right? Where's the next little spot? Where's the next hotspot? And so, the local developer agents have maybe retreated from the main blue chip areas and they're off seeking the next opportunities. So as you know, we're out in Furano establishing markets Furano, and we're establishing some other local markets here.

So yeah, that's where we're at as far as the real estate side of things. The resort itself, I think we've seen quite a bit of dramatic, you know, quite a bit of change on the resort of the last decade. We've got Hanazono now obviously has a Park Hyatt. These guys have just built a brand new gondola, and I think another gondo chair, whatever they call it, gondo chair. The Hanazono area of the ski resort is, you know, you can really see that they're putting money into the resort and into their transportation, and really getting it established for the next two decades so that they can expand the resort.

Mark: But that's so important. Anywhere in the world, I think if you're going to build high end hotels, you can't have a five star hotel in a two star resort, right? So it has to go hand in hand. You need high speed chair lifts and stuff. I remember going skiing in Niseko, and… do you still have the one-man chair lift at the top?

Paul: Yeah, yeah, the “pizza box”. I mean, that still exist. And you know, to some degree, some people may argue, why is it so ancient and whatnot. I think there's also something to be said about a little bit of rustic charm, not saying it shouldn't be necessarily safer but…

Mark: But it's authenticity, isn’t it?

Paul: It is authentic and it is part of the thing that makes Niseko cool. If you want to access the outward bounds, outside of the side country of the area, then you actually have to do a little bit more than just get on a really comfortable chair, you're going to have to get on a single chair and take that solo lift up there. And it does limit really who should get up there. Because one of the great things about Niseko, Mark, is that at Mt. Annupuri, the mountain range that it's on, it's like a cylinder, right? It's cylindrical, it's not like maybe where you guys are on a massive craggy range in Europe or Canada, where you have to ski along one side. Ours is a 360 sphere, so you can actually - once you get inside the resort, you can literally ski around the whole mountain. It's great for experienced skiers, but if you make it easily accessible for intermediates and beginners who may not fully understand what they're getting themselves into, when you have 14 meters of powder snow a year, you do want to have some restraints of where people can actually go.

So, I know it's a little bit, yeah, to say there's a pizza box that gets you up to the top of the resort is not great. But it also does help us manage where people can get to, to a degree.

Mark: I've skied there quite a few times now. I think for anyone that's listening, it's so different to, say, what they would be used to, let's say, in the three valleys in France, where you have 600 kilometers of piste, it's very different. The average snowfall in and around France is 4 to 5 meters probably on a good year, and in Niseko, it's 14 to 17 meters. And everyone that I speak to ask, "Are you sure?" And I'm like: “yep, it's that much!”. I've never skied on powder like it, and I think that anyone that is considering going, you have to try it. It doesn't need to be big, because you can dive into the trees and you find your power fields and stuff.

Paul: Exactly. I mean, one of the things that I - coming originally from Canada, so used to some pretty good skiing myself, but one of the things, the first thing, I noticed here was for the price of a lift ticket, okay, which is I think at the moment probably around in US dollars about 70 or 80 bucks USD for a day ticket. You're basically getting a heli ski experience in resort, okay. And what does a heli ski ticket cost to get a lift, 800 bucks a day?

Mark: I've never really thought of it like that. Do you know what, I experienced actually… I learned to snowboard there because there was no fear.

Paul: Right. Yeah, correct.

Mark: I'm mean, I'm going to fall over, I'm going to fall over, it's not going to make a lot of difference, and you don't get the pain after each day.

Paul: Exactly.

Mark: Okay. So, I think we've covered the enormous amounts of snowfall each year, 14 to 17 meters, everybody, so get over there! As you as you rightly point out, from 2013 going onwards, it's really become the flagship of Japanese ski resorts, it's well-known. What do you see for the future from now?

Paul: I think the future for now, obviously, we're entering into the next phase of the market and it's not going to get cheaper here. We're entering into - there's all sorts of things happening, obviously, in the current market. And when borders open up again, I think we're going to see a revamp and improvement now in infrastructure on the ski resort and off the ski resort in the next decade, which really drives up the luxury end of the market. So I think, with the Park Hyatt opening, and there's a number of other brands that are in the area, Aman's sniffing around the area, and a number of other hotels. The only way for Niseko to go is really up into that luxury end, as far as up near the ski resort. And then off the ski resort, I think we're going to see a plethora of other brands come into the area that will give it a bit more diverse range of product. But I think we're going to see a real expansion of the property market between basically Niseko-Rusutsu, and Niseko and Kiroro, and we're going to see a lot of - we're going to basically see the area expand in those directions.

Mark: From an investment point of view, let's jump to that question because we're on it. Some people suggest that the bubble has burst, which is why they're looking at places like Furano and other resorts, where they want to get in at a low point, and then see the ski resort develop like Niseko has, obviously that's the wonderful idea that everyone has. But you seem to suggest that with more infrastructure coming in, the price is still going up, so there's still investment opportunities for people, would you agree?

Paul: Absolutely. I mean, there's always opportunities in this market even in Niseko. The bubble is far from burst. What people are experiencing currently in their own home markets and what we have to offer over here in Niseko is we look really cheap. As you know, you don't have to look at SnowOnly. Go compare a condo, ski in-ski out condo in Europe versus the ski in-ski out condo in Niseko, and look at the price difference. Or one of these beautiful chalets, just go compare the price difference, there's a long way to go as far as the capital appreciation in Niseko. And I get it, don't get me wrong, I get it. If someone was looking at the property market here in 2015, and then they came here in 2019, it looks like it has gone up quite a bit. But when the market returns here next year, I think we're going to quickly see, again, prices continue to rise up. We're nowhere near the threshold of what the Asian market can consume.

Mark: Yeah. Actually, that comes back to a point I want to make. I think the last time I went skiing in Niseko, I was living in Phuket in Thailand at the time, and there was actually quite a lot of Thais skiing on the nursery slope, obviously, they're not so used to the snow. But initially it was Australia, then you're looking at the likes of Hong Kong, Singapore, now we've got Thailand. I mean, how much further, let's say, left do we have to go or can we go? Are you seeing people coming from the UK, you seeing people coming from France that want an alternative to the Alps?

Paul: I think, Niseko is going to be a bit of a - it's a global product, okay? Of course, access is always going to limit some markets to a degree, whether it's the UK or over North America. But at the moment, what we're seeing, we are seeing Americans literally living on the West Coast who are acquiring in Niseko, okay, that's today. Niseko and in Furano: Hawaii... A lot of Hawaiians, interested in coming over here as well.

And I think if you go towards the other side, beyond Southeast Asia, I think Europe, there's plenty of Europeans. I think the European buyers that we have now, they're probably based in Asia, and again, sometimes it gets a little bit confusing for them because we have a lot of French nationals who have acquired over the years, but again, most of them are based somewhere in Asia for a large part of the year. I think though the UK market is going to take a little bit longer to educate them and get them over here and get them access because, again, they have some great opportunities as well, whether in Europe or in North America, and the flights are quite direct.

Mark: The people that have bought there, and obviously, we know the destinations that people are coming from, COVID's obviously had an effect. I think we spoke about this before about the desire for what property people want, maybe it's more of a chalet than an apartment. What's the current state of people looking for an investment? Are they looking to move over there? What's the kind of general buying purpose? I assume it's changed from pre COVID to, let's say, post COVID, or at least going forward?

Paul: Yeah. It's changed a little bit. I mean, there are basically three buyer types. You’ve got developers. Developers haven't stopped being developers even in this time. So they're out looking for - they're still looking for their positions. Then you have what I call the Investor Types, and those are guys and girls who have a real acute sense of what's going on in the market, and they're looking for opportunity, whether it's land, it could be a distressed condo or distressed house. They're just looking for value.

Mark: There are still plenty of value there, I assume, with land…?

Paul: Plenty there, and there's lots of cash available in Asia to invest. So if you can show the clients value, whether value in land or value in a house or value in a condo, then they're going to look at it. And if it's got a return on investment, if it's got a cash flow, positive cash flow, then even more interested in the current state of the market. And then of course, we've got what I call the Family Investors. And Mark, you'd be very familiar with the family investors, there's a lot of people out there who… you may call it YOLO, the “you only live once” type market, those guys are now looking at their next family holiday. They haven't been able to get to Japan or into Niseko for the last two years. They're super keen to actually now get something for the family, because they may not be spending just two weeks here in the winter, they may be able to come and stay for four weeks, because of the trend and way people are able to work from home. So they may spend four weeks in winter. And they don't want to be contending with rental rates that are going to probably go through the roof in the next little bit. They want to know that they have their property and they want to establish their own family memories and that honeycomb for the kids that are getting older.

This is the thing. So when the Asian market started to invest here in 2000, let's say, '13 to '14 timeframe, well, a lot of those guys now, their kids are now teenagers or they're off to university. And so they are now coming back saying, "Hey, I bought that condo" or "I bought that smaller house in Hirafu back in '13. We've actually outgrown it, let's look for the next thing that's actually going to be a bit bigger, a bit, something not necessarily going to be a rental. “I don’t need a rental return, I just want something for the family." So we’re definitely seeing that family investor coming back into the market the last month or so since we've started. The state of emergency has come off in Japan, it looks like the vaccine rollout is being highly successful in Japan, and the COVID rates have come right down. We're seeing those investor types come back to the market, and they're now - some of them are making decisions and they're actually buying stuff.

Mark: You're getting lots of people living there at the moment?

Paul: Yeah. I'll be honest with you, unfortunately, in this period of time, we've lost a lot of great talent in the service sector, so the hospitality sector.

Mark: I think across the world.

Paul: Yeah. So there's nothing to different anywhere. So we've lost a lot of that. We have had a number of professionals, domestic, okay, Japanese, and let's say, expats living in Tokyo who have moved up to the area. It hasn't been in like a massive way in any sense of the… but they definitely have moved in. And then what I'm finding is with some of the Asian markets, that they're thinking about it, okay, even guys like yourself, they're thinking about it. They want to work out how they may be able to do this for six to eight months of the year, but we have yet to see that. I think we'll see that in the next decade as we see things like infrastructure, like the Shinkansen station get completed in Kuchan. I think once Niseko gets really connected to the mainland through the train line and through the highway system, I think what we'll find then is that all of a sudden Niseko is… anybody could live here.

Mark: Yeah. I took the train up to Niseko, actually, from a flight from Bangkok. It was such an amazing experience. I absolutely loved it!

Paul: Yeah, it's good.

Mark: It was so punctual in terms of timing, and it was just perfect for me. So, let me just move on to something, this might be a quick answer from you. But is there any options for finance, or is every buyer a cash buyer?

Paul: For the majority of the deals we do, the buyers are cash buyers. Some of them, of course, are using their own home banks for a line of credit and they're borrowing against assets in their home market to buy assets over in Japan. And then we have some buyers who are looking for domestic loans and they're contacting guys like Tokyo Star Bank, which I believe at the moment has a loan facility available for ski properties over the million dollar mark. So yeah, you can reach out and I can introduce you to the guys at Tokyo Star Bank to see if that's a product that's going to suit your investment needs.

Mark: So last question, and we're asking everyone in our podcast this, so if you had $500,000 to spend on a property, where would you spend it and why? I mean, obviously the areas you're considering, would you park the money in Niseko or would you consider Furano?

Paul: I think you can consider both. I think for those who want to get more and more, I'll say, traditional Japanese experience, you probably would go to Furano, okay, and invest that half a million into something like, if you're a condo buyer, I'd go into Phoenix West and I would go get a studio or something within the 50 million yen budget and talk to my sales guy, Scott Tovey over there and see what he can get you for 50 million yen. But if you're Niseko bound and you want to be - if that's where your friends are, then probably what I would do is recommend, at the moment, I would recommend looking at buying an existing structure, okay, like if you're a chalet buyer, I'd look at buying something off the resort, maybe 5 to 10 minutes by car for about a quarter of a million to 30 million yen. I would look for, a property that's going to suit your needs that maybe you can do a light renovation on for the family. And then I would take the remaining portion of that money and put it into a piece of land into an area where it's starting to just see some growth, and where we believe that the chalet and maybe apartment market's going to grow into the next decade. Because a lot of the capital growth is in the land. That would be my investment recommendation for anybody who's new to the market and just wants to get a foothold in, but they don't want to spend all their money in one spot.

Mark: Great insight. Paul, thank you very much for being on episode two of the SnowOnly Property Podcast. I can literally tell you from experience how incredible Japan is. And so if you are considering going over there, do it, you will not be disappointed. The powder is amazing. The onsens are great. The lifestyle is great. You can contact Paul via or you can have a look at all these properties on our website. We'll put some links below to contact Paul. Thank you so much for your wonderful insight, very much appreciated. Hopefully we'll get some people to contact you and ask you some more questions about Niseko and Furano real estate.

Paul: Thanks, Mark, appreciate the opportunity, and I wish you guys all the best for the new year, SnowOnly as well. Look forward to continue to work with you further on marketing ski properties.

Mark: Thanks very much, mate. Take care. Bye.

Paul: Okay. See you, Mark.