Property Prices Cool Off in Niseko
April 27, 2010 - Niseko
Since it was discovered by Australian snow hounds at the start of this decade, the resort has drawn large numbers of visitors from across Asia, as well as international developers hoping to take advantage of its growing popularity. Then the recession hit. Alex Frew McMillan takes a closer look at Niseko's market.
"A lot of foreign developers rush(ed) into the market, and a lot have left the market with their wings clipped."
Once the snow starts falling in Niseko, it doesn't let up. There's a fresh fall most days from mid-December through March, and it's not unusual to wake and find an extra foot has pillowed onto your balcony overnight.
Clouds race east over the icy Siberian steppes, pick up moisture over the Sea of Japan and drop it on the An'nupuri range.
Last season, the slopes of the Niseko resorts captured a total of 30 metres, and Forbes Traveler magazine recently named Niseko the second-snowiest ski resort in the world, behind only Mount Baker Ski Area in Washington State.
It's no wonder Niseko has been building into a Japanese Whistler or Val D'Isere. Ever since it was "discovered" by foreigners, mainly Australian snow hounds, at the start of this decade, the resort has been drawing large numbers of visitors from across Asia.
Matt Dening was one of its early advocates. The former lawyer quit his practice in Australia and decamped to Hirafu where he and his wife teamed up with a Canberra-based couple and formed Hokkaido Tracks, which has slowly grown into the biggest apartment developer in Hirafu. The company now runs 200 apartments and houses, around 85 per cent of which it built, in some 17 developments.
Other property developers quickly joined the market looking to capitalise on the resort's popularity around Asia, but it hasn't all been roses. The financial crisis has halted almost all new developments. Projects such as Above + Beyond have been scrapped, A.P. Land, a Malaysian company, has been forced to shelve its Shiki Niseko project and locals say the projects that are proceeding are going slow.
Capella Hotels is focusing on getting its hotel up and running before turning its attention to the residential side of its project. Aman Resorts have been digging around for a site but are still in discussion stages.
"Niseko certainly felt the rush of a lot of foreign developers rushing into the market, and a lot have left the market with their wings clipped," Jonathan Martin, chairman of Nisade developments says. His company has unveiled some of the only new property stock this year with The Vail, a 49-apartment luxury block. Prices range up to US$1.7 million for the largest apartments - three bedroom units of 152 square metres.
Martin says the project is about 50 per cent sold. Buyers who stepped in at the height of the financial crisis secured discounts of as much as 30 per cent. But the developer has now raised prices back to their pre-crisis levels.
"We saw that there would be a supply restriction again," Martin notes. "That has created an opportunity for us, since we're really the f irst product that's new this season."
Second homes became major casualties of the economic crisis, and, since the "hot money" that rushed into Niseko has cooled down, it's very hard to sell off-plan. However, some developers say it's good that Niseko has taken a bit of a break before it gets ahead of itself.
"It has been kind of a nice breather because things were getting too hot and going up too quickly," says C.J. Wysocki, one of the two developers behind the Suiboku apartment. Suiboku has 10 apar tments in all, four of which remain on the market. The prices are 90 million yen for the two-bedroom apartments and US$1.2 million for the three-bedroom flats, with two of each on offer.
Wysocki notes that some buyers defaulted on units, surrendering deposits. That has enabled Suiboku to offer the remaining apar tments, which were designed by the Japanese architecture firm Atelier BNK, at a slight discount. "We want to put them on the market now and sell one or two, then increase the prices on the remaining ones," Wysocki says. "Prices haven't begun to go up again but they are quite stable."
The lack of bank financing in Niseko has meant buyers must typically put down 100 per cent cash on their holiday homes. That requirement has protected house values in the downturn, with few distressed sales.
A narrow window where the Australian dollar weakened against the yen to the point where Australian sellers could sell their property with no capital gains in Japan but still enjoy a 20 per cent gain on the currency has since closed.
Still, land sales are star t ing again. "Business is booming right now thanks to the turnaround in the Hong Kong economy," Chris Lane, a property agent who works for the Japanese developer Izumikyo, says. "You can't just sit on cash forever; you need to make it work for you."
Izumikyo specialises in land sales, mainly to developers. They seem to be shopping but only for cut-rate deals. "Most of the interest is from big Hong Kong players, and Singapore as well," Lane says. "Most buyers are now opportunistic. Everything that they feel is a good deal they are taking off the market quickly, while they wait for the world economy to turn around."
New entrants such as Odin Residences, which special ises in very high end apartments and is developing a hotel, are making a splash. But the activity has been at the very high end or the low end, and proper ties now need to have a distinct selling strategy for one end of the market or the other, real-estate insiders say.
Every season, it seems another nationality "discovers" Niseko. The Japanese came first, of course, in the snow boom of the 1980s. Then Australians arrived in the 1990s. Now Hong Kongers, Singaporeans and Malaysians have arrived in large numbers, and it's not unusual to hear Thai and Mandarin on the slopes, and increasingly, British and American accents.
Dening says Hokkaido Tracks has reset its overnight rates to the same level as two years ago. Then it offered an early-bird discount of 25 per cent for holiday makers who were ready to pay before the end of October. "We priced competitively, and booking numbers are good," he says.
Still, Hokkaido Tracks didn't embark on a new project in the off-season, biding its time. Would-be developers had flooded into Niseko's small market, snapping up land at what locals consider crazy prices. Now they are paying the price instead.
"All that land has gone down enormously in value, you can't get rid of it," Dening notes. "A lot of people defaulted on contracts where they had paid 20 per cent deposits. So clearly they think the land is worth at least 20 per cent less."
Source: LP Luxury Properties
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