Market Risks and Financial Analysis of Real Estate Investment in Tokyo

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Geeta

Contents
1. Introduction............................................................................................................................................................................. 3
2. Market Risks............................................................................................................................................................................... 3
2.1 Market for Real Estate Space in Tokyo..................................................................................................................................3
2.2 Financial Market for Property Assets....................................................................................................................................4
2.3 Economy of Japan and Policy Issues.....................................................................................................................................5
3. Financial Analysis.....................................................................................................................................................................5
4. Recommendations...................................................................................................................................................................7
References....................................................................................................................................................................................... 8
Figure 1 Important Market Risks in the HSG Partnership

1. Introduction
There are plenty of risks that could be associated with an overseas investment. These risks could be associated with a number of
factors such as geographical distance, economic risks, the lack of expertise in dealing with Japanese firms and many others.
However, the primary concerns with this investment are the market risks of investing in Tokyo.
The property will be shared with HSG and the operational risks are expected to be low. The property will be low since the costs
of operating the property can be as low as 3%. Additionally, tenants will pay a share in the maintenance of the property. The cost
of acquiring new tenants may also be low since the brokerage is expected to be around 3%. The lease length is ten years which
helps insure against the volatility of the market. However, primary risk assessment demonstrates that there are plenty of market
risks that must be considered before an investment in the property is made.
Investment in this property like all other properties of Delta Q would be based on a quantitative measurement of risks and
expected growth. Since, market risks are the expected to play an important role in the success of this investment, it is necessary
to assess the market risks from various aspects.
2. Market Risks
Ideally, the investment in this property should have a similar or a greater cap rate to the current properties held by Delta
Q, so that the opportunity costs of capital invested are lower.
The market risks can be categorized as below:
Figure 1 Important Market Risks in the HSG Partnership
2.1 Market for Real Estate Space in Tokyo
Tokyo is the largest metropolitan in the world, apart from being the capital of Japan. The population all over the country is
on a decline but has been increasing the Tokyo Metropolitan area. It is expected that Tokyo will maintain its population.
(Nomura Research Institute Ltd., 2013) Hence, the consumption of goods is expected to remain high. Additionally, Tokyo is
Market for Rental
Space in Tokyo
Financial Market
for Property
Assets
Economy of Japan