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Thursday, March 8, 2007

HOKKAIDO RESORT SWAMPED BY CONDOS

Aussie skiers spark land boom in Niseko


Staff writer

KUTCHAN, Hokkaido -- When Australian Ben Kerr first started a small real estate company in 2000 as a side business here at the Niseko ski resort, he never dreamed it would someday overshadow his tour guide business.

News photo
Australian tourists have dinner and drinks at Jojo's Cafe & Bar in Kutchan, Hokkaido, on a Friday night in February.

"At the time when I started the business, I thought it was just a hobby to help out some friends who were interested in buying," said Kerr, managing director of Niseko Real Estate Co. "That changed very quickly."

Kerr, 37, is one of three major foreign real estate developers behind the property boom in this southwestern Hokkaido town, which has a population of about 15,800.

Since the boom accelerated in 2003, 40 condominium complexes and 20 foreigner-owned houses have been built here, including 30 in 2006 alone, according to the Kutchan municipal office.

His new business, which caters mostly to Australian visitors, thrived even though Kerr had no experience as a real estate developer. He started out by brokering sales of used condos and houses to foreign buyers. He has since built and sold dozens of properties, including a 48-condo complex that opened in December.

In his first year, he handled only about three properties, but that jumped to about 30 the next year and kept growing to the point where he had to hire another manager to run his tourism business.

Most of the units at Niseko Real Estate are priced at around 40 million yen, with two or three handsomely furnished bedrooms and bathrooms, a spacious living room and kitchen.

News photo
Condominium owner Keith Zabell (left) chats with a real estate developer in front of his condo building in Kutchan, Hokkaido, in February. KANAKO TAKAHARA PHOTOS

"When I started the business, people told me 'Ben, you're crazy, it's too expensive,' " he said. "But our buyers were saying the opposite: 'Ben, you're crazy. Why is it so cheap?' " suggesting properties in the area are still underpriced compared with overseas ski resorts.

After the 9/11 attacks in the United States in 2001, Australian skiers started coming to Niseko to hit its powder snow slopes and avoid any security concerns involved in going to the United States and Europe. In the past, overseas skiers tended to avoid Japan, believing it too expensive and too difficult because of the language barrier.

One reason Niseko attracts Australian skiers in particular is because the time differential with Japan is only an hour, and there are direct flights between Sapporo and major Australian cities, including Sydney, in the winter.

According to the Kutchan town office, the number of Australian visitors jumped from 214 in fiscal 2001 to 7,696 in 2005. Over the same period, total visitors to the town rose to 1.5 million from 1.46 million, while total visitors to Hokkaido fell to 48.1 million from 50.4 million.

With the influx of Australian tourists, demand for Western-style, self-contained condo facilities has grown. Most of the accommodations previously available were hotels and small inns. For foreigners, who tend to stay weeks at a time, the rooms were too small and the lack of kitchens forced them to eat out every night.

Kerr said most prospective buyers are Australians, including expatriates living in Singapore, Malaysia and Hong Kong. Americans and Europeans are becoming interested as well, he said.

One owner, Keith Zabell, an eye surgeon in Toowoomba, Australia, bought a four-bedroom condo for 50 million yen last year. He and his family stayed at the condo during Christmas to ski, and then rented it out for 100,000 yen a night the rest of the winter.

"Most of the people who bought the condos are on both grounds -- a lifestyle decision and investment," said Zabell, who himself is an enthusiastic skier.

The rental return is around 6 percent, whereas that for other ski and ocean resorts around the world tops out at 3 percent, he said.

"If you are a short-term speculator, it's a risky market because some see it as an Australian bubble," Zabell said. "For me, it's a good investment because it's also backed up by capital appreciation."

Due to the growing number of investors, as of July 1 the average price of land at Niseko was up 33.3 percent from a year earlier -- the sharpest increase among residential areas nationwide, according to the Land, Infrastructure and Transport Ministry.

Some people, however, worry that the current trend is just another real estate bubble in progress and say that signs of speculative buying aimed at short-term profits are emerging.

Hajime Sekiguchi, chief of Kutchan's tourism division, brushed aside those concerns.

"Unlike hotels, condominiums have separate owners for each unit," said Sekiguchi. "They won't be able to sell off their properties all at once."

Developers agree, saying that although prices will level off at some point, tourists from overseas will continue to increase at a slower but steady pace.

The real estate boom and the increase in Australian visitors have indeed brought economic benefits. According to a report from the Japan External Trade Organization last year, Australian skiers contributed 10.5 billion yen to the Kutchan-area economy from 2003 to 2005, with another 10 billion yen expected in 2006 alone.

This boom contrasts with the bust of another city with a ski resort three hours away by car. Yubari, a former coal-mining hub, was declared officially bankrupt this week and is undergoing costly rehabilitation procedures.

But the Kuchan boom is also creating tensions between foreign developers and local Japanese, who fear their hometown is not only being overrun by foreigners, but being turned upside down in the process.

Since Kuchan doesn't have any regulations on construction, including height and floor-area and building-to-land ratios, some of the large, modern condo complexes, which are on average six floors high, are being criticized for blocking the view from small inns, which are typically two-story structures.

Some of the developers want to build even higher structures.

Local residents drafted a nonbinding guideline in fall 2005 aimed at preserving Niseko's scenery, and the developers said they have been discussing them and resolving some of the problems with local residents. But the developers also feel local authorities should be responsible for issuing formal guidelines and have petitioned Kutchan Mayor Hiroshi Ito to establish a binding law. The town is drafting the bill.

In addition, local owners of pension-style inns are frustrated because they feel the new condos are stealing prospective customers.

"Customers who used to stay at my pension may want to change to those condos," said one pension owner, who asked not to be named, as he drove around his neighborhood complaining how cramped the area has become.

Simon Robinson, president of Hokkaido Tracks, another real estate developer, said his business does not compete with local inns because the type of customer he is targeting is different.

"The market that wants to stay in condominiums don't want to stay in pensions," Robinson said. "What was missing here was the upper level (accommodation)."

Robinson said this is a win-win situation for Niseko because his business has helped attract wealthy customers who normally wouldn't have bothered with Niseko.

"The big competition is not between pensions, hotels and condos," Robinson said. "The competition is with (ski resorts in) North America and Europe, because they are worried they are losing a large number of people to Japan."



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