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🎙️ | 38 | Rei Saito
Japanese Stocks and Tokyo Real Estate
My guest today is Rei Saito (@Misosoppa). Rei is the writer behind Konichi-Value. Konichi-Value aims to share my most valuable lessons from working in Japanese finance, and gold nuggets in the Japanese stock market.
In this conversation, we go deep into the Japanese stock market and discuss Tokyo real estate and some pros and cons there.
So please enjoy my conversation with Rei Saito from Konichi-Value.
Listen to this episode on Apple Podcasts, Spotify, Stitcher, Castbox, Google Podcasts, or on your favourite podcast platform.
My takeaways and lessons:
Japanese Stock Opportunities exist for those willing to do the work
“if you look at even the biggest Japanese companies and try to find analysis in English, it's very hard to find anything. And even if you know Japanese, the investment analysis you find is usually very bare-bones. It's basically someone looking at a chart and saying, “Oh hey, this stock went down so it's probably gonna go up”. So I saw this and thought there's a huge opportunity to share my knowledge in a country that I truly love. And that's how I started my newsletter Konichi-Value”
Japanese Stock Valuations are also nice
“I think the Japanese stock market in general is hugely undervalued. And so it's just, if you look at the Japanese stock market even before the huge bear market we have now, you can see that it was average PE of something like ~14, ~15, of companies under Nikkei 225 the biggest index in Japan compared to S&P500, which had a PE price to earnings ratio of around ~20 or ~25 at its peak. And now it's all of a sudden we have a drop of the Japanese Yen to the US dollar of around 40%, which just makes the Japanese stock markets looks like a hugely discounted market. And I think it's, this is partly because people just don't look as much as Japanese stocks.”
“because of Tokyo's incredible infrastructure you can get from anywhere to anywhere in Tokyo in less than an hour and many places which you know, would be considered quite inaccessible in other cities is still half an hour away with a rapid train to the centre of Tokyo. So if you look at areas like Nerima or Tachikawa which just examples of suburbs to Tokyo, you can find incredibly cheap apartments and houses and still be around 30 minutes away from Central Tokyo. And on top of that, I think it's just Tokyo is a very livable city. […] just in terms of livability, I think, you know, affordable housing and low crimes and you know, basically infinite entertainment has made Tokyo into a very interesting place to live for people who rent and people who want to buy property. And sure you won't see the same growth of properties as you will in, you know, cities like New York and London. But at the end of the day, if nobody wants to live in a place, I think those valuations are too high anyways, while in Tokyo, the valuations of properties are very stable and probably growing at a stable rate for many years to come.”
[00:00:31] - [First question] - Rei’s Background
[00:04:19] - Konichi-Value origin story
[00:08:05] - Benefits of investing in Japanese stocks
[00:10:54] - Unique downsides of investing in Japanese stocks?
[00:12:55] - Misunderstandings towards Japanese stocks
[00:14:00] - Trends in Japanese equities
[00:16:57] - Overcoming the information hurdle in Japan
[00:22:26] - Tokyo Real Estate market overview and upsides
[00:26:09] - Why hasn’t Tokyo real estate prices risen like the rest of the world?
[00:28:15] - Investing in Tokyo as a local vs as a foreigner
[00:32:32] - Anything we haven’t covered about real estate in Japan?
[00:36:05] - Rei’s love of Public Transit
[00:39:13] - Undervalued life skill or experience?
[00:40:58] - Influential books or people?
[00:43:00] - Final thoughts
Connect with Rei:
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Kalani Scarrott (00:31): All right, how are we? My guest today is Rei Saito. Rei is the writer behind Konichi-Value, which aims to share his most valuable lessons from working in Japanese finance, plus share some gold nuggets in the Japanese stock market. In today's conversation, we go deep into the Japanese real estate market, some pros and cons there, and do the same for the Japanese stock market. I hope you have as much fun as me, so please enjoy my conversation with Rei Saito from Konichi-Value. Alrighty, Rei, thank you so much for coming on today. I've been reading your work for a while now and I'm excited to pick your brain, both on Japanese stocks and Tokyo real estate. But for guests who are new to you, could you just give like an elevated pitch of your life and who you are and what you do?
Rei Saito (01:13): Oh, yeah. Well, thank you for having me, Kalani. It's a pleasure to be on your podcast. But yeah, I, I mean I'm probably not as impressive as many of your guests here, but I still would like to do a little bit of a chronological background about myself. So I'm half Japanese and half Swedish, but I was actually born in rural Japan in a town outside of a city called Kumamoto in the south of Japan. And even though I grew up mostly in Sweden, I went to elementary school in Japan. And I don't know how much you know about Asian schools, but I'll tell you now that they're way harder than anything I did in Sweden,. So I still have some scars from that time, even though of course it was great learning. But then after elementary school, I moved back to Sweden and when I was around 16 years old, I inherited stocks from my great grandmother who passed away at that time.
And and no worries about that because she was almost a hundred years old. So she lived a pretty good life. But at that time I got an investment account, and I started trading stocks and I basically lost everything in two years. it was a bad timing, to be fair. It was around 2008. So you know, by the time I was 18 I had basically zero money from my great grandmother, which was quite sad. But I still had a lot of interest in business and economics, which I think really grew by, you know, having so much money back and forth in stocks, et cetera. So when I went to university to study, I started economics and both my bachelor's and masters I did economics. And at the same time I became really interested in value investing, you know, checking company's balance sheets and really understanding what companies are doing.
And I had heroes like Warren Buffet or maybe heard about John Bogle, Vanguard. Yeah, he created the Vanguard S&P500 basically. Right. And so that really helped me shifting my, I mean I didn't have that much money at the time, of course cause I was a student, but it helped me shift my stocks into more value-oriented stocks, which at the end of the day gave so much more return on my investments than I ever had before. And at the same time, I was also really into tech. So while I was a student, I got a job at Microsoft as a student brand ambassador. And I don't know if you remember, but there was a time when Windows phone was gonna take over the world, at least in my world this phone that was gonna be better than iPhone and Android. And I was a huge promoter. I had a blog partly sponsored by Microsoft in Sweden, which garnered lot of interest until Microsoft discontinued windows phone. And the blog sadly died too.
Kalani Scarrott (04:05): Ahhh, So that's how you first developed your writing muscle, I guess?
Rei Saito (04:08): I think so, yeah. It was really interesting to just get into, you know, like producing articles on a fast pace and also write something that's not only interesting for me, but also for other people to read.
Kalani Scarrott (04:19): Yeah. So the next logical step is when did you decide to combine both interests of investing and writing and yeah, maybe explain a little bit about Konichi-Value and even just the why behind the name, I guess.
Rei Saito (04:30): Yeah, so after my studies I, I got a, a job at Microsoft. so I worked in Microsoft in, in different countries. And while doing that, I was also investing a lot of my free money into different value stocks. And I found that working for Microsoft, it was really good for me to understand value because I, all of a sudden I got to see the part of companies, right? And I think that a shift that has happened in the last 10 years is this shift to basically every company's a tech company, right? So I'm a firm believer that you cannot understand investing and value investing without understanding the technology that company uses. So I think that knowledge really helped me become true and tried in my value investing philosophy. And then after a couple of year Microsoft, that's when I got an opportunity to work in tech consulting in Japan, which is the reason I moved here in the first place.
And when I came here, you know, I was extremely interested in value investing just as I had in other countries I lived in with Microsoft. So, you know, I tried to find out a community here and tried to just see, you know, what kind of analysis there was on the companies in Japan. And when I found first is that Japan is, most stocks here are hugely undervalued, just like simple analysis. You can see how low their PE is and just how much money they gain, even though the valuation is very low. But the second thing I found is that there's no coverage on Japanese stocks, especially in English. Like if you look at even the biggest Japanese companies and try to find analysis in English, it's very hard to find anything. And even if you know Japanese, the investment analysis you find is usually very bare-bones. It's basically someone looking at a chart and saying, “Oh hey, this stock went down so it's probably gonna go up”. So I saw this and thought there's a huge opportunity to share my knowledge in a country that I truly love. And that's how I started my newsletter Konichi-Value, which is basically the word for Konnichiwa most used word in Japan, which is hello and value, which is value stocks. So nobody's confused what my newsletter is about.
Kalani Scarrott (06:44): It's a strange situation cause I've got a good mate, Clay from Kenkyo investing. He does a bit of same thing involved with the Japanese market and there's just so much opportunity there, but it's a bit hard getting that information out or even like you said, finding information. So what's the investing scene like just with value investors? Like is there a community there? Are they, I don't know how passionate are they for it? Cause Yeah, it's a bit of a hidden gem I guess, even though it's a massive country, massive yeah.
Rei Saito (07:09): So I'd say there is definitely a community here both by foreigners and Japanese people. And it's relatively active, but it's almost exclusively retail investors. So investors like you me, so you know you see on Reddit or retired Japan for example, which is a Japanese website sorry English website, focus on Japanese assets that you can earn enough money to retiring hopefully. And these are great for, you know, meeting like-minded people, but again, they don't cover companies that well. It's very hard to find actual investors putting their hard-earned cash into stocks that they truly believe in for x, y, z reasons. Yeah, no. So that's why the investment scene here is definitely there, but it's, I would say not mature at all yet in Japan.
Kalani Scarrott (08:05): So we'll keep continuing down the track of Japanese stocks before we get into Japanese real estate. But from an outsider looking in, like someone for me, so what would you say some of the benefits of investing in Japanese stocks? Just opportunities there, but then even how would you go about finding the information and yeah, where do you go from there I guess?
Rei Saito (08:22): So I think the Japanese stock market in general is hugely undervalued. And so it's just, if you look at the Japanese stock market even before the huge bear market we have now, you can see that it was average PE of something like ~14, ~15, of companies under Nikkei 225 the biggest index in Japan compared to S&P500, which had a PE price to earnings ratio of around ~20 or ~25 at its peak. And now it's all of a sudden we have a drop of the Japanese Yen to the US dollar of around 40%, which just makes the Japanese stock markets looks like a hugely discounted market. And I think it's, this is partly because people just don't look as much as Japanese stocks. The average person that invests in Japanese stocks is usually an investment firm or a pension fund or something really big that just basically scoops up an index or scoops up a huge sway of the Japanese market without looking at individual stocks. And then when it comes to retail, I think the issue there is that there's just, it's a hard market to enter without knowing where to go. And where to go is if you have a stockbroker account, you can obviously find the big stocks on most stock markets, you know, in the US and even in Germany. But for the smaller stocks you really need a Japanese stock brokerage account.
Kalani Scarrott (09:53): and there's plenty of like smaller stocks available and around for pickings I guess?
Rei Saito (09:57): Yeah, absolutely. So I think that's what makes Japan so interesting is that when we talk Japan is the third largest economy in the world, which people tend to forget, right? And it's insane when you think about it because I mean everyone talks about US stocks, but also a lot of European stocks are on people's radars. And for people who can trade in China, a lot of Chinese stocks, especially on the Hong Kong stock market, are really traded. But then you have this blank hole in Japan, right, where you have a few stocks, the stocks like Nintendo or Sony that are quite traded and then anything below is considered midcap or small cap. And so when we say, you know, smaller stocks in Japan, we're still talking about massive companies with tens of thousands of employees that still, both in terms of information out there and also in terms of people buying their stock would be considered small cap in the US for example.
Kalani Scarrott (10:54): Yeah. And are there any maybe unique downsides of investing in Japanese stocks? Like I've read a bit and heard a bit about common complaints maybe towards attitudes, towards invest, maybe when in terms of like hoarding cash and not paying it out, or how do you see some unique downsides?
Rei Saito (11:10): there are a couple of downsides. definitely not big enough for people not to invest in Japanese stocks, but I'll still tell them. so the first one, and perhaps most obvious one is just the information. Even in big stocks, big companies are usually in Japanese. So you kind of either have to be really good at Google translate, which is not at all perfect in Japanese for some reason, or you just have to learn the language. And on top of that, I find that big companies in Japan are not as good as marketing themselves even though they're public. So the information might be a bit skewed, it might be hard to find what kind of information you're looking for and you know, find the, the classic stuff like, you know, how good have they done over the years, what's their earnings ratio, et cetera.
Those things can be quite hard to find in smaller companies. And then on top of that, I think one thing that you have to be aware of if you're trading in Japan is that Japan has a very old system where you have to trade stocks in units of a hundred stocks. So if you wanna buy one unit in Japan, which is the smallest amount, you basically have to buy a hundred stocks to invest in a company. This is how stock markets used to work all around the world. But as you know, for example, in the US they have abolished this system long ago. And it is a lot of problems, right? We have Nintendo for example, they just did a stock split, but until very recently, a couple of weeks ago, to buy one unit in Nintendo would cost you around 6 million yen or well 55, $50,000, right? Just to start investing in Nintendo. Just to give you an image of how hard it can be to get into the market.
Kalani Scarrott (12:55): Unreal. Yeah. And is there anything maybe when outsiders looking into Japan, any opinions that really annoy you? Like or do you think maybe are misguided, like people just make a generalization about Japan and investing in Japanese stocks that really annoys?
Rei Saito (13:07): You? Oh yeah. I think there's a couple of things that really annoy me. And I think one of the things that annoyed me the most is just that people see Japanese stocks as this like, you know, like a legacy thing. Like you know, Japan used to be great, they were the, you know, forefront of the world in technology and then it just stopped in the nineties, right? And then nothing happened from the nineties to now. And though I agree that you know, Japan rightly so have been order very shadowed by South Korea and China, there's a lot of innovation and a lot of great companies that are doing a lot of new things in Japan, especially on the B2B side. So that's definitely the first thing I think people need to really wake up from and see that actually Japan, the Japanese stock market and Japanese companies, many of them are doing better than ever before.
Kalani Scarrott (14:00): Are there any big trends that you are seeing in Japanese equities, either both positive or negative or what's got your eye maybe in the Japanese equity market?
Rei Saito (14:08): Well, so I think we definitely see an ease of trading in Japan. So both from a government standpoint and from standpoints of Japanese stockbrokers, they're definitely pushing towards making retail investing a thing, which it hasn't been in Japan for many years and the government is doing the NISA account, I don't know how much you heard about it. No, but it's basically the British ISA, which is a tax-free account that the Japanese took, the Japanese government took and then they made it a little bit worse, but still you can invest around 1.2 million yen a year tax free if you use this government specific account. So I think that has really helped people to get on board with the idea of investing. And then on top of that you have apps like Line Japan's biggest chat app that is now going into stock brokerage. So you know, you can message your friend and at the same time you can buy gold or, or some specific type of stocks. It's like baby steps still. And I think they're still behind the rest of the world especially the US of course, but even many European markets. But I think at least we're seeing an uptake in retail investing here, and hopefully by the end of at least this decade they will have a possibility so anyone can buy single stocks instead of units.
Kalani Scarrott (15:31): Ah, and one cool little perk I've seen is the just like shareholder gifts and I don't know, shareholder perks. Like what's the go with that and what the companies offer? Yeah.
Rei Saito (15:41): Yeah, it's really funny. Yeah, a Yutai it's called so you're right, if you buy one or more units of stocks in Japan so a hundred more stocks, you get a gift from many companies. Not all companies have this, but a lot do. And these gifts can be very random. So for example, Japan tobacco, if you know, would invest in the tobacco stocks, you would get food like you know, ramen, microwave food, et cetera for six to 8,000, yen a year sent home to you. And then you have like other really useful gifts actually. Like for example, if you invest in JAL or ANA, most of the time they give you a 50% discount on domestic trips. One time or two times a year. Which I mean that's quite a good perk just to own the stock, right? Yeah. So you have many people actually there's a lot of blogs out there because Japanese people love this idea of gift giving, right? It's very inherit in Japanese culture and there's a lot of people who exclusively live off these gifts. So you know, they've invested in a food company or traveling company and they combine these gifts to basically spend no money under private life except for the gifts and the money for the stocks they purchase.
Kalani Scarrott (16:57): So you mentioned before how like the information hurdle for foreign investors. How would you even go about it as a foreign investor then? What do you think is the best course of action to maybe dip your toes in and start doing more research and getting involved?
Rei Saito (17:10): Well, So I think first of all there is coverage of some of the big companies. you know, like if you look at Muji for example, or if you look at Uniqlo or of course, Sony Nintendo these have some coverage on foreign investor sites. And I think that's a good place to start because even though these companies are obviously unique, they all have a Japanese mantra and Japanese mantras are, you have a very good balance sheet, and you just have very strong financial data. So you can see this pattern in big Japanese stocks and you can see how Japanese stocks allocate money and you know what they do with the labor force, et cetera, which is quite similar over almost all Japanese big companies. And I think that really helps you understand where the value lies in Japanese companies. You know, it's not like I have a hard time finding most Japanese companies doing, you know, like 10 X their valuation in a matter of months or something.
That's just not the reason to invest in most Japanese companies. But instead you just get these strong balance sheets, and you get like a strategy that's maybe a five or 10- or 20-year strategy that really helps you get a picture of what the company wants to achieve. And when you've read this analysis and maybe even gone into the balance sheets of those big companies which are in English, you can then start checking smaller Japanese companies, go to their investor relationships reports and hopefully translate in on Google Translate or another service and then just get, you know, they have the same structure and similar mindset, so you will be able to understand them easier than if you go to, you know, a small super niche interesting company from the beginning.
Kalani Scarrott (18:52): And maybe this is like a common, I don't even know how to describe it, but like us, you sort of do see a lot and read about and there's YouTube videos about how old Japanese companies are and do you find Japanese companies are happier and more confident in taking that long term view, whereas maybe in the US with quarterly reporting and stuff that's maybe that chasing of earnings, Do you find Japanese companies are a bit happier and able to look further ahead and that's positive for investors?
Rei Saito (19:20): Oh yeah, I mean a hundred percent. it's just, there's some good stories of Japan, you know, the, the good golden days of Japan in the eighties where, you know, you would have a company like Toyota who would have a hundred-year plan. So basically, you know, what, how many cars would they produce in a hundred years or what kind of cars would they produce in a hundred years? It's like something that's unheard of anywhere else, right? And at that time, the issue was of course that American investors took this to heart and said, Okay, Japan knows the future a hundred years in advance, so we're just gonna evaluate the company. Like they know exactly what's gonna happen in a hundred years. So that's how the part of the reason why the Japanese stock bubble happened. And you know how Japanese companies became extremely overvalued, but now that mindset has not changed.
Japanese people still thinking, you know, 10, 15, 20-year plans. And even though there are some danger to that, especially, you know, in software development where things can change in a day, I think that when you look at, you know, rigor industries like a lot of manufacturing or real estate, that mindset actually helps companies because that helps them think, you know, how can we pay off our loans in 10, 15 years? What investments should we do now that will give something in 10, 15 years? And I think for the long-term investor, you know, a person who wants to buy a stock and hold onto it as long as they can, there's no better companies than Japanese companies.
Kalani Scarrott (20:44): Perfect, and before we move into Japanese real estate and Tokyo real estate that you've written about, is there anything else you wanna cover or talk about Japanese stocks?
Rei Saito (20:51): I think I just would like to say that Japan is a very overlooked market when it comes to stocks. And we can see some uptake of this, you know, maybe heard that Warren Buffet invested in Japan around 2017, but apart from him you can't really see any of the mega, you know, mega firms doing big investments in Japan. And of course if you look further down the line to us retail investors, there's no, you know, game stocks in Japan or anything like that because there's just not enough coverage of Japanese stocks.
Kalani Scarrott (22:26): So to move on to the real estate market there, you've written a few pieces on Tokyo's real estate before, which do a great job of just illustrating the market. So maybe from a quick high-level view, could you describe what it's like either through general stats, demographics, or even just comparison wise?
Rei Saito (22:40): Well, I think if you wanna summarize it in three words, I think the Japanese real estate market well I'm talking about the Tokyo real estate market specifically now, and in the Tokyo, I think the market is misunderstood, overlooked, and to be fair, quite complicated. And I wanna separate out the Tokyo real estate market from the Japanese real estate market because contrary to popular belief, you know, Japan is, it is a shrinking country in many ways. You know, the population is shrinking quite rapidly in many areas, but in Tokyo it's actually growing faster than anywhere else in Japan. And even if you compare to cities like London or New York, Tokyo can definitely hold a candle in terms of population growth. And I think like in general, people see, you know, Japanese real estate investment as bad, you know, people don't value real estate investment as much and especially people in Japan don't put as much money into real estate.
But I think if you look at the whole picture, not only the property value, but for example, the yield you can get from investing real estate in Japan, the actual return on investment is relatively high. And then I would just add to the complicated part of my free words. I think that sadly, as you know with stocks, everything in Japan is in Japanese. And on top of that there's a lot of laws that has made the real estate market less liquid in Japan than other places. You know, when you have to change hands, for example, between for real estate, between people, there's a lot of stamp duties, did a lot of additional taxes. And also Japan still has property tax, which is quite a big part of investing real estate here that you have to pay yearly.
Kalani Scarrott (24:27): Ah, so when you look at, yeah, Tokyo Real Estate from an investment lens, what are the maybe bullish or upside reasons for doing that?
Rei Saito (24:35): So, I think first of all, you can afford investing in Japan. if you invest in Tokyo, I mean sure a place in Ginza will cost you a pretty penny or any other very high-end area. But because of Tokyo's incredible infrastructure you can get from anywhere to anywhere in Tokyo in less than an hour and many places which you know, would be considered quite unaccessible in other cities is still half an hour away with a rapid train to the center of Tokyo. So if you look at areas like Nerima or Tachikawa which just examples of suburbs to Tokyo, you can find incredibly cheap apartments and houses and still be around 30 minutes away from Central Tokyo. And on top of that, I think it's just Tokyo is a very livable city. Hopefully I get to discuss why, you know, Tokyo prices haven't gone up that much later, but just in terms of livability, I think, you know, affordable housing and low crimes and you know, basically infinite entertainment has made Tokyo into a very interesting place to live for people who rent and people who want to buy property. And sure you won't see the same growth of properties as you will in, you know, cities like New York and London. But at the end of the day, if nobody wants to live in a place, I think those valuations are too high anyways, while in Tokyo, the valuations of properties are very stable and probably growing at a stable rate for many years to come.
Kalani Scarrott (26:09): Yeah, that's a good point. And yeah, if you're comfortable, just roll straight into it. So why haven't Tokyo housing prices gone up and yeah, what's the reason there?
Rei Saito (26:16): Well, I think of course it's very complicated. , I mean also in, you know, New York, etcetera, there's not a single reason, many many reasons. But I actually, I wrote an article about it a couple of weeks ago and I think the greatest reason why Tokyo has fared so well, you know, we're talking about around a 20% increase of properties around Tokyo in the last 15 years. That's just unheard of in other mega cities, right? And I think the main reason for this is Japanese zoning loss. I won't go into detail about it, but I can say that in 1968 I think the Japanese national government enacted 12 different zones that would be viable for the whole country. And out of those 12 zones in 10, you can actually build residential housing. So what that means for Tokyo is that basically almost anywhere except very industrialized areas or national parks, et cetera, you can build residential housing.
And on top of that you have a lesser problem with nimby, you know, not in my backyard people. Yeah, I'm sure you have them where you live to. Oh yeah.. And what's so interesting here is, you know, in other countries especially in the west and Australia, you can basically, you know, complain to your city council or someone even closer, right? Maybe some someone actually ruling around just your area about how you don't want an apartment to be built or something like that because you want your property prices to rise or whatever. In Japan you can complain, but the issue is you have to complain to the government. And so that means that if you don't have a really good claim, you just don't bother complaining and things will be built without much protest. And I think those things have made it so much easier to build housing wherever and whenever in Tokyo compared to other mega cities.
Kalani Scarrott (28:15): Yeah. So then when it comes to investing, how different is it investing in Tokyo real estate as a local and understanding all the laws, paperwork, fees compared to as a foreigner? Cause I feel like it's hard enough maybe for Japanese equities, but then real estate it's a whole new ballgame of yeah, paperwork and that whole shebang.
Rei Saito (28:33): So I think first off you know, as a Japanese local you are of course able to understand language fluently and you know, the culture aspects and some laws that are quite unique to Japan. For example, if you're renting an apartment, one thing that always surprises foreigners, is something called or a key-money basically that you pay for just, you know, the gratitude for living in someone's, you know, apartment building or something, right? so those things, I mean they look very bad at first, but at the same time, you know, we have much more deposits and smaller rent in Japan, so it kind of evens out. But it, as a foreigner you don't understand this and it's quite hard to get into. And then of course there's a lot of other laws and regulations, the Japanese people have a much easier time to understand.
But with that said, I think that one thing that really helps you as a foreigner in Japan compared to almost any Asian countries is that as a landlord here or as an investor in real estate here, you have the same rights as a Japanese local. So if you look at Thailand or China or Indonesia, which are, you know, popular real estate markets for foreigners, it's extremely hard to invest, especially without a local contact that basically owns your property. Mm-hmm <affirmative> that can do whatever he or she wants with it. In Japan, you don't have that issue. You can take your money and invest in a property today and you will own it and have the same right as everyone around you.
Kalani Scarrott (30:02): Yeah, it's, it's a good point cause I've heard so many horror stories cause I'm in Bali now in Indonesia where it's, oh yeah, put in someone's wife's name and then they split up and then things get hairy and yeah, it's just, that's the risky run. Yeah. so is there any unique aspects of like Tokyo real estate that I have to be aware of? Like I think I've read a little bit before, it's not about the build quality, but there's a tendency that houses get demolished is like 20 years or something or, I don't know.
Rei Saito (30:28): Yeah yeah there is definitely unique aspects. I'd say one thing that's maybe not unique to Japan, but very unique to the real estate market compared to everything else in Japan. And that is that first you almost always need an agent to go through. And secondly, the agent is one of the few people in Japan that you can haggle with. So you probably heard in, you know, Tokyo or elsewhere, you know, the price is the price you don't haggle in Tokyo, but all of a sudden when it comes to real estate market haggling is completely fine and you're expected to haggle and people will give a too high price of something and you're expected to, you know, work it down and you know, and get and give some extra benefits. Yeah. So it's very much a negotiation thing going on in real estate that you don't see elsewhere in Japan.
Secondly, yeah, sorry. Yeah, just to answer your question too about the houses being demolished, it is true that Tokyo as a city has one of the newest houses in the world and the reason for that is, as you say, people like to demolish and rebuild houses here rather than renovate. And that's definitely a risk that, you know, if you buy new house it might depreciate the value faster than the land price grows, which means that you basically bought something like a car, right? But I'd say that that risk has decreased rapidly since the latest building codes. so around I would say 2003 Japan introduced even stricter building codes, you know, for being able to be protected by earthquakes and tsunamis, et cetera, which Tokyo is very prone to have. And these building codes have insured people that now might be better to renovate if you have a relatively new house than to rebuild it again. And we're actually seeing a lot of renovation happening and older housing stock and with older, I mean from 2000 actually increasing in value even though it's getting older. So the trend is bucking, but again, it could definitely change if we have a massive earthquakes and many of these houses don't hold their promise.
Kalani Scarrott (32:32): Cool. No, that's great insight. So anything else we haven't covered about Japanese real estate or Tokyo real estate in particular that you wanna talk about?
Rei Saito (32:39): I think I just wanna hammer down the livability point about Tokyo. I think like, you know, we see places around the world that are constantly ranked high on the, you know, livability indexes and stuff. You have you know, Melbourne, Australia is ranked really high Vienna in Austria, Stockholm, Copenhagen et cetera, right? And I think that a lot of these places have always been there, but Tokyo is definitely a place that's growing every year and getting up the lists. And now I wouldn't be surprised if any list you see it's in the top 10 or even top five. And I think the reason for this is, first of all, there's no crimes here basically and there's a lot to do. But first and foremost, I just think that the other places have gotten worse, right? If you live in Melbourne or San Francisco, you know, some years ago, maybe 2010 years ago, you could afford to live there in a relative nice apartment, but today you just can't.
I have friends in San Francisco, they live in, you know, basically five people even who work for Google or Microsoft, right? And you just don't have that in Tokyo. And I think that that skewed us where, you know, real estate is such a good investment if you live in San Francisco compared to Tokyo, I think that skewness will begin to shift. So you will see less people actually wanting to buy real estate because less people want to live in a city like San Francisco. And then because more people want to live in Tokyo, I think the housing prices will go up.
Kalani Scarrott (34:05): That's such a good point cause yeah, Melbourne, Sydney, they're great cities to live, but if you want a median house with a median income, I think it's like 20 times cause it's like 50 grand into a million. It's just not feasible.
Rei Saito (34:16): I've actually, it's interesting this phenomenon. I don't know, have you heard about the Hamptons effect? No, It's, so I've actually heard about it a couple of days ago. so it might not be
Kalani Scarrott (34:27): That's still fresh. That's good. Yeah.
Rei Saito (34:28): but the Hamptons effect, So Hamptons is a place outside of New York very, very expensive place. And what has happened over the years is that it's become so expensive, and the surrounding areas have also become so expensive that nobody that's not a millionaire can afford to live there. Mm. And so if you live in the Hamptons, right, sure you have a nice house, maybe a nice backyard, but if you wanna do something like go to restaurant or go to a soup market, there's nobody working there because nobody with a normal salary can afford to live anywhere near Hamptons. Yeah. So it's basically this ghost town that's just has incredibly beautiful and expensive properties. But that's it. And I think that those places will collapse as soon as the first person tries to sell his or her house and realize that nobody else wants to live there.
Kalani Scarrott (35:13): That is, yeah. That's so crazy and so interesting and wow. Yeah. One thing I've noticed traveling through Southeast Asia, I sort of picked up with it in Vietnam is in Ho Chi Min City, it felt like there was a lot of chain restaurants, chain cafes. But then as soon as you go outside to the small cities like Hoi An or Da Nang because the rents are cheaper, you can see more experimentation with like cafes and restaurants, there's just more options cause people can take that chance. But in, in big cities, no one can afford to take a risk on it, you know.
Rei Saito (35:40): Right. Yeah. And I, and I mean that's where you hear all these, like New York and San Francisco, it used to be these arts places, right? Where art was born and created and you know, startup founders founded new companies in their garage. Right? And I just feel like you don't hear that anymore because of this flight of young hungry talent because you just can't afford to live there.
Kalani Scarrott (35:59): Yeah. So, I mean, I won't claim to know the solutions, but it's just something I've seen and noticed and yeah, it's a bit sad.
Rei Saito (36:04): Yeah. I think very sad.
Kalani Scarrott (36:05): So one big reason why I love this podcast is cause I just love talking to people about their passion. So from my reading, you also love public transit, which being in Tokyo is probably like a gold mine. So do you wanna talk a little bit about that and where'd that love come?
Rei Saito (36:16): From? Yeah sure. yeah, as you might have found out, I do love public transit. I have a side blog which is not that active, but it's love public transit sorry lovetransit.substack.com where I talk a lot about my love for public transit and I think that in at its core, you know, it's not that much about, you know, latest train models or latest buses or anything. It's much more about what public transit means, right? Like I moved to multiple cities in my life and every city I thought to myself, ah, I could live here. They always have good public transit. And I really think that, you know, living in Tokyo, you kind of realize how spoiled you are with public transit because to be honest, I don't think any city world can hold a candle to Tokyo's public transit.
And it's very complex and very efficient and it's not something you can build in a day, but just having a little bit of that makes the city so much better. You know, just to be able to get drunk and then be able to get to your place without paying, I don't know, like a hundred dollars for a taxi, right? That is such a luxury you don't have in most places. And I think that that has really, you know, enamored my love for public transit. As soon as I talk about public transit, I become very emotional. But I feel like, you know, when you see these solutions to global warming and you look from, you know, especially if we have Americans leading the way, right? How, how should we, you know, in technical innovation and because America is a very car dominated society, you see people like Elon Musk proposing, you know, we should have self-driving cars and we should have tunnels all over cities and these insanely complex things, right? And just to solve a simple issue of how to get from point A to B without waiting for five hours in a traffic queue, right? And then you just look at cities like Japan and they're like, We, we solved this problem like 50 years ago with just a bus and a train and metro. And you realize that things don't need to be complicated if you know what solution you're looking for. And for cities, I think a hundred percent public transit.
Kalani Scarrott (38:25): Yeah, and it's just so fun. Like Hong Kong's another favorite of mine just cause of sheer variety. Like you can go from a tram to a bus to the underground and then a ferry. It's just so cool. I love it. Right. And you wrote something, I don't usually say this, but it's quite beautiful, the writing in that you spoke about when you're on the train, you look at someone and what's their story or where are they going? And it's just like, it's, it's a nice feeling. It's a nice thing to wonder. I like people watching, so that's a cool thing. But it was cool seeing you write about it, and you wrote about it very well, so..
Rei Saito (38:50): Oh, Thank you. Yeah. I mean I don't wanna honk my own horn, but I think that that's a hundred percent true. Like when you're driving, you're always focused on the road and you know, you're kind of angry a lot of times, right? But when you're just sitting with your own thoughts, like in a train, all of a sudden you start thinking about people around you and thinking about your life and it becomes much more spiritual journey.
Kalani Scarrott (39:13): And I think this is probably a perfect place to go into my concluding questions. So what do you think is an undervalued life experience or skill that maybe university aged students don't give weight to? So what do you think is a skill or experience that you think they should have?
Rei Saito (39:25): I mean I'm, I think I'm far too inexperienced and young to, you know, give any extremely good advice to people who have just gone outta university or are still studying. But one thing I've realized as I get older is that I think that life is really measured in memories and not in years. And I mean that in the sense that probably both you and me, we have years that we don't remember anything from. I know I sure have. And in reality, like when you summarize your life, it's those years are completely useless for you. Maybe you know, you've done something great that you just don't remember, but when you summarize your life it really means nothing to you. Right. And I just feel like to get more years, you have to get more memories, you have to do more things, you have to experiment more, right? So if you do the same job and just, you know, keep on going on autopilots, you might have lived until you're 90 or a hundred, but maybe you remember 10 or 15 of those years, right? So in reality only lived for 10 or 15 years while someone who's doing crazy things every day and really exploring and trying to get new hobbies and you know, starting up new things might only live to 50, but maybe he remembers 40 of those years, which makes his life so much more fulfilling and longer.
Kalani Scarrott (40:46): A hundred percent and couldn't agree more. Cause yeah, when I look back I'm like, oh, what did I do that year? Which country did I visit? Or what thing did I start? It's really, yeah, you realize what's important, what's big and yeah. Cause otherwise the small thing just blend together.
Rei Saito (40:57): Yeah, right. But
Kalani Scarrott (40:58): Love that answer. And have there been any books or maybe people that have been influential in shaping you and your worldview?
Rei Saito (41:06): Well, I think, you know, except for maybe Warren Buffet, I think that's almost a stereotype for any value investor of, you know, thinking long term and, and never, you know, trying to outsmart other people without the knowledge. another person that which book has really influenced me is Yuval Harari with the book Sapiens. You probably heard about it, it's quite famous, but you know, it's basically the book that explains how we humans went from basically being on the same level as any monkey to being the rulers of the world. And one of the things I found the most interesting in this book is that he says that one of the reasons why we conquered out, you know, Neanderthals or homo erectus or other species that were oftentimes much stronger than us and sometimes even smarter than us, the number one reason is that humans have this unique ability to imagine something that doesn't really exist, which is crazy, right?
Like it, we don't think about it because we think it exists, but things like laws or nations, they're not, there's no such thing as a, you know, a physical law that says countries exist. It's something that we have made up, but because we all believe it to be true, nations actually exist and there are consequences in, you know, going into someone's territory or upsetting someone from another country actual consequences in a concept that isn't really existing in anything but our minds. I find that vastly interesting and that's the number one reason I believe why we can have, you know, companies or laws or human rights because we really believe in something that doesn't exist until it actually starts existing.
Kalani Scarrott (43:00): And just lastly, what are you most curious about going forward and anything else you'd like to add or plug?
Rei Saito (43:05): Well, I think going forward, I'm definitely gonna stay in Japan for some time to come. And I really think one of the reasons why I'm so motivated staying here is that I think we're gonna see a renaissance of Japan or Renaissance and you know, there's just so many firsts if you look at the stock world, right, there's so many sectors that I think just have such huge potential now when, you know, China for example is a bit of a risky zone to invest in. I think a lot of manufacturing, et cetera is gonna move back to Japan and we're gonna have Japanese companies stepping up their game and becoming at least partly recognizable for their former glory. Right? And then also just like I think that I can be part of this renaissance just because the number one issue Japan and Japanese people have is their disconnect from the outside world. You know, lack of English, et cetera, or just that Japanese people and companies are not good at integrating with outside businesses. And I feel like people like me who have lived both abroad and in Japan can really help this connection happen and hopefully help the Japanese renaissance forward.
Kalani Scarrott (44:16): Yeah, that's great and a perfect way to wrap up. So Rei, thank you so much for coming on today. I really appreciate it.
Rei Saito (44:20): Well, thank you so much for having me. It's been a pleasure.