Due to regulations on private lodging and hotel businesses in Sumida Ward,
as well as the suspension of new applications for Special Zone Minpaku in Osaka City,
strict regulatory measures that can cause a drastic decline in actual operating revenue—
making projects highly likely to become non-viable—
are scheduled and already being implemented across various municipalities from this year onward.
We define
this turning point—
where the environment surrounding hospitality-oriented real estate changes fundamentally—
as “X-Day.”
At this point,
we would like to share one important premise.
Licenses related to hospitality businesses such as
minpaku and hotel or ryokan operations
are not rights attached to the real estate itself,
but rather
administrative licenses granted to a specific applicant (operating entity).
Therefore,
even if a property is sold,
such licenses are not automatically transferred to the new owner.
When regulations are strengthened under this premise,
owners who currently hold properties for, for example, minpaku operations
may find themselves in the following situation.
Unless a new application under the new owner’s name is completed before X-Day,
the business must operate under far stricter regulatory conditions.
In practical terms,
this means a state in which profitability is highly likely to decline sharply.
As a result,
buyers may disappear from the market,
and even asset replacement through sale itself may become difficult.
Furthermore, investors who have previously purchased hospitality-oriented real estate
to avoid the low yields of general real estate
and pursue relatively higher returns
are also expected to increasingly refrain from new acquisitions.
This judgment is based on
changes in regulatory content
and forecasts that X-Day will spread to other municipalities as well.
In fact,
we are already receiving a growing number of such consultations from our clients.
Indeed,
this X-Day is not limited to a small number of municipalities;
it may spread sequentially to other regions.
So, how should property owners (sellers) act?
Once X-Day is crossed,
situations arise in which profitability declines
and properties become harder to sell.
Accordingly, decisions such as:
-
selling before X-Day
-
completing applications before X-Day
-
locking in value under the previous regulatory regime
may seem logically straightforward.
However,
actually making these decisions
and taking action
is by no means easy.
For example,
some investors intend to eventually switch
from minpaku—restricted by the 180-day rule—
to hotel or ryokan operations that allow year-round business.
Yet in reality,
they continue to postpone obtaining hotel licenses.
On the other hand,
there are investors who correctly grasp the environmental changes
and have already begun executing concrete business strategies.
We are receiving specific consultations of this nature
through emails and meetings.
The environment surrounding hospitality-oriented businesses
has already begun to change significantly.
So, how should buyers act?
Hospitality-oriented real estate
has historically been purchased
with expectations of higher yields than general real estate.
However,
once strict regulations take effect,
it will no longer be reasonable to expect
the same level of profitability
for properties newly acquired after X-Day
as under the previous regime.
From a buyer’s rational perspective,
this effectively limits options to:
-
properties already approved under the previous system before X-Day
-
properties already being operated under the former regulatory framework
That said,
this does not mean
that acquiring such properties automatically allows the same operations to continue.
New owners must still complete
fresh applications and confirmations
under their own names.
Nevertheless,
there have been moves to sell properties quickly
using expressions such as:
-
“hotel license-eligible property”
-
“safe if purchased now”
These phrases give the impression
that licenses can be obtained without issue.
However,
the situation is not as simple as
“safe because it’s before X-Day.”
If buyers cannot accurately assess
the truthfulness of such claims
and the underlying conditions,
they may easily make incorrect decisions.
Finally: Whether seller or buyer, avoiding bad moves is critical
Whether you are a seller or a buyer,
the most important thing
is to avoid being caught in a bad move.
In Japan’s past,
during clearly deteriorating market conditions
such as the early-Heisei bubble collapse
or the period immediately preceding the Lehman Shock,
many investors lost substantial assets
due to hasty, superficial judgments.
The current hospitality-oriented real estate market
has also entered a phase
in which careless decisions
may lead to irreversible consequences.
If you have concerns
or find yourself uncertain in your judgment,
our professionals will provide support
to the fullest extent possible.
While consultations have recently increased
and it may take a few days to respond,
we handle each case responsibly and with care.
Those investors who have worked with us before
will already understand
that we consistently prioritize responsible guidance
over our own short-term profits.