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Morihiro Oguma’s phone rang every day with calls from brokers representing foreign investors who wanted to buy his Japan Mineral water-bottling business.

“In many cases, I was told I could name my price,” Oguma said in an interview, adding he had no interest in selling the Hokkaido-based company. “It seems what they really wanted was our rights to groundwater.”

A two-decade slump in Japan’s real estate prices, an incomplete land registry and lax rules on buying forest with water rights are attracting investors led by China and come amid a fraying of ties between the two countries over a territorial dispute. Some areas of remote woodland in Japan, the only country in the Asia-Pacific region that doesn’t regulate property investment by foreigners, can be bought for 60 U.S. cents a square meter including groundwater.

Japan, whose population is shrinking, ranks in the top 10 percent of countries by water resources, while China and India, with the opposite demographic trend, will face shortages from 2030, according to a United Nations report in August. Almost half of China’s economy is already based in water-scarce regions, HSBC Holdings Plc said in a Sept. 12 report.

The biggest spike in forest purchases by non-Japanese is in Hokkaido, Japan’s northern island that is about the size of Austria and has triple the average water reserves of other Japanese prefectures, according to Hokkaido government figures. It has about 60,000 square kilometers (23,170 square miles) of forest, a quarter of the nation’s total, and supplies 20 percent of Japan’s food.

Governor Concerned

While the relative size of land owned by non-Japanese remains small -- 3,700 hectares (37 square kilometers) -- almost a third of it is on Hokkaido. The island attracted 90 percent of forest purchases and non-Japanese investors bought 20 times more land in Hokkaido in 2009 than two years earlier, according to local government data.

Hokkaido Governor Harumi Takahashi said the concern she has about some of the land purchases stems from a lack of information, especially about the development plans of the overseas investors.

“There emerged cases where we weren’t sure about the reasons why investors were purchasing such vast areas of land,” Takahashi said in a Tokyo press conference on Oct. 18. Hokkaido welcomes investment regardless of where the investor is from, yet needs to ensure proper use of water resources, she said.

China Buying

China leads the purchases of Hokkaido forest and water rights with 21 transactions of a total 57. Hong Kong buyers using Virgin Island-registered offshore companies accounted for another nine and Singapore investors eight, said Masayuki Mitobe, the head of water and land economic research for Hokkaido’s government. He said he could not name the investors due to privacy laws.

A quirk in Japanese law allows buyers of non-agricultural land to report the transaction after it’s complete. Hokkaido closed that loophole in April when it found some addresses used by overseas buyers were false, raising concern dummy companies were being used for the deals.

While Hokkaido authorities now need to be notified of a deal three months before it’s agreed, so they can investigate the transaction, only three of Japan’s 47 prefectures have done the same. Even the new regulation doesn’t allow blockage of land deals, as it lacks legal authority.

“Forests with abundant water resources are being bought and sold,” said Masaru Onodera, a member of Hokkaido’s prefectural assembly. “Some land is vital to national security, some to protect food supplies.”

Global Concerns

Investor interest in Japan’s water resources comes amid global concern about future supply. The United Nations has warned that two-thirds of the globe may be “water-stressed” by 2015, while places such as India’s Rajasthan region have banned new bottling plants and breweries to conserve aquifers.

A lack of conservation and monitoring may lead to conflicts over water resources, the UN said in its August report.

“In many countries, national security has historically been defined as military security,” the UN said. “It is now understood that military might is only one element in the human security equation, and that water can play a determining role in international, national and transboundary conflicts.”

Chinese investors have been looking at the water assets in Japan with the idea of exporting the bottled resource, said Hokuto Okudera, head of M&A Support Inc., a Tokyo-based broker focusing on mergers and acquisitions for small- and mid-sized companies.

Overheated Interest

“There was an especially overheated interest from 2010 through early 2011” in Japanese water bottling assets, Okudera said. “In countries like Canada and India the governments are tightening regulations on underground water extraction. Some investors targeted Japan as its rules aren’t as strict.”

Control of water resources is important for food security and national security. In Asia, Taiwan restricts overseas investment in land that has water or forest resources, according to a 2011 report on Asia-Pacific real estate by Jones Lang LaSalle Inc. and Blake Dawson.

New Zealand requires buyers to get prior permission to purchase land with forest or water resources, while South Korea requires the same for areas close to military installations, the report said.

‘No Rules’

“In Japan you can even buy land next to a military facility or an airport, there are no rules against it at present,” said Hideki Hirano, author of “Buying Japan” and an analyst at the Tokyo Foundation think tank, in an interview. “In today’s world you cannot stop foreign investment, but we must make sure the investment is regulated.”

On Sept. 28, U.S. President Barack Obama blocked a Chinese-owned company from developing a wind farm on land close to the Boardman Navy base in Oregon, citing security concerns. The Delaware-based company, Ralls Corp., is suing Obama after he ordered it to remove all property from the land and sell the wind project within 90 days.

A list of questions on China nationals buying land in Hokkaido that was faxed to China’s embassy in Tokyo today didn’t receive an immediate response.

Niseko town, one of Hokkaido’s most famous ski and hot spring resorts, enforced two ordinances in May last year to restrain development of areas with water sources and the extraction of underground water. The town plans to purchase all land above water sources in Niseko to ensure stable supply, Noriyuki Higuchi, an official at the town’s planning and environment division, said Oct. 24 by phone.

Land Registry

Japan doesn’t have a complete land registry to keep track of ownership and boundaries. The nation began compiling a nationwide registry after World War II. Half has been completed and at the current pace it will take another 30 years to finish, author Hirano estimates.

Hokkaido authorities have no address information for owners of about 40,000 hectares of forest land, assembly member Onodera said. He added that 10 percent of letters sent to foreign buyers of woodland in Hokkaido were returned with the listed address unknown, he said.

Chinese interest in Japanese land is a sensitive issue in part due to the territorial dispute over islands known as Senkaku in Japanese and Diaoyu in Chinese. The conflict sparked nationwide protests in China this year and led to attacks on Japanese stores, restaurants and car dealerships.

Bringing Jobs

Near Mount Fuji, Osaka-based Seven Yellow Ltd. pumps 500,000 liters of water a month from a well and exports as much as 80 percent of it to China.

“Some people know and some people don’t” know that the company’s biggest shareholder is a Chinese citizen, Katsuhisa Yoshida, the managing director, said in Seven Yellow’s office near Lake Shoji, one of the five lakes surrounding Mount Fuji.

The Osaka-based textiles firm expanded into water and organic farming about one year and a half ago at the suggestion of its Chinese shareholder, who wanted to go into health foods, Yoshida said. The investment of Seven Yellow has helped create jobs in rural Japan that’s starved of local initiatives and is losing young people to the city, he said.

“We’re not just buying up Japan’s resources, we create local jobs,” Yoshida said. “We do need to protect our forests to save the water, and that’s a task for whoever the landowner is, be they a foreigner or a Japanese.”

In Japan, a landowner’s intake of water from rivers is regulated, yet the use of groundwater is entirely at the owner’s discretion, Hokkaido’s Mitobe said.

Cheap Land

Go Okazaki founded the Tokyo-based Standard & Initiatives Properties three years ago to invest in forest land.

“Japan’s land is cheap,” Okazaki said. “The water business is quite easy to get into and from a commercial standpoint, it’s a limited resource.”

Given current prices and the closed nature of Japan’s timber market compared with North America and Russia, it makes sense to buy forest for water resources, Okazaki said. The cost of cutting trees and reforestation is almost three times the timber prices, he said.

A square meter of forest land sold for an average of 47 yen (60 U.S. cents) in March, compared with a peak of 89 yen in 1983, Japan Real Estate Institute said in a September report.

“What water volumes you’ll get and how deep you’ll need to drill depends on the place,” Okazaki said. “But if you dig you’re bound to strike water anywhere in Japan.”

(Updates with official’s comment in 25th paragraph.)