Japanese investment builds

Construction companies from Japan investing in Australia bring experience in medium density building, lightweight materials, and working with an ageing population.


David Bare

Over the past few years a number of Japanese building companies have invested in Australia. Sekisui House and Sumitomo Forestry Company have been doing business in Australia for a considerable amount of time. More recently Asahi-Kasei Homes and Daiwa House, among others, have made significant investments in the Australian residential construction sector.

Given we have a population of 25 million while Japan has a population of 127 million one might think that there is much more fertile business ground in Japan, and wonder what is driving these investments. The three driving forces are trends in population growth, demographics and our economy.

Japan’s population growth has been negative for some years leading to a declining population rate of around 0.2 per cent. The average age is currently 46.7 and GDP growth hovered around 0 per cent for most of 2017. So with a very sluggish economy and an ageing and declining population, market growth for many Japanese businesses is necessarily offshore. Australia has stable government and a regulatory system similar to that in Japan.

Business collaboration and investment between the two countries has been strong for decades. The Australian residential construction market has recently been through a record period, with the east coast in particular forecast to remain strong over the next few years. Australia’s population is currently growing at around 1.6 per cent per annum with GDP growth of around 3 per cent. Australia needs to continue building at the rates we have seen in recent years just to keep pace with underlying demand, so it makes sense that the Australian residential construction market represents an attractive long-term investment for these large and highly successful Japanese companies.

Construction companies from Japan

Japan is an ancient culture with a strong building heritage. Some of the great timber buildings and castles of Japan are amongst the most celebrated in world architecture for their design and innovative construction methods. Design features from the various eras of Japanese history, such as the decorative alcoves in guest rooms (tokonoma), the use of sliding screens (shoji), the lowered entrance area for removing shoes and greeting guests (genkan) and mat flooring (tatami) can still be seen in modern Japanese homes. New home designs today incorporate a mix of quintessential Japanese features, western design influences, innovative space management, strict earthquake and fire code construction techniques and often cater for multi-generational living.

One benefit is the injection of capital into the sector at a time when the industry faces an increasingly difficult financing regime. Additionally there is much that can be learned from the Japanese market experience and potentially adopted in Australia.

Housing affordability is a key issue for Australia and is declining in most of our major cities. Many states are currently looking at ways to promote more medium-density housing options – referred to as the “missing middle”. Japanese companies have a long history in designing and building medium-density and low-rise dwellings. They bring considerable expertise to this important emerging market segment in Australia which will need new and innovative building solutions.

Japan is dealing with an ageing population, as is Australia where the average age is now 37.5. While we are still a good nine years younger on average than the Japanese, Australian governments are seeking ‘age-in-place’ solutions for our ageing population to reduce the burden on future healthcare. While some cultural differences are at play, Japan has been dealing with this home design issue for a long time.

Construction companies from Japan
Many of the challenges faced by the housing sector in Japan are similar to those in Australia
Business collaboration and investment between Australia and Japan has been strong for decades

We are seeing the integration of technology into homes at an increasing rate. Japan remains a world-leader in electronics and robotics. The adoption of technology in home designs is a common feature used by all the major Japanese builders. This is becoming incredibly important as energy costs in Australia are rapidly increasing.

As our population ages, so too do our tradespeople. Japan, like Australia, has been dealing with an ageing workforce in construction and specifically attempting to reduce its reliance on skilled trades onsite in home building. This means that more prefabrication, clever manufacturing, connection and handling methods have been employed. Australia is moving down this path and while volume and market size are somewhat of an inhibitor to achieving the cost benefits of scale required for prefabrication plants, much can be learned from the Japanese experience.

Importantly, most of the major Japanese companies take a long-term view of their business investments, often with time horizons far greater than western corporations. This approach ensures a focus on the long-term growth and viability of these businesses which is positive for jobs and the industry as a whole.

There is much that can be learned from the Japanese market experience and potentially adopted in Australia

As Australia’s population grows and we grapple with meeting the supply of new dwellings required to meet future demand and the growing affordability challenge, there is much Australia can glean and potentially adopt from the Japanese experience. Equally, there is much they can learn from operating within the Australian residential construction sector.

Representatives of HIA and the Japan Federation of Housing Organizations, known as JUDANREN, have met on a number occasions in recent years and have developed a strong relationship. It is clear that many of the challenges faced by the housing sector in Japan are similar to those in Australia. Meeting ever more stringent codes and regulations, the challenges of ageing populations, housing affordability, and emerging issues such as availability of new lightweight building products suggest we will have much to discuss and share over the years ahead.

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