Better Buildings in Japan

This paper sets out to describe the the Japanese real estate market, describe the\nparticular trait of fast depreciation of real estate assets and its causes as well as\npresenting a model that seeks to examine the trade-o between higher construction\ncost and longer service life in terms of the e ect longer service life has on the market\nreturns of the asset. The model will be tested in di erent scenarios related to both\nthe type of asset, location as well as the nature of the depreciation regime as well as\nthe period over which the asset is depreciated. By equating net returns from the same\nasset in with di erent depreciation models and periods, it is possible to calculate a\nmultiplier, the , to determine the extra cost incurred to reach the same amount of\nreturns as the slowest depreciated asset. Results are ambiguous, however, as there is\ninsu cient data points to do a simulation of a full depreciation period, and returns\nand variance on all assets are so low, that changes due to market variation are\nnegligible meaning the is mostly the e ects of the depreciation regime. That fact,\nhowever, is still valuable knowledge for professional investors in real estate, who\nneeds to choose the depreciation method which in the short run is least detrimental\nto returns.