Investors see potential in Hokkaido ski resorts in wake of pandemic

The town of Niseko in Hokkaido is known for skiing, which is popular among tourists from home and abroad. Now Niseko is heading into its second winter since the COVID-19 pandemic began in Japan. Since then, foreign tourists have disappeared thanks to the government’s entry ban, with no clear picture of when things will go back to normal.

But the local tourism industry — with help from both domestic and foreign developers and investors — is gearing up in preparation for the return of tourists once again.

On Aug. 17, developers began construction of a new hotel in Hirafu, central Niseko — the same day daily coronavirus cases topped 400 in Hokkaido amid the fifth wave of the pandemic.

Owned by Wu Wei Yin Shi, a Macau-based catering services company making its debut in the Japanese market, the four-story hotel will have a total of eight guest rooms, with plans to open by the 2022 ski season.

The Hanwha Group, a Korean conglomerate, and a Malaysian company also kicked off development on projects of their own, close to the area’s main street earlier this year. Another large-scale project by a Hong Kong developer, which had been left untouched for more than five years, has started as well.

But why is Niseko so attractive to investors even though there are no foreign visitors?

“It’s because investors have no doubt that, once the pandemic settles down, tourists will come back to Niseko,” says an official at a company in charge of the Wu Wei Yin Shi construction project.

Izumikyo, a Sapporo-based real estate agency that owns a stretch of land in Hirafu, is among the group of companies that started construction in May — a year later than originally planned.

“With more people getting vaccinated, visitors to Japan are likely to return for the winter season next year,” Izumikyo President Yoshio Nishimura said. “If we just wait until the pandemic has settled, it’ll be too late. We will have to pay interest and taxes anyway, so we can’t wait for years.”

However, unlike investors, the situation is more dire for the local tourism businesses.

According to a survey by the Niseko Promotion Board, a group advocating for travel in the towns of Kutchan, Niseko and Rankoshi, the number of overnight guests in the three towns from May 2020 to April dropped 55.6% from the same period the year before — the lowest since 2006, when it started conducting the survey.

While many hotels, inns and restaurants have given up on continuing their businesses, some companies have changed their business model to survive.

One of them is Kutchan-based car rental company Peak Niseko Car Rental, whose sales dropped to 10% from what the company had gained during the winter season in a normal year.

The company then shifted its business to offering rental cars from airports to its hotel on Hokkaido’s Lake Toya, reducing its number of cars from 30 down to three.

“We can’t wait for the end of the pandemic,” said Tomomi Cadogan, the firm’s manager. “It was essential to change the business model in order to maintain stability.”

Another business that had to adapt is the operator of Kanro no Mori, a hotel in the town of Niseko. It has been offering discounts to attract new customers, knowing it cannot count on support from the central government. It began accepting reservations for the winter in May, about three months earlier than usual, and started offering 20% discounts for all rooms at its own expense to attract domestic tourists.

“We wanted to secure bookings from Japanese customers as soon as possible” amid the absence of foreign guests, said an official at the hotel.

Investment beyond Niseko

Niseko is not the only area that is attracting investment. Businesses are starting to bloom in nearby towns and villages where real estate prices are cheaper.

This summer, in a residential house surrounded by fields of potatoes and beets in a village called Makkari, Briton Henry Blake Turner, 40, started a real estate company — the only one in the village. The agency deals with properties in the villages of Kyogoku and Rankoshi, as well as other towns in the vicinity of Niseko.

Turner has worked for 4.5 years at a foreign real estate company for non-Japanese in Kutchan since he came to Japan in 2016.

In Niseko’s Hirafu district, the number of suitable land plots for development is decreasing year by year as more hotels and lodgings are constructed. As a result, land prices for the few remaining lots have skyrocketed, which at times go for more than ¥1 million per 3.3 square meters.

But Turner believes that there is more room for growth in Makkari, given its close proximity to both Niseko and Rusutsu ski resorts popular with tourists.

Christopher Kim, 36, an American design company owner, also moved to Kyogoku from Tokyo in May 2020, and spent tens of millions of yen to renovate an agricultural warehouse on his property into a restaurant with a view of Mount Yotei.

“I looked for a suitable site in Niseko, but it was too expensive,” admits Kim. “The view of Mount Yotei from Kyogoku is beautiful and there is a lot of greenery left.”

The growing interest in towns and villages surrounding Niseko has been reflected in their land prices.

According to the Hokkaido government, the average land price in Makkari as of July 1 increased 2.5% compared to the previous year, the first increase since 2001. The average land price in Kyogoku, which had been declining until 2020, increased 1.5% this year, marking the first rise in 31 years.

“This area used to be little-known but it has recently been attracting investors,” Takashi Tateno, president of North Base Niseko, a local realtor, said of Makkari and Kyogoku.

“Honestly, if the lot isn’t located right next to a ski resort, it doesn’t make a difference if it’s a 5-minute or a 30-minute drive,” he said, predicting that the areas nearby Niseko will continue to attract more investors.

Real estate companies in Tokyo have also started building vacation rentals in Rankoshi village.

Doctor’s Village, a villa complex deep in the woods of Rankoshi located two kilometers from the nearby Niseko Moiwa Ski Resort, was first developed by a Tokyo-based company during the bubble economy in the 1980s. Back then, there used to be a hotel, but now there are roughly 30 villas on the site.

In the summer, however, a Tokyo company acquired three lots on the site and began construction of more than a dozen vacation rentals.

Katsuo Watanabe, chairman of an association managing the area, who purchased a villa more than 10 years ago, was surprised to see such a large number of new buildings.

Clashes between business and town

But increased investments and development projects are becoming a worry for local municipalities and politicians.

For one, the operator of Yotei Sanitation Center, a manure treatment facility for six nearby towns and villages, purchased a 0.7-hectare lot adjacent to the center in Kutchan before the prices got too high for it to renovate the facility, even though construction won’t start for another four years.

The influx of foreign investment in the past decade caused the Niseko district to become an international resort, but it also led to destruction in the natural environment, which marred some of the beautiful scenery significantly.

Concerned by the move, the town of Kutchan is considering tightening restrictions, which would include banning construction on hotels in some areas.

“We need to create new regulations to create a high-quality, sustainable resort,” noted Kutchan Mayor Kazushi Monji, who grew up in the town.

But the restrictions would be a headache for developers.

When a Chinese-owned investment company, which purchased a 3-hectare golf driving range in Kutchan, learned of the municipal government’s plan, it told a real estate agency mediating the deal that Niseko would not be worth investing in if the area would not be expanding further.

Ross Carty, who runs a real estate business in Kutchan, believes that the town’s idea of tightening its regulations won’t do any service to the region.

“We have the shinkansen line slated to be extended to this area and the restrictions will jeopardize all the efforts made (to bring in tourists),” he said. “We should get government subsidies to improve the ski slopes and infrastructure instead.”

Local businesses and the town have also been clashing head-on in town committee meetings over Kutchan’s plans to impose tighter regulations to maintain the scenery.

Committee member Ross Findlay, an Australian who has helped develop the Niseko area, expressed concerns, saying that it would stop the growth of the resort.

However, the town is refusing to budge.

“It is important to use the land under a controlled quantity,” a Kutchan town official in charge said, stressing that the town plans to start imposing the regulations in the summer of next year.

At a regular town assembly meeting in mid-September, Yoshihito Tanaka, a town assemblyman, proposed imposing new taxes on condominium owners and developers since the town had poured so much taxpayer money in to build infrastructure.

“It would be necessary to introduce a new tax to maintain fairness” with local residents, he said.

Monji agrees. “I’m making it clear that we are actively considering such a move.”

But Findlay is skeptical that tightening regulations and imposing a greater burden on businesses is the best way forward for Niseko.

“I can’t see (tourism in the town) grow further,” said Findlay. “I feel like the town is hampering its future potential for growth.”

More regulations

The town of Kutchan is also drafting city plans for the streets leading up to the JR Kutchan Station with tighter regulations in mind to maintain the picturesque Mount Yotei, dubbed Hokkaido’s Mount Fuji.

Unlike the Niseko resort area, investors are surprised to see the outdated buildings and streets surrounding the station — predicted to be one of the priciest areas after the Hokkaido shinkansen line connects Kutchan with Sapporo in fiscal 2030 through March 2031.

Still, many investors are pouring money into real estate around Kutchan Station, causing land prices to soar tenfold in the past five years. But even though investors are buying land, they haven’t started developing the area.

“Many investors want to open hotels and shops, but with details of the city plan still fuzzy, they believe it’s too risky to start the development just yet,” said a local real estate company official.

Many investors are wondering if it’s better to start the construction or to profit from a resale — which is why much of the purchased real estate remains yet to be developed.

What many landowners are closely monitoring is Kutchan’s plan to impose regulations around maintaining the scenery such as the view of Mount Yotei from a shopping complex planned in front of the station. If the town wants to retain the view of the mountain, located on the southeast side of the station, then it’s likely there will be construction regulations imposed on the south end, making it difficult to build something tall.

The town office is discussing the details with local residents, hoping to persuade them to maintain the view. But if that’s the case, it will be difficult for landowners to build hotels, for instance.

“It will affect the land prices, too,” says one landowner.

The scenery regulation will also affect the development of the street that leads to the Kutchan station. The north side of the street, where it wouldn’t affect the view of Mount Yotei, is unlikely to have any restrictions. Therefore, local real estate developers are concerned that land prices will differ significantly on the northern and southern side of the street.

Town officials are also trying to strike a balance between both local residents and landowners.

“If the town is developed in a way that has a great view, the area will become more attractive, which will lead to the rise in land prices,” a town official said.

The town is planning to purchase a 7,000-square-meter plot of land that the local farm cooperative owns on the southeast side of the station and build the shopping complex. It will feature restaurants and outdoor gear stores for skiing and cycling, as well as an indoor playground, a club for children and other afterschool activities.

But longtime residents are ambivalent about the project.

“I’ll be happy to see more people coming to the area with the new shopping complex,” said Tadashi Funayama, 69, who has been running a dry cleaning store in the area for the past 50 years. “But it’s no longer a town where locals have a say in it. It used to be a town we developed ourselves, though.”

This section features topics and issues from Hokkaido covered by the Hokkaido Shimbun, the largest newspaper in the prefecture. The original articles were published Oct. 24 and 25.