KUTCHAN, Hokkaido--An internationally renowned ski resort area in the Niseko region in southwest Hokkaido is often said to be part of Japan, but not in the same "vein."

The area has been developed with funding from foreign investors and is swarming with non-Japanese visitors and workers.

But the past few years have posed challenges with the COVID-19 pandemic and the weakening yen. 

Niseko is now seeing sales of its upscale condominiums recover but at the same time is grappling with a severe labor shortage, reflecting both the positive and negative aspects of the weak yen.

While inbound tourists disappeared in the region due to the COVID-19 pandemic, they are returning to the slopes.

A 41-year-old man from New York City came to Niseko in mid-December, admiring the magnificent snow scene in the area he saw for the first time. Soft snow there is praised as “Japanese powder snow,” or “Japow,” for short.

The ski buff works at a leading U.S. financial information provider. His 34-year-old wife, who accompanied him on the trip, works for a major investment bank affiliated with a financial conglomerate.

The wealthy couple from the United States gave high marks for the quality hospitality and reasonable prices at a luxury condominium they were staying at in the hotel called Intuition Niseko.

The accommodation facility opened near a ski slope in early December in the Hirafu-Zaka district in Kutchan, from which the summit of Mount Niseko Annupuri can be seen.

The six-story hotel sits near the central part of Niseko and has a total of 43 guest rooms.

Prices start from 57,000 yen ($440) per night, and a penthouse housed on the fifth and sixth floors commands a hefty price tag of 1.2 million yen per night. Despite the expensive rates, most overseas guests stay five or more nights there.

High-end condominiums dotting Hirafu-Zaka are a source of revenue for Niseko from foreign visitors. Like ordinary apartments, those traveler-accessible condominiums are possessed by individual owners.

The pricey apartments are leased out by their owners when they are not in use. 

The accommodation facilities are managed under the same business model as investment properties, and owners in Niseko seek capital gains, or profits from their sales, in most cases reportedly as well.

INVESTMENTS FROM ASIAN NATIONS

Local real estate firm Niseko Alpine Developments (NISADE), which put in place Intuition Niseko, was founded by an Australian-affiliated business in 2005.

“Though investments came primarily from Australia at the time of our company’s establishment, wealthy individuals in Hong Kong, Singapore and other Asian regions currently provide funds in many instances,” said Taiji Hashizume, president of NISADE.

In addition to the quality of snow, the large volume of snowfall in Niseko won over Australian visitors 20 years ago.

This attraction resulted in replacing old small inns lining Hirafu-Zaka with condominiums, quickly turning the area into an overseas-looking resort marked by a plethora of English signs and advertisements.

Investors from other nations started playing leading roles following the collapse of U.S. investment bank Lehman Brothers in 2008. The subsequent global financial crisis pushed Australian banks to withdraw from real estate investments in Niseko.

Funds from wealthy individuals in Asian nations instead flowed in. Most did not rely on bank loans to purchase condominiums priced at hundreds of millions of yen each with cash.

Buyers regarded properties in Niseko as cheaper than their counterparts in resorts in other parts of the world due to prolonged sluggish land prices in Japan stemming from the bursting of the asset-inflated bubble economy in the early 1990s.

The enthusiasm among wealthy individuals in Asia over investments increased further as they were struggling at an unprecedented level to find outlets for their funds. That came as central banks worldwide were introducing monetary easing measures following the financial crisis.

Land prices around Hirafu-Zaka increased the most drastically nationwide for six consecutive years until 2020.

RECOVERY FROM COVID-19 PANDEMIC

However, the COVID-19 outbreak slowed investments, too.

Data from Kutchan town show the number of building permit applications for establishments to be expanded or newly constructed plummeted by 40 percent from 176 in fiscal 2020 to 106 in fiscal 2021.

With inbound sightseers disappearing, few visitors stayed in condominiums. For that reason, Intuition Niseko delayed its opening by two years.

When Japan’s COVID border restrictions were lifted in part last summer, Thai investors turned up ahead of others to buy up condominiums in Niseko. A succession of 200-million-yen apartments were purchased with cash.

“Estates built before the coronavirus crisis cost about 10 percent cheaper for investors overseas because of the weakening yen,” said Hashizume at NISADE.

DISADVANTAGES OF WEAK YEN

Acknowledging that the weakening yen has some advantages in attracting tourists from outside Japan, Hashizume likewise expressed alarm.

“The prolonged period of the weaker yen will push up commodity prices,” he said. “If this happens, that will cause trouble.”

An open area near Hirafu-Zaka was planned to host the first mall in Niseko equipped with a hotel and a condominium facility. The zone name Aruku-Zaka on a sign at the 3-hectare construction site covered with snow is only barely visible via a white cloth on it.

A real estate agent in Hong Kong was looking to develop the area, but the project was suspended three years ago around the time the novel coronavirus first started spreading.

“When the program can be resumed remains unclear, as construction costs are ballooning due to surges in the prices of materials that can be secured exclusively through imports,” said a local real estate agency official.

Another disadvantage of the weakening yen involves the difficulty in hiring personnel.

Ski slopes developed by operators in Hong Kong and Malaysia are seeing inbound tourists returning amid the weaker yen, but a dire labor shortage is emerging as a new challenge.

Staff members from Europe and the United States often cater to non-Japanese patrons. Workers who can speak English and Japanese are sought-after in particular, but an overwhelmingly small number of such personnel from abroad are available.

Deciding they cannot earn much in Japan with the stable weak yen, foreign workers are said to be heading for other resort destinations outside the country.

There were 1,663 residents of foreign nationalities in Kutchan as of the end of December last year, down by 940 from the peak of 2,602 in January 2020.

Restaurants and hotels have begun limiting the number of customers given the lack of workers.

Satoshi Yoshida, chairman of the Kutchan Tourism Association, voiced his concerns over the possibility of the negative currency effects lingering even into the next ski season, depending on the future moves of the weak yen.

“A lesson is that relying so heavily on inbound tourists can result in a problem,” he said. “But the trend can no longer be reversed.”

Yoshida was referring to the history of Niseko, which became successful as a sightseeing spot by turning to customers outside Japan with the shrinking skier population in the nation.

This resembles the situation of Japanese automakers that found hope in expanding into markets overseas at the sight of a stronger yen and worsened domestic demand in the past.

The “foreign land in Japan” born in Niseko, which means a sheer cliff in Ainu, overcame repeated difficulties while converting the mountainous region with heavy snowfall into a globally noted resort.

Niseko can now be affected by financial market conditions throughout the world.

Seeing firsthand that local businesses are recovering from the pandemic, Niseko still sees uncertain prospects for its future.