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Hotel Construction Stagnates in Furano’s Kitanomine Area amid Rising Material Costs

In Kitanomine, Furano, a ski resort that has been gaining popularity as a “second Niseko,” construction of hotels and condominiums has stalled against the backdrop of soaring material costs. For example, after initiating preliminary work on a resort hotel last year, Tokyo-based Route Inn Japan has been unable to continue with the main construction, leading to repeated schedule revisions. Groups like Sapporo-headquartered Zekkei Fenix, which planned to start building their third condominium this spring, have postponed construction due to the unpredictability of construction costs caused by material price surges. Nonetheless, speculative interest in Kitanomine real estate among foreign investors remains high, fueled in part by the weaker yen. (Yuta Chiba, Asahikawa Branch)

The Kitanomine area is recognized as one of the most sought-after ski destinations both domestically and internationally. It has become a magnet for real estate investments, ranking just behind Niseko as a resort. Despite the pandemic, multiple construction projects have been brought to light, fostering expectations that full-scale construction activity would start in the post-pandemic era. In reality, however, most construction projects for large hotels and condominiums have come to a halt.

Route Inn Japan has plans to construct a resort hotel on plot 1997-1 in Furano City, and initiated land development in September 2022. Envisioned as a five-story reinforced concrete building with 200 guest rooms, the hotel was originally aimed for completion in 2024, but the main construction has not started yet. There seemed to be a plan to postpone the completion by two years to July 2026; however, the situation now remains unclear.

Sapporo-based Zekkei Group, a Hong Kong-affiliated firm that is also involved in development in Niseko, has made inroads into the Kitanomine area with the Fenix Project, a three-building condominium project. Despite the challenges of the pandemic, the project proceeded up to construction of the second building and the plan was to commence construction of the third building (a six-story reinforced concrete structure with an approximate total floor area of 2,000 m2) this spring at Kitanomine-cho 2141-4.

However, the start of construction has been postponed due to factors such as rising material costs. The company is also involved in the Intuition Furano project with plans for hotel construction, including that at Kitanomine-cho 2153-4. Yet, in light of the delays with the third Fenix building, the project timeline will be reassessed.

Although the construction of hotels and condominiums is thus becoming increasingly challenging, developers and real estate agents still express optimism, noting, for example, that “with the yen’s depreciation, the eagerness of foreign investors remains undiminished” and “there is a market as long as construction is feasible.”

Land prices in Kitanomine have been rising since 2017, with rates in July 2023 surpassing 30,000 yen per square meter, an increase of 20.3% year-on-year. This reflects overheating land transactions. Despite the rising costs of materials, the construction of small villas and lodging facilities is underway. The Zekkei Group also plans to ramp up sales of villa plots of the Intuition Furano project before the end of this year.

Although it is not a new construction, another major project is also underway. Malaysia’s conglomerate LGB Group is renovating the closed former New Furano Hotel, which is set to open as Nozo Hotel (located at Kitanomine-cho 14-38) in December. While the exact amount of investment remains undisclosed, it is estimated to be at least in the billions of yen.

LGB Group Director Lim Chin Sean decided to invest in Furano, drawn to its natural beauty and prime location, with the vision of it becoming the next Niseko.

A real estate agent commented, “The land in Kitanomine is becoming more expensive, but it is still considerably cheaper than that in Niseko. Precisely because hotel construction is stagnating due to the rising costs of materials, we may very well have a blue ocean with little competition.” They are seeing a business opportunity in this situation.

As the pandemic’s effects subside, quite a few developers are advancing with land negotiations and design work for the construction of hotels and condominiums. There is a good chance that construction investments may be rekindled in the coming months.

(Excerpt from an article on October 27, 2023)

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