The Japanese real estate market is an attractive prospect for foreign investors, main due to these 5 factors:
1. Depreciation of the Yen
2. Safe Investment
3. Low Price (compared to similar markets)
4. Low Vacancy Rates (with attractive yield)
5. No Pre-requisites for Foreigners Buying with Cash
In comparison to other Asian countries like Singapore, Malaysia, Hong Kong and China, Japan has become a popular destination for real estate investment among foreign investors.
1. The Depreciation of the Japanese Yen
A weaker yen leads to competitive pricing of real estate for overseas investors. The USD/JPY pair has been in an upward trend since 2013, as seen in the graph below. Starting from 2014, Japanese currency is depreciating against the US dollar and hasn’t dropped below 100 since.
Graph shows the trends of USD/JPY from 2013 to 2017
Overseas investors are buying more Japanese properties in recent years due to the dramatic softening of the yen.
2. Safe Investment
According to the Tokyo-based Urban Research Institute Corp. in 2014, the total amount of foreign investment in Japan real estate was about 981.8 billion YEN (8.8 billion USD). Japanese real estate continues to pull foreign investment because Japan, especially Tokyo, is currently undergoing an infrastructural restructuring for the arrival of 2020 Olympic Games. Not to mention, the construction industry in Japan turns its direction towards renovation, which leads to an increase in value of Japan properties due to the under-supply of housing. Japan real estate is favourable because it is safe and stable.
3. Low Price (when compared to similar markets)
According to the Real Estate Economic Institute Co., the price of the properties in Japan has risen to their highest levels since the 1990s. However, Japan properties remain less expensive for buyers looking in Asia. The median price of Hong Kong properties is more than 160% higher than the median price of properties in Tokyo and Yokohama. The property price level in Tokyo is 30% of London, 57% of New York, 69% of Singapore. “Properties in Tokyo are cheap and the returns are relatively high,” said Nomura Research Institute Ltd.’s Tomohiko Taniyama. “The quality of buildings is high, while investment opportunities are abundant, unlike Singapore or Hong Kong where the number of available properties is limited. In that sense, Tokyo is one of the best destinations for investment.”
In addition, the acquisition costs, despite of the property price, is only about 4% to 6% of the purchase price of the property. These include the agent commission (3%), stamp duty, registration fee, real estate acquisition, fire insurance and judicial scrivener’s fee. With the lower purchase price and acquisition costs, Japan presents a relatively low barrier to entry for foreign investors.
4. Low Vacancy Rates (with attractive yield)
It is true that the population in Japan is decreasing year to year and continues to fall. However, it is too early to worry about the vacancy rate of the properties due to population decline. This is because there are some areas in Japan with increasing population and tenants’ need, such as in Tokyo Special Wards. A research from annual report of Nomura Research Institute, Ltd. said that in Tokyo, especially Chuo-ku, Koto-ku and Minato-ku, there are forecasts of population increment for several decades. According to Japan Times, demand for apartments in Osaka is also growing simultaneously with the supply of affordable rooms. “Consumers now prefer living in central Osaka to traditional upscale residential areas in Osaka and Kobe, as they seek residences closer to their offices,” said an industry observer. In addition, usually tenants tend to renew their contracts every 2 years in order to save on the high contract renewal fees.
Rent in Tokyo’s central wards have risen significantly, which changed to higher gross rental yields for prime location apartments. In addition, the higher yields of Japan properties attracted foreign buyers especially from China as the yield of China properties is only 2 percent on average and they no longer face restrictions buying second properties in Japan. As long as you pick an investment property in a good location, stable rental income can be secured.
5. No Pre-requisites for Foreigners Buying with Cash
Buying a property in Japan is not difficult as there is no restriction for most people to buy a property here. If you are planning to purchase a property outright with cash, it is going to be relative simple process, even with a tourist visa. However, if you are going to buy a house with a mortgage from a Japanese bank, foreigners with tourist visas, unfortunately, do not qualify. You will at least need to own a working visa or spouse visa to proceed, but of course, Permanent Resident visa would be the best. If you are eligible for a loan, interest rates rather low only 0.6% to 0.9% for PR visa holder, and 3.9% for working visa or spouse visa holder. Getting a property here in Japan is much easier than you expect.
For foreign investors, weak Japanese currency, safety of investment, lower prices compared to other market, attractive yields, and zero restriction to buy a Japan real estate have put Japan as one of the best places to invest in the real estate market.
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