In 2024, for the first time ever, Japan has more than 3 million foreign residents. At the same time, Japan is on course to surpass its 2025 target of pre-COVID tourist levels a year in advance. These trends are underscored by the nation’s growing global appeal amidst the backdrop of favorable economic conditions, such as the cheap yen, and an increasingly attractive real estate market. With its robust economy and potential for high returns, Japan offers a unique investment opportunity for those looking to diversify their portfolios. But where do you start?
Understanding the Japanese Real Estate Market
One distinct aspect of investing in Japan is that foreigners have the same rights as Japanese nationals to purchase property and land. Unlike many other markets in Asia with complex foreign ownership laws, such as Thailand or Singapore, Japan offers a relatively straightforward process for international investors. In fact, you do not even need to have a residence in Japan to purchase the property.
Despite sluggish growth during the ‘lost decades’ of the 90s and 2000s, Japan’s economy has remained remarkably stable, and property values—particularly in major metropolitan areas like Tokyo—continue to rise. In recent years, the declining yen has further enhanced the market’s appeal, allowing investors to benefit from consistent returns in key urban areas with sustained demand. Such appeal is strengthened by Japan’s strong track record of low crime and earthquake-proof, strong infrastructure.
However, buildings in Japan, unlike land, often lose value over time, so understanding your investment goals—whether for a return or personal residence—is essential. This being so, investing only makes sense in major cities, where demand driven by foreign and affluent domestic investors is bolstering resale value. Condominiums in central Tokyo, for instance, tend to retain their worth and, in many cases, appreciate significantly, thanks to the limited supply of prime, luxury real estate. For more information on this particular subject, check out our article comparing the ranking of resale values of major areas in 2023 vs 2014.
Finding Your Property
1. Location Selection
For higher returns, focus on key cities like Tokyo and Osaka, where demand and growth drivers are strong. Smaller apartments in these areas typically yield higher returns. The average yield in the Tokyo metro area ranges from 3.4% to 5.4%.
2. Finding an Agent
Choose a foreigner-friendly real estate agent who is knowledgeable about the Japanese market and understands your specific needs. Whether you’re purchasing for personal use or another purpose, it’s essential to find an agent who can guide you through the process. We at Tokyo Portfolio specialize in helping foreigners navigate the complexities of the Japanese real estate market, ensuring that you find the right property tailored to your goals.
3. Understanding the Property Viewing Process (Naiken)
The property viewing process, known as naiken in Japanese, is a crucial step in purchasing real estate in Japan. This phase provides the opportunity to physically inspect the property, assess its condition, and ensure it meets your personal preferences and needs. While traditional in-person viewings remain essential, modern technology has made virtual viewings more common, offering many of the same insights as a physical visit. Understanding what to look for during a naiken can help you make a well-informed decision. So, what does this process look like?
- The Reservation: Contact the real estate agency around 1 to 1.5 months before your desired move-in date. It’s recommended to narrow down your properties of interest prior to reaching out to the agency.
- Visit the Agency: Once an appointment is scheduled, visit the agency on the day of the viewing. The agent will provide information about the property and any additional details you might need before proceeding to the property itself.
- The Property: During the visit, inspect the property thoroughly with the agent. Pay attention to all features, measure the space to consider furniture placement, check for potential noise from neighbors or roads, and evaluate the surrounding area, including proximity to stations, parks, and markets. If there is a common area, assess how security, parcel deliveries, and garbage disposal are managed. Additionally, consider whether there is sufficient parking space for cars and bicycles, depending on your needs. It is crucial to ask questions, take pictures, and consider all factors that influence your purchase.
- Post-Viewing Consultation: After the property viewing, you return to the real estate agency to discuss the next steps.
- Proceeding with the Property: If willing to proceed, you can inform the agent on the same day of the naiken. However, the agent will need to confirm with the seller, who ultimately decides whether to proceed with the contract. One crucial point to note is that price negotiation is not highly favored in Japan, so it is best to submit an offer at the full asking price in order to secure the property.
4. Key Considerations
Down Payment:
When buying property in Japan, be prepared to make a down payment, typically ranging from 5-20% of the purchase price, with 5% being the most common. This payment is usually made on the day the contract is signed and transferred directly to the seller’s bank account in Japan.
Handover Process:
The final handover of the property usually takes place a few weeks after the contract signing. At this stage, you’ll pay the remaining balance of the purchase price and request a judicial scrivener to update the property’s registration. This registration process may take a few additional weeks to complete.
Costs Involved:
- Judicial Scrivener: JPY 100,000 – 150,000, depending on service fees.
- Real Estate Agent’s Fees: (Property price x 3.0% + JPY 60,000) + 10% consumption tax.
- Other Costs: Insurance, house cleaning, etc.
Taxes on Property Purchases:
- Registration Tax: 2.0% of the property’s estimated value.
- Stamp Duty: JPY 10,000 to 480,000, depending on the property price.
- Acquisition Taxes:
- Land: Approximately 1.5-3.0% of the estimated value.
- Building: Approximately 1.5-3.0% of the estimated value.
- Commercial Property: Approximately 4% of the estimated value.
Legal and Financial Requirements for Foreign Investors
Although anyone can own property in Japan, the tax laws are not as straightforward. Here’s a simplified breakdown of the tax implications for investors:
- Property Tax: Property owners in Japan are subject to a flat-rate property tax of 1.7% of the assessed value, plus an additional city planning tax. This can be a burden compared to other Asian countries or the US, where property taxes vary by state.
- Capital Gains Tax: Japan employs a differential system for capital gains tax based on the holding period:
- Short-term (5 years or less): 39.63%
- Long-term (more than 5 years): 20.315%
- Special Rates for Primary Long-term Residence:
- For gains up to ¥60,000,000: 14.21%
- For gains valued over ¥60,000,000: 20.315%
- A ¥30,000,000 deduction is available to reduce capital gains. If the gains are less than ¥30,000,000, no tax is levied. Depreciation of property can also be advantageous, as it reduces the acquisition cost and thereby lowers the capital gains tax.
- For more detailed information on capital gains tax, refer to the Tokyo Portfolio article: Capital Gains Tax in Japan.
While interest rates in Japan are generally low, securing a loan as a foreign investor can be challenging and time-consuming. Typically, having permanent residency or at least a long-term work visa is required. Foreign investors without permanent residency may face higher interest rates and a more stringent application process. In contrast, obtaining a loan with permanent residence status tends to be much more straightforward.
Conclusion
Given Japan’s stable economy, attractive property values, and straightforward ownership laws with the potential for strong returns, investing in Japanese real estate presents a compelling opportunity. By focusing on key major cities, selecting trustable agents, and understanding the associated tax and acquisition processes, you can make informed decisions and maximize your investment potential in this dynamic market.
For more insights and updates on Tokyo’s real estate market, stay tuned to our blog at Tokyo Portfolio. If you have any real estate inquiries or need assistance with appraisals, feel free to contact us at **@bl*************.com or through the contact form on our website.
