Compared to other places worldwide, properties in Japan are actually very affordable.
During the economic bubble in Japan around 1990, Tokyo’s land prices rose rapidly for 300% and above. As the bubble burst, property prices followed the trend and suffered a sharp drop down to 50% from their highest point. Years since then, as a result of a long-term economic downturn, property prices had been dropping in a slow rate until 2005. From 2001 to 2006, during the period when Junichiro Koizumi was in office serving as Prime Minister, he promoted the disposal of nonperforming loans and pushed for the urban renewal plan. As a result of the political and economic reforms, the property prices began to rise from 2006. However, when U.S. Subprime Mortgage Crisis hit the world’s economy and along with the aftermath of 2011’s Great East Japan Earthquake, property prices stopped rising and turned back down. Yet, the price drop this time did not return to the low level before Koizumi’s reformation and therefore it was thought that Japanese real estate prices have already reached the lowest of all time between the year 2004 and 2005. By the end of 2012, Shinzo Abe won his second term as prime minister and pushed for quantitative easing, implementing a set of aggressive monetary policies quoted as Abenomics that aims to pull Japan out of its deflationary slump. There was also an impact on the Japan’s real estate market as property prices again rose since the implementation of Abenomics.
The rent of commercial buildings is often seen as one of the indexes to property prices as the commercial real estate is usually moves in tandem with residential properties. The commercial real estate of London and New York has already been recovering to almost 80% from the collapse of Lehman Brothers in 2008; however, Tokyo has only reached 60% in its recovery therefore there is still a very big room for rising, in which is seen as a good opportunity for investment. In the same time, the real estate market in many countries like China, Singapore, Canada and Australia seems to be overheated and is heading to property bubble burst at any time; therefore Japan has attracted much attention from investors all over the world, given the potential value of buying Japanese real estate.
It is expected that there will be a stable demand for properties in Japan.
This is mainly due to the reasons listed below. (Research by Pricewaterhouse Coopers and Nomura Research Institute)
Japanese real estate investment market is the second largest in the world, following the United States, which takes up 10% of the world’s market. Japan has a population of 130 million and the GDP is over USD 5.8 trillion, making it the world’s third largest economy. (Hong Kong’s population is 7 million and GDP is USD 260 billion (Sources: Global Finance))
The population of Tokyo is over 34 million and the GDP is USD 1.5 trillion, it is the world’s biggest metropolitan city. Its population is equal to Canada and Malaysia’s population and its GDP is over Australia as a country.
Although there is a decreasing trend of population in Japan overall, but the population in Tokyo and other big cities remain increasing. It is forecasted that the population will keep on growing overwhelmingly in Tokyo and until 2025 it will be the world’s largest population and GDP.
Tokyo is also a city that hosts 48 of the Fortune Global 500 companies, the highest number of any city (Beijing: 44, Paris: 19, New York: 18).
About 80% of the registered permanent residence in Japan lives in rental properties. This figure increased by approximately 2.6 times since the 1980’s and it is forecasted that the demand for rental properties will keep on increasing.
Real estate is fixed assets and the investment amount tends to be big in figures, therefore it is a big risk to invest in politically unstable countries or places that do not have a comprehensive legal system. From this perspective, it can be said that the risk of investing in Japan real estate is extremely low.
Japan is a country with a mature legal system, sales and purchases of real estate and related matters are strictly protected by the laws. The restriction of purchasing and owning real estate by foreigners had already been lifted since 1997; foreigners can now easily acquire a property in Japan.
Even from the political aspect, Japan is a very stable place as it is generally considered that the likelihood of change of governance due to coup d’etat or party alternation would be tremendously low. Moreover, since its defeat in World War II after 1945, the government of Japan as well as the whole nation has been in a proactive role in being a contributor to peace, pursuing a foreign policy based of peace. Therefore, the risk of outbreak of war and terrorist attack in Japan is the lowest in the world.
With the standard of education growing and the gap between rich and poor has been shrinking, as well as an effective police force, Japan is often considered to be a very safe place compared across countries. There is a saying that Japan is such a safe place that “even if you accidentally dropped your wallet somewhere on the road, no one would steal it and you will definitely find it back.”
As it is located in a seismic zone, therefore it is renowned that Japan is very strict with its building codes and the buildings themselves are structurally very strong.
Building codes are revised and amended every time when a big earthquake occurs in Japan. Earthquake resistant standards for buildings are also stricter over time. In 1950, the Building Standard Law (commonly known as Kyu-Taishin) was introduced as a response to the earthquakes that took place in 1968 and 1971. In these two earthquakes, it was well noted that many pillars of the buildings were destroyed, thus the need in upgrading the standards of reinforcing bars (rebar pillar) was seen after reviews. The effectiveness of the Building Standard Law was rather obvious during the Hanshin Earthquake that happened in 1995. Almost none of the buildings that were constructed after Kyu-Taishin collapsed. Later, the damages resulted from the 1978 Miyagi Earthquake led to a new revision of the law in 1981, bringing the New Earthquake Resistance Building Standard Amendment (commonly known as Shin-Taishin). This new standard not only strengthened the building structure itself, it also added a new concept of adding more flexibility to the structure so that it can allow the building to dissipate the damaging energy from earthquakes through the action of swaying. As a result, almost none of the buildings, as long as they are built to the Shin-Taishin standards, collapsed during the 2011 Great East Japan Earthquake.
Floor Area Calculation
When calculating the floor area, Hong Kong will usually display the gross floor area which takes the spaces such as the common hallways and common facilities into account. In Japan, we only use the net floor area which excludes the balcony and common hallways.
In Hong Kong, it is a common practice to purchase the parking lot along with the residential unit; however, parking lots in residential buildings in Japan are usually not open for sale and are only available for renting, therefore the price of the units does not include the price of the parking lot.
In Japan, residential units are usually in move-in ready condition when handed over to the buyers. New homeowners only need to get furniture and install air conditioning before moving in.
If it is a property to let, landlords do not need to buy furniture as it is a common practice for tenants to bring in their own furniture (including fridge and washing machine) in Japan, making it much simpler to lease out and manage.
When letting the property, sometimes the maintenance fee is borne by the tenant, but in Japan it is generally borne by the landlord.
In Japan, rent is usually collected on monthly basis.
Key Money (Reikin)
When letting a property, the landlord will often charge for security deposit (usually equivalent to one or two months of the rent) upon signing the lease contract. In Japan, the landlord can also get key money on top of security deposit. Key money is usually considered as a gift to the landlord (usually equivalent to one or two months of the rent) and it does not need to be returned to the tenant when the lease is up.
*Not all leasing units have key money.
Sumitomo Realty & Development is an expert in Japan real estate investment, dedicated to providing quality real estate services to our clients. Should you have any enquiries or need further information about Japanese real estate for sale, feel free to contact our Japan real estate Hong Kong office.