Can Foreigners Buy Property in Japan?
In recent years, real estate in Japan – especially in central Tokyo – has been attracting the attention of foreign investors. The majority of these investors are from China, Hong Kong, Taiwan, Singapore and other affluent Asian countries. In Japan, there are no legal restrictions on foreigners purchasing real estate. A foreigner is permitted to own real estate in Japan with or without permanent residency.
Why is Japanese real estate attractive to knowledgeable foreigners? They understand that, politically and economically, Japan is a very safe country. Tokyo, in particular, is one of the safest cities in the world. There is no other city with such a high level of economic development and population density that can match the safety of Tokyo. Japan has low country risk in Asia and limited downside risks.
Economic and demographic data provide good reason for Tokyo being the focal point for real estate investment activities in Japan. Tokyo has economic growth potential and demographics that present a compelling and positive investment opportunity. Tokyo capitalization rates (the ratio of net operating income to property asset value) are relatively high compared to other Japanese and Asian cities. The wide yield spread in Tokyo real estate represents a very attractive investment opportunity from the standpoints of both recurring income and capital appreciation. Residential yield spreads are among the highest in the world.
Did we mention downside risks? When investing in Japanese real estate, you must analyze the earthquake risk before purchasing a property. Check the areas where damage is expected to occur in the event of a major earthquake. Earthquake insurance will cost you a monthly premium, but it is not so expensive that it can make a big difference to your yield. Don’t worry excessively. Japanese construction standards are among the best in the world as testified by the Great East Japan Earthquake.
Investors should be aware that Japan’s overall population is continuing to decline. It should be noted, however, that the population is increasing in urban centers due to the large number of people moving from rural prefectures. As the birthrate declines and the population ages, the number of elderly people living alone is expected to increase. Therefore, single-room properties and smaller studio apartments for seniors are likely to remain in high demand over the long term; this is especially true relative to family-type apartments.
Japan does not impose special regulations or taxes on foreign buyers. There are, however, some differences in the documents required of foreigners. Loan requirements can be more challenging for foreign borrowers, but should not add significantly to monetary cost. Brokerage fees and other costs are standardized and do not depend on nationality. A broker with the language, cultural skills, and professional certification should not add to your cost. Finally, have your broker recommend a reliable property manager and you will sleep well!
