Japan Real Estate Property Market Analysis

2019-2020 Asset Purchase Strategy

(Note – this page presents a summary of attractive cities and other location analysis for investors in Japan’s real estate property market. For a more thorough analysis and projections for the year ahead, including global sentiment, asset class information and more creative investment strategy recommendations, feel free to read our “2018 summary – 2019 projections” article)

Tier 1

Kyushu Landmass – Fukuoka/Kumamoto/(and occasionally Nagasaki)

Kyushu

Nestled along Japan’s western seacoast, approximately 1,100 km west of Tokyo, Fukuoka prefecture is the main metropolitan area of Japan’s Kyushu landmass  – equaling about half of Honshu, Japan’s mainland – and is also Japan’s main portal to south-east Asia, being strategically located closer to Korea and China than it is to Tokyo, and only a short flight distance to Taiwan, to the South-East. Fukuoka city, the prefectural capital, is home to approximately 1.5 million people, with population sharply rising in recent years – mainly due to progressive governance, ad-hoc migrations from the Tokyo area following the great tsunami and earthquake of 2011, and the designation of the area for renewable energy projects on an unprecedented global scale (now scaled down). The city’s friendly, relaxed and welcoming vibe is a major attraction to families and, in recent years, also to bootstrapped young startup companies, both domestic and foreign. The first city in Japan to launch a groundbreaking “startup visa” for foreign entrepreneurs, and local government’s constant efforts to turn the cities into a professional services hub, both by making business setup & running costs lower, while simultaneously pushing manufacturing/industrial companies out to other, surrounding towns such as Kurume/Kitakyushu has served to steadily boost both property prices and organic population growth on par with Tokyo.

The Larger Picture

Fukuoka prefecture has also been the target of a large exodus of Tokyo businessmen and company employees since 2011. The vast influx of Chinese investors crossing over from the north-west and purchasing large quantities of investment properties, would seem to also indicate the promise of this area, and Monocle magazine has included Fukuoka city, the prefecture capital, in the world’s top 10 most live-able cities in 2014. Between 2012-2016, Fukuoka city property prices have been rising sharply, and have since held fast, even in light of declines in other parts of the country.

Initially our highest ranking investment destination, throughout 2013-2015, we have seen a continual rise in prices, demand and transaction volumes and speeds. Prices in our preferred investment brackets have more than doubled in the city’s top locations, with deals constantly being snatched within a matter of days, sometimes mere hours after being advertised. Yields in the city’s main districts have dropped to a maximum of 7-8% on average – but still more than adequate, considering the low vacancy rates and short vacancy periods, which make for a steady and stable income stream at all times.

Another popular investment destination in Kyushu is Kumamoto, one of the nation’s “Green Energy Meccas” – home to a multi-billion dollar world-class solar farm, and with a population of approximately 750,000 which has been steadily rising over the last few years, advanced local governance and financial support for the elderly, disabled and welfare recipients – we’ve yet to see any extended vacancies in Kumamoto city, similar to Fukuoka, above. However, although prices have been rising in Kumamoto as well, they are doing so far less sharply than in Fukuoka city, which makes yields of 8-9% far more achievable, and deals costing as little as 2-3 mil JPY (18-25,000 USD) still very much a reality.

Nagoya

Japan Property Invest

Japan’s 4th largest city and its industrial heart, Nagoya is also one of the country’s major import and export port cities. Its’ main industries are transportation, including automotive, aviation and rail, and some of Japan’s biggest transportation manufacturing firms have their head-quarters or major divisions here – companies such as Toyota, Mitsubishi and Nippon Sharyo, which manufactures Japan’s world-famous bullet trains, the Shinkansen. JR (Japan Rail) Central, which covers most of the country’s railway tracks, is also head-quartered in Nagoya. Other major industries are ceramics and electronics manufacturing.

Nagoya’s location is also of paramount importance, being in the heart of the country, only two hours train ride from Tokyo, and even closer to Kyoto and Osaka, both internationally renown tourism and industry locations themselves and large metropolitan and historical centres on their own right. Occupancy in the city is now at an all-time high, and is pegged to increase even further with the upgrade of the bullet train line between Tokyo and Nagoya, which will be the first in Japan to run the “Maglev” magnetic floating trains – this necessitates demolishing a large number of residences and offices near and around the soon-to-be-expanded train line infrastructure, which will create an even greater demand for quality living and commercial spaces.

The Bigger Picture

With PM Shinzo Abe’s economic rejuvenation policies and forcibly devalued Japanese Yen exchange rates, exports have picked up significantly, as Japan once again re-positions itself as a major manufacturing and industrial player on a global scale. From an investment point of view, this major port city and industrial power-house, therefore becomes an essential building block in any diverse portfolio.

In the aftermath of the 2011 earthquake and tsunami disaster, as companies sought to have manufacturing, operational and data-bank backups to their Tokyo operations, the importance of Nagoya has increased ten-fold. As a result, property prices have begun to climb, although not as quickly and sharply as in Tokyo, Osaka or Fukuoka, a trend which is most likely to continue at least until the 2020 Olympic games, as global interest in Japan increases on an annual basis.

Geographically, as well, Nagoya’s location in the very heart of Japan, marks it as one of the country’s major transportation hubs – with two airports and the world’s largest train station by floor area, it is a crucial artery in the country’s transportation system, and is conveniently located on most of its major logistics channels – yet another reason for its standing as a major corporate centre of the highest importance. Since late 2015, the city has been going through a major re-development phase, which has provided for rising property prices, as well as rising rents – both of which will most likely continue in the foreseeable future.

Tier 2

HokkaidoSapporo

Japan’s Northern-most point, the Hokkaido landmass, is renown for its internationally acclaimed winter resort villages, ski courses and breath-taking natural beauty. Sapporo city, Hokkaido’s capital, home to 1.9 million people, is Japan’s 5th largest city – featuring steadily, albeit slowly rising population figures. Sapporo city is also highly white-collar industry oriented, being one of Japan’s academic capitals, with education and information technologies being two of the city’s main industrial sectors, alongside tourism and retail. Conversely, it is one of Japan’s most popular tourism spots, with annual visitor numbers often exceeding the tens of millions(!)

The Bigger Picture

In the two years that passed after the great tsunami and earthquake of 2011, Hokkaido tourism, which is largely dependent on international visitors, has suffered significantly – as winter holiday makers and ski enthusiasts were mostly avoiding the area, due to fears of further quakes and nuclear spillages from the subsequent Fukushima incident – even though the distance between the two areas is over 800 kms.

As international tourist numbers dropped, jobs were lost in Sapporo city, and the depressed local economy has led to property price drops as well. Since mid 2012, however, and with the situation in Fukushima declared as stable, fears have subsided – and tourism commenced again with much vigour. Property prices have slowly begun to respond with a slow and stable price hike, transaction speeds have similarly picked up significantly, with good deals once more being snatched within a matter of days. As a result, now is an excellent time to  buy in the city – where properties as low as 1.8 million JPY (approximately 15,000 USD) can still be found, providing some of the country’s highest yields – often reaching levels of 9-12% net pre-tax per annum.

Additionally, the geographically wide-spread nature of the city means larger properties, and while elsewhere in Japan a high yield property would normally be 1-2 bedrooms at most, Sapporo often offers larger units at the same yield levels – 3-4 bedrooms properties at low prices and high return capacities regularly being advertised for sale. These larger properties mean tenants are often families, as opposed to the typical single tenant which normally occupies high-yielding properties in most other parts of the country- which naturally makes for longer tenancies, fewer vacancies and lower vacancy related expenses.

The reason Sapporo has been relegated to Tier 2 in our analysis is due to the long winter months in Hokkaido – with snow possible, and often a reality, any time between October and April, vacancies can be far longer in comparison with other, warmer areas – as tenants tend to postpone the search for new properties between those months, which means a vacancy occurring any time after September can often take up to 5-6 months to fill.

Yokohama/Kawasaki

Japan Real Estate

Both major cities bordering Tokyo and intricately tied into its economic and political dynamics, Yokohama (Japan’s 2nd largest city by population size) and the smaller city of Kawasaki (fastest growing city by population percentage in the entire country) are both crucial pieces in any investment portfolio – and although higher yielding property deals are rare and far between, they are still obtainable, as opposed to more internationally renown destinations such as Tokyo itself, Osaka and Kyoto.

 

The Bigger Picture

While, as mentioned above, high-yielding property deals are impossible to find in Tokyo itself, and while prices have been rising rapidly in these two cities as well, investment gems can still be found in both Yokohama and Kawasaki. And with Kawasaki’s immediate proximity to central Tokyo, as well as its super-fast growth statistics, it is certain that internal migration from Tokyo into both of these cities will continue in coming years, as individuals, families and corporations – such as Nissan, which is only one of the major companies which has relocated its headquarters to Yokohama in recent years – seek to remove themselves from the over-crowded, over-trafficked Tokyo area, while still remaining in its vicinity.

Yokohama city is a high-tech industry and import/export centre, with main industries including biotech, semi-conductors and shipping. APR terminals, its largest container port, has been recognized as the world’s most productive in 2013.

Kawasaki city, aside from being one of the country’s most highly regarded residential cities, is also a major heavy industry and high technology development hub, with Nippon Oil Corp, Fujjitsju, NEC, Toshiba, Dell Japan and Sigma corporation being only some of the major companies head-quartered in the city.

Satellite Cities around Tokyo

With Tokyo prices now close to their pre-1990’s bubble peak, hotels nearing full occupancy, which is expected to worsen ahead of the 2020 Olympics, and Yokohama/Kawasaki already established as major residential centres with near-equal pricing, the smaller cities around the Tokyo metropolitan areas, within 30-60 minutes train ride from the city itself, are an ever-popular investment destination – particularly due to their status as “bedroom communities” to Tokyo – meaning, places where a large number of company employees rent a unit to use during the week nights, before returning home to their families in more distant cities for one or more weekends every month. With lower prices, higher yields, and high levels of occupancy, these cities may not gain in value over time, or at least not significantly so – but are very viable, reliable cash-flow generators.

 

Other Destinations

Generally speaking, Japan also has a large collection of potentially attractive investment destinations – smaller cities with stable or growing population figures and robust economies and industries, which are not specifically covered above – as the partial table below demonstrates –

Real Estate Japan

If you’re still not invested in any of the areas mentioned above, Drop Us a Line Today and ask us how to best position yourself.

 

(View a Sample Deal Breakdown, read about the Japanese taxation system, or email us today, on info@nippontradings.com to receive information about more exciting locations, further financial info, detailed realty & population reports, and/or properties available for purchase)

(Maps – Wikipedia, “about.com”, Japan national & municipal governments ; Population data – Wikipedia)