Foreign Investors Tap Into Japan’s Best Kept Secrets

02 Dec, 2015 –

Japan Investment Properties

Japan Real Estate

Overseas investors from around the world are taking advantage of the depreciated yen and investing in Japan’s real estate. But, they are looking beyond top-tier properties in Tokyo. The capital city’s competitive real estate market and escalating prices have shifted attention to the high-yield market of Japan’s secondary cities.

Investors’ Radar

Nagoya, Japan’s industrial powerhouse is the country’s 3rd largest city with a population of approximately 2.3 million. It is the headquarters of automotive giants, Toyota and Mitsubishi, and home to several colleges, universities and technical schools including Toyota Technological Institute. Because of its bustling activity, this city’s Tokyo-Nagoya rail line was chosen as the trial route for the much anticipated new magnetic-levitating bullet train scheduled to be christened in 2027.

Another investor favorite is Sapporo, Japan’s 4th largest city with a steadily rising population of approximately two million. Sapporo is located in Hokkaido, one of Japan’s five main land masses, and famous for its world renowned ski resorts with 10 to 20 million visitors per annum.

Yet another super-popular investment destination is Fukuoka city. Newsweek selected Fukuoka as one of the top ten most dynamic cities in 2006 due to its strategic location as Japan’s gateway to south-east Asia, its increasing tourism and trade, and growing volume at its sea port and airport. Fukuoka City’s population of approximately 1.5 million is steadily rising. It is Japan’s youngest city and the only place in the country where core family numbers are also on the rise. This central city in Western Japan, known for its advanced and modern governance, is home to regional radio and television broadcasters, and headquarters to large railway corporations.

Cash Flow Investment Properties

Foreign investors seeking capital appreciation scout properties in Tokyo. However, many believe that, although the last few years have proven this to be true, it is still a highly speculative assumption. Therefore, to minimize risk, investors prefer to focus on rental income and cash-flow, with potential growth flagged as secondary criteria. Outside of Tokyo, properties are mainly purchased as an investment for cash flow. The highest yielding real estate is affordably low from $25,000 to $50,000 on average, with a yield of 6% to 12% net pre-tax.

In addition to affordability and return, Japan is a landlord’s paradise to investors. Tenants are docile and responsible by culture, rarely troubling landlords with payment issues, evictions or property damages. Any maintenance to a property would most likely be due to wear and tear rather than intentional or accidental damages. Tenancies tend to be for a longer term, resulting in stable income – 10, 15 or even 20 years is not uncommon.

Property in Sapporo

While small, one-room apartments are today’s most popular investments, on occasion, a 3-bedroom unit with a living room, kitchen, dining room and balcony become available such as this rare apartment recently on the market. Located in Sapporo, the unit is 66.78 sqm with three rooms, plus 6 sqm balcony and a living room, kitchen and dining room. The price is just under $50,000 with a yield of 9.18% net pre-tax. Investors often start with a safer tier such as the cities of Nagoya, Fukuoka and Sapporo and develop higher yield portfolios as they become familiar with the market, have established a moderate and safe baseline of stable and reliable properties, and can then afford to diversify and hedge.

Investing in Japan as a Foreigner

Real estate opportunities in Japan are open to foreign investors, in theory. There are no legal limitations on property ownership and no cooling measures. In fact, foreigners are exempt from resident taxes. However, it is a culturally closed and foreigner-shy business environment to those who do not speak Japanese and even to Japanese speaking foreigners who reside overseas. Most Japanese do not speak English and documentation is written only in Japanese. A foreigner will also find challenges in opening a bank account, paying bills, and receiving income or official overseas post.

These disadvantages, however, pale in comparison to the advantages of Japanese cultural norms – traditions, honesty, trust and correctness are placed above all else. Professionals are reliable and straight-forward. It is nearly impossible for anyone to get swindled, cheated or stolen from.

All of the above dictates that, for one to successfully operate in Japan’s attractive property market, it is essential to find the right company which specializes in acting on behalf of foreign clients, understands the regional real estate market, speaks both English and Japanese, provides references, and most importantly, has a proven track record serving foreign investors.

By P. Donnelly – Manager, Sales & Marketing @ Nippon Tradings International

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