Authored by the expert who managed and guided the team behind the Japan Property Pack
Everything you need to know before buying real estate is included in our Japan Property Pack
Are you considering investing in Japan’s real estate market? What are the legal steps, tax implications, and cultural differences you need to understand before taking the plunge? What challenges do foreign investors typically face, and how can you overcome them?
These are the questions we hear most often from foreign investors because we’re actively connected to this market. We’ve spent time working with local agents, developers, and investors, so we know what works—and what doesn’t. That’s why we’ve written this article: to provide a clear guide that answers the questions we get asked daily.
Our goal is to help you, as a foreigner, to navigate the property buying process with confidence. If you think there’s something we missed or want more details, let us know (please do!). Your input helps us refine and improve our advice for everyone.
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1) Invest in land over buildings in Japan, as the property depreciation system causes structures to lose value quickly
In Japan, buildings lose value quickly due to a unique property depreciation system.
This system means that wooden structures last about 22 years and reinforced concrete ones up to 47 years. So, if you buy a 20-year-old concrete building for JPY100,000,000, with half of that value in the building, it depreciates by JPY1,650,000 each year. Frequent earthquakes and updated building codes make older structures less compliant, speeding up this depreciation.
On the flip side, land in Japan, especially in Tokyo, tends to appreciate over time. While buildings lose value, land often retains or even increases in value, making it a more stable and potentially profitable investment.
Real estate market reports and investor case studies in Japan show that land investments often yield higher long-term returns. This is because land retains its value and can appreciate, whereas buildings depreciate rapidly.
Additionally, government policies and tax incentives in Japan favor land ownership, further supporting the profitability of investing in land over buildings.
Sources: Azuki Partners, Tomorrow City, Housekey, E-Housing, ArchDaily
2) Foreign investors can freely own land and property in Japan, unlike in some other Asian countries
In Japan, foreign investors can own land and property without restrictions, a rarity in Asia.
Unlike other Asian countries with tight rules, Japan's legal system is welcoming to international buyers. Even with a 2020 rule change lowering the ownership threshold for government pre-approval from 10% to 1% in certain industries, this mainly affects national security sectors and doesn't broadly limit property ownership.
Japan's open-door policy has led to a surge in demand from both local and international investors. In Tokyo, new condominium prices reached a record high in 2023, showing the market's strength. Real estate agencies like Savills China and Savills Australia have noted a significant increase in activity in Japan’s residential market.
Japan's business-friendly environment is also reflected in its high rankings in the Global Innovation Index 2023 and the 2023 Index of Economic Freedom. These rankings highlight Japan's conducive atmosphere for foreign investment, making it an attractive option for property buyers.
For those considering a property purchase, Japan offers a unique opportunity. The combination of a supportive legal framework and a thriving real estate market makes it a compelling choice. Foreign investors are finding Japan's market particularly appealing, thanks to its stability and growth potential.
Sources: Santander Trade, Savills China, Savills Australia
We made this infographic to show you how property prices in Japan compare to other big cities across the region. It breaks down the average price per square meter in city centers, so you can see how cities stack up. It’s an easy way to spot where you might get the best value for your money. We hope you like it.
3) Explore the "akiya" market in Japan, where rural abandoned homes are sold cheaply due to depopulation
In Japan, the "akiya" market offers a unique opportunity to buy properties at a fraction of their value.
As of October 2023, there are 8.99 million vacant homes in Japan, making up 13.8% of all homes in the country. This abundance of empty houses means you can find great deals, especially in rural areas where the population is dwindling.
Rural Japan is experiencing a significant population decline, with only 7.957% of the population living there in 2023. This depopulation has caused property values to drop, resulting in $24.7 billion in losses over five years. For potential buyers, this means you can purchase properties for much less than their actual worth.
Take the example of Deborah and Jason Brawn, who snagged an abandoned house in rural Japan for just $23,000 in 2023. They plan to restore it and use it as a part-time residence, proving that these properties can be transformed into valuable homes.
The Japanese government is also stepping in to make these deals even sweeter. They're offering incentives like renovation subsidies to encourage people to invest in the akiya market. This makes it an even more attractive option for those looking to buy property in Japan.
Sources: Global Construction Review, Trading Economics, Business Insider, RP Realty Plus
5) Target properties near planned infrastructure projects for significant appreciation and profit maximization
Buying property near planned infrastructure projects can be a smart move.
In the Tokyo Metropolitan Area, for instance, new condominium prices jumped by 42.5% in November 2023. This surge is a direct result of increased demand and investment in areas with upcoming infrastructure. People are eager to live in places that promise better connectivity and amenities.
Osaka is seeing a similar trend. During the same period, condominium prices rose by 5.1%. This uptick is not just about new buildings; even existing properties are gaining value. The buzz around infrastructure projects is drawing more interest and economic activity to these regions.
Japan's history with urban infrastructure projects shows a consistent boost in property values once these projects are completed. It's a pattern that savvy investors are keen to capitalize on. The promise of improved transport links and facilities makes these areas highly desirable.
The construction sector in Japan is booming, thanks to large-scale projects like the Higashigotanda Two Chome Third District Type One Urban Redevelopment. These developments are not just about better roads or railways; they enhance accessibility and attract foreign investors looking for profitable opportunities.
Foreign investors are particularly interested in these areas because they see the potential for property value appreciation. With infrastructure improvements, these properties become more attractive, leading to higher demand and, consequently, higher prices.
Sources: Global Property Guide, Deloitte Japan Economic Outlook, NextMSC Report
Don't buy the wrong property, in the wrong area of Japan
Buying real estate is a significant investment. Don't rely solely on your intuition. Gather the right information to make the best decision.
6) Understand Japan’s “fixed-term lease” system, which may let you negotiate higher rents or end leases more easily than standard leases
In Japan, the fixed-term lease system is gaining traction, especially in bustling cities like Tokyo.
By 2023, over 30% of rental properties in Tokyo's 23 wards were under fixed-term leases, marking the third year of rising popularity. This trend carried into 2024, showing a clear shift towards more flexible rental agreements.
One big perk of fixed-term leases is the chance to negotiate higher rents. In the Greater Tokyo Area, family-oriented units saw a more significant rent increase under these leases compared to others. This means if you're ready to commit for a longer period, you might snag better rental terms.
Fixed-term leases also offer flexibility with contract lengths, usually set for 2 or 4 years. This setup lets both tenants and landlords end the agreement when the term is up, giving a chance to renegotiate terms or adjust rents based on the market. This flexibility is a big draw in competitive urban areas.
For those looking to invest or rent in Japan, understanding this system can be a game-changer. The ability to terminate leases more easily compared to standard leases can be a strategic advantage.
In a city like Tokyo, where the rental market is always buzzing, having the option to adjust terms can be crucial. This system not only benefits landlords but also gives tenants a chance to adapt to changing circumstances.
Sources: Patience Realty, First Step Japan, NRE MF
7) Consider compact, modern apartments in major cities, as urbanization trends make them popular with young professionals
In Japan, 92.9% of the population lives in urban areas as of 2024.
With bustling cities like Tokyo and Yokohama, high population densities are the norm. Many residents are choosing compact, modern apartments, especially in Tokyo, where efficient and convenient living spaces are in high demand.
Young professionals, particularly from Gen Z, are driving the growing demand for rental properties. Their rapid household formation and increasing earning power make them keen on modern amenities and convenience.
These compact apartments in urban areas are perfect for this demographic, offering the lifestyle they desire. Urban living is becoming synonymous with modernity and efficiency, attracting those who value these qualities.
Investing in these properties could be a smart move, as the trend shows no signs of slowing down. City living is not just a preference but a lifestyle choice for many in Japan.
Understanding this shift can help you make informed decisions about property investments. Urbanization is reshaping the housing market, and being aware of these changes is crucial.
Sources: Worldometers, World Population Review, Urban Land Institute
8) Avoid "jiko bukken" in Japan unless ready for lower rental yields and resale difficulties
Buying a property with a dark history, known as jiko bukken, can be quite tricky.
These properties often face high vacancy rates because many people are wary of living in places where unsettling events like suicides or murders have occurred. This means you might struggle to find tenants, leading to long periods without rental income.
When you do find tenants, expect to offer significantly reduced rent. It's common to charge half the usual rent for the first couple of years, which can really cut into your profits. This makes jiko bukken less appealing if you're looking for a steady income stream.
On top of that, selling these properties can be a headache. The stigma attached to them means they often sit on the market for a long time. Buyers and renters are put off by the property's past, which can drag down the resale value even further.
In Japan, the cultural significance of a property's history is strong, and this can heavily influence its marketability. People tend to avoid places with a negative past, making it tough to turn a profit on jiko bukken.
So, unless you're ready to face these challenges, it's wise to think twice before investing in a jiko bukken.
Sources:Tokyo Portfolio, Coto Academy, Uchi Japan
We created this infographic to give you a simple idea of how much it costs to buy property in different parts of Japan. As you can see, it breaks down price ranges and property types for popular cities in the country. We hope this makes it easier to explore your options and understand the market.
10) Offer furnished rentals in Japan to attract expatriates and short-term tenants who are willing to pay a premium
In Japan, most rental properties are unfurnished, so tenants need to bring their own furniture and appliances.
For expatriates moving to Japan, furnished apartments are a popular choice because they eliminate the hassle and cost of buying furniture, especially for short stays. Imagine arriving in a new country and having a home ready to live in—it's a huge relief.
These furnished rentals typically come with a higher price tag, often 20-30% more than unfurnished ones. The extra cost is worth it for many, as it means moving in is as simple as bringing your suitcase.
In bustling cities like Tokyo and Osaka, the demand for short-term furnished rentals is high. Business travelers and expatriates flock to these areas, seeking convenience and comfort without the long-term commitment.
For property owners, this demand presents a lucrative opportunity. By offering furnished rentals, they can attract tenants willing to pay a premium for the ease of settling in quickly.
Japanese properties often come unfurnished, so offering furnished rentals can attract expatriates and short-term tenants willing to pay a premium.
Sources: Expat Arrivals, Kyodo News, Tokyo Portfolio
11) Know that in Japan, a "judicial scrivener" handles legal documents in real estate deals, unlike lawyers in other countries
In Japan, buying property involves a unique professional called a "judicial scrivener".
Unlike in many countries where lawyers handle everything, judicial scriveners focus on real estate registrations and certain legal documents. They don't go to court for you, which is a big difference from what attorneys do elsewhere.
If you're a foreign buyer, this might seem a bit different. You’ll likely work with a bilingual real estate agent who can guide you through the process and introduce you to a judicial scrivener. This is helpful because judicial scriveners are experts in Japan's property laws.
These professionals ensure that all the legal paperwork is in order, which is crucial for a smooth transaction. They know the ins and outs of the system, making them invaluable in navigating the complexities of Japanese real estate.
While it might seem odd at first, having a judicial scrivener involved can actually streamline the process. They handle the nitty-gritty details, so you can focus on finding the perfect property.
So, when buying property in Japan, remember that judicial scriveners play a key role in ensuring everything is legally sound. It's a system that works well within the country's unique legal framework.
Sources: Wikipedia, Real Estate Blog, Deloitte Legal Handbook
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12) Know that Japanese agents typically expect commissions from both buyer and seller, but these can sometimes be negotiated
In Japan, real estate agents typically expect a commission from both the buyer and the seller.
This practice is rooted in the concept of dual agency, where one agent represents both parties. This means the agent could earn a total of 6% in commission, split equally between the buyer and seller. While this is standard, it can sometimes lead to ethical concerns, as the agent might have conflicting interests when representing both sides.
Interestingly, the statutory commission rate is set at 3% for each party. This has been the norm for many years, and most transactions follow this guideline. However, there are cases where these rates can be negotiated, although it's not very common.
Some buyers and sellers have managed to negotiate different terms, especially if both parties are open to alternative arrangements. This flexibility is rare but possible, providing a chance to reduce costs if both sides agree.
Understanding this system is crucial for anyone looking to buy property in Japan. It's important to know that negotiation is an option, albeit a challenging one. Being aware of these nuances can help you navigate the process more effectively.
Japanese real estate agents often expect a commission from both the buyer and the seller, which can be negotiated in some cases. Knowing this can give you an edge in discussions and potentially save you money.
Sources: Toshihiko Yamamoto, International Interface, Find Hokkaido Agents
13) Consider properties easily convertible to share houses, as the trend of shared living spaces is growing
In 2023 and 2024, affordable housing demand has surged in major Japanese cities like Tokyo and Osaka.
With the rising cost of living, many young professionals and students are looking for cost-effective places to live. Share houses are becoming increasingly popular because they offer both affordability and a chance to connect with others.
Companies like Cross House are seeing occupancy rates soar above 95%, showing that there's a strong market for these communal living spaces. This trend suggests that investing in share houses could lead to high returns.
Living in a share house can save you a lot of money. Potential savings can reach around ¥407,500 in just the first month, making it a financially smart choice for many.
Investing in share houses might be more profitable than traditional rentals. By appealing to a wide range of people, share houses minimize vacancy risks and boost rental income, making them a savvy investment.
Successful case studies show that renovating vacant properties into share houses can maximize rental income by accommodating multiple tenants with shared facilities.
Sources: Global Property Guide, X-House, Real Estate Japan
14) Consider properties near "konbini" in Japan, as their 24/7 accessibility makes them highly desirable
In Japan, properties near "konbini" are hot commodities because of their 24/7 convenience.
Imagine living in Tokyo, where property values soar near these stores. It's not just about grabbing a late-night snack; it's about the lifestyle perks that come with it. In bustling areas like Shibuya and Minato, where tech companies are booming, rental demand is sky-high for homes close to konbini.
People love the idea of having everything they need just a short walk away. Surveys show that residents prefer homes near konbini for their round-the-clock services. Real estate ads often highlight this proximity, making it a major selling point.
Urban planners have noticed this trend too. Research indicates that konbini not only boost property appeal but also enhance community development. These stores are more than just convenience; they're a cornerstone of neighborhood life.
In the fast-paced world of Japanese real estate, konbini are a game-changer. They add a layer of convenience that’s hard to beat, making them a key factor in property decisions. If you're considering buying a home in Japan, keep an eye on how close it is to a konbini.
Sources: e-Housing Japan, Wikivoyage
We did some research and made this infographic to help you quickly compare rental yields of the major cities in Japan versus those in neighboring countries. It provides a clear view of how this country positions itself as a real estate investment destination, which might interest you if you’re planning to invest there.
16) Avoid leasehold properties in Japan, as they may have complex renewal terms and extra costs
When buying property, it's crucial to know the difference between leasehold and freehold land.
In places like Japan, leasehold agreements can last over 50 years, meaning you're in for a long-term financial commitment that might surprise you. These agreements often come with complex renewal terms and additional costs that can catch you off guard.
One big issue with leasehold properties is the renewal cost, which can be a significant and unexpected financial burden. Imagine facing unexpected fees when your lease term is up for renewal—it's a real headache if you're not prepared.
Another downside is the lack of control over your property. Leasehold agreements often restrict what you can do, like making renovations or modifications. You might need the landowner's approval for significant changes, which can be frustrating if you want to personalize or improve your space.
In Japan, leasehold properties are common, but they come with their own set of challenges. For instance, you might find yourself dealing with strict regulations and limitations on property use, which can be a deal-breaker for some buyers.
So, if you're considering a property investment, be cautious of leasehold land. It's essential to understand the potential financial and regulatory implications before making a decision.
Sources: Understanding Land Ownership in Japan: Freehold vs. Leasehold, Freehold vs. Leasehold: Land Ownership in Japan for Foreigners, JUSCO- Japanese property first
17) Understand that the "floor area ratio" (FAR) is key for property expansion or redevelopment potential in Japan
In Japan, the Floor Area Ratio (FAR) is key to understanding property expansion and redevelopment potential.
Think of FAR as a rulebook for how much you can build on your land. In residential zones, the FAR usually ranges from 50% to 100%, meaning you can only build up to half or equal to the land's size. But in commercial areas, FAR can soar to 300%, allowing for taller buildings and more vertical growth. This is why cities with high FARs often have skyscrapers and bustling streets.
FAR isn't just about building height; it shapes how crowded an area can get and how well the infrastructure holds up. For instance, a high FAR in a commercial zone might mean more businesses and jobs, but also more traffic and demand for public services.
Local authorities set these FAR limits, and they can make or break your building plans. If the FAR is capped at 100% in your area, any design exceeding that will be rejected. This can be a big deal for developers looking to maximize their investment.
Historical trends show that strict FAR regulations can keep property values in check. When you can't build more, the existing space becomes more valuable, especially in high-demand areas.
Sources: Understanding Japanese Building Law, What is the limit on the gross floor area?
While this article provides thoughtful analysis and insights based on credible and carefully selected sources, it is not, and should never be considered, financial advice. We put significant effort into researching, aggregating, and analyzing data to present you with an informed perspective. However, every analysis reflects subjective choices, such as the selection of sources and methodologies, and no single piece can encompass the full complexity of the market. Always conduct your own research, seek professional advice, and make decisions based on your own judgment. Any financial risks or losses remain your responsibility.