Real estate investment is one of the most effective options in asset building for high-net-worth individuals. Especially for those who have been concentrating on their main business, such as founders and managers of listed companies, real estate investment is a strategic means to secure stable income and prevent inheritance tax at the same time. Japan's real estate market remains strong through 2025, and with the right knowledge and strategy, it is possible to both protect and grow assets over the long term.
There are multiple reasons why high-net-worth individuals should consider real estate investment as an asset management option. Especially in the current economic environment, its appeal is even greater.
In the current global inflationary trend, financial assets such as cash and bonds are losing their real value. Since real estate is a real asset, it is highly resistant to inflation, and since the inflation rate is expected to exceed 2% by 2024 in Japan, real estate rents will tend to rise in tandem with the inflation rate, thereby preventing a decline in asset value.
It is important to secure a stable source of income even after retiring from the management of a listed company. Investing in high-quality real estate generates a steady monthly income over the long term. For high net worth individuals in particular, this stability is a major attraction not found in other investment vehicles.
Investing in different asset classes, such as real estate as well as stocks and bonds, reduces the overall risk of your portfolio. while the stock market has been volatile from 2023 to 2024, real estate prices have been steadily rising, proving once again the benefits of diversification.
One of the most important advantages for high-net-worth individuals is the tax benefits of real estate investment. Various tax measures can be utilized, such as income tax and inhabitant tax tax benefits from depreciation and reduction of inheritance tax assessed value. Real estate investment is a very effective means of asset planning, especially in view of inheritance.
Real estate prices continue to rise in some areas of Japan, particularly in central Tokyo and regional core cities; according to the 2024 Land Price Survey, there was a marked increase in land prices in the three major metropolitan areas and in regional core cities such as Sapporo, Sendai, Hiroshima, and Fukuoka. From a long-term perspective, well-located real estate can be expected to both preserve and grow asset values.
Before starting to invest in real estate, it is very important to understand current market trends. the Japanese real estate market between 2024 and 2025 is showing some distinctive trends.
In central Tokyo, real estate prices continue to rise in 2024. In particular, in high-end residential areas such as Minato, Chiyoda, and Shibuya wards, the residential price index as of January 2025 rose 8.14% year-on-year. On the other hand, in regional cities, polarization is continuing, with core regional cities such as Sapporo, Sendai, Hiroshima, and Fukuoka showing land price appreciation rates higher than those of the three major metropolitan areas, while the vacancy rate is rising in areas where the population is declining.
In the office market, the recovery from the Corona disaster is progressing, with demand for high-quality properties in particular increasing. The vacancy rate for Grade A office space in Tokyo has fallen to 3.1% as of the third quarter of 2024, and the monthly tsubo unit price has reached 34,610 yen.
In the housing market, condominium prices are on the rise, and the used condominium market in central Tokyo is particularly active; according to the Fudoken Housing Price Index for January 2025, the used condominium price index in the Tokyo metropolitan area has risen for 13 consecutive months.
The commercial facilities market is responding to the recovery of inbound demand and changes in consumer behavior. Investment in hotels and commercial facilities has been particularly active in the Osaka area in anticipation of the Osaka-Kansai Expo.
The value of domestic real estate transactions in 2024 increased approximately 20% from the previous year, reaching a record high after the global financial crisis. By sector, offices accounted for 37% of investment, followed by hotels at 21%, logistics facilities at 18%, rental housing at 14%, and retail at 8%.
Although the real estate investment market is mainly driven by domestic investors, property acquisitions by foreign investors are expected to pick up again in 2025. This is due to the fact that the "cash-on-cash return" of Japanese real estate investment continues to be superior to that of other countries and that restrictions on real estate purchases by foreigners are loose.
Real estate investment is an investment technique with "middle-risk/middle-return" characteristics. It is important for high-net-worth individuals to fully understand both risks and returns when considering real estate investment.
There are two main types of returns from real estate investment: "income gain (rental income)" and "capital gain (profit on sale).
The surface yield (annual rental income ÷ purchase price × 100) is widely used as an indicator of investment efficiency:
The real yield ((annual rental income - expenses) / property purchase price x 100) more accurately represents actual profitability. Expenses include management fees, repair costs, property taxes, etc., and generally amount to 70-80% of the surface yield.
The following risk factors exist in real estate investment
Vacancy risk: The risk that tenants will vacate the property and there will be a period of time when no rental income is earned. Vacancy risk is relatively low for prime properties in central Tokyo, but it is higher in rural areas and for older properties.
Price fluctuation risk: This is the risk that the value of the property will decline and a loss will be incurred when the property is sold. Properties in good locations tend to have high price stability, but the impact of future population decline and changes in economic conditions is inevitable.
Interest Rate Rise Risk: If financed, there is a risk of an increase in repayment burden due to rising interest rates; since the negative interest rate policy was lifted in March 2024 and interest rates are expected to rise moderately in the future, it is worth considering financing at fixed rates.
Repair and Maintenance Risk: This is the risk of unexpected repair costs. Especially for older properties and single-family properties, there is a possibility that large repair costs may be incurred.
The following measures are effective in minimizing real estate investment risks:
Diversification of properties: Diversifying investments across multiple properties and different types of real estate can help diversify risk.
Location-focused property selection: Selecting properties in areas with convenient transportation and stable demographics can reduce vacancy and price fluctuation risks.
Generous financial planning: It is important to have sufficient cash reserves for unexpected expenses.
Collaboration with specialists: By collaborating with real estate experts, tax accountants, lawyers, and other professionals to develop an optimal investment strategy, you can effectively deal with a variety of risks.
One of the reasons why real estate investment is particularly popular among the wealthy is the tax benefits. When properly utilized, they can be expected to provide significant tax benefits.
Depreciation is an accounting method whereby the acquisition cost of a fixed asset, such as a building, is divided according to its useful life and recorded as an expense for each fiscal year. What is important for wealthy individuals is that this depreciation has the effect of reducing taxable income, even though it is an expense that does not involve actual cash outlay.
The legal useful life of a building depends on its structure:
For high-income earners, the income tax rate can reach up to 55% (45% income tax + 10% inhabitant tax), so the tax-saving effect of depreciation can be very large. For example, if a salaried worker with a taxable income of 12 million yen posts a loss of 5 million yen, including depreciation, on his/her real estate investment, his/her taxable income will be reduced to 7 million yen through profit and loss, resulting in a substantial reduction of income tax and inhabitant tax.
The main reasons why real estate investment is effective as an inheritance tax measure are the following valuation reduction effects:
Reduction in the valuation of land and buildings: In the inheritance tax assessment,
Special provisions for small building lots, etc.: Building lots that meet certain requirements are further reduced in inheritance tax assessed value.
For example, in the case of inheriting land worth 100 million yen, the assessed value based on roadside land price is approximately 80 million yen, which can be further reduced to approximately 16 million yen (80% reduction) if the special exception for small residential lots is applied. As a result, the assessed value can be reduced to 16% of the market value.
For real estate investments above a certain size, the tax advantages of incorporation are also worth considering. The advantages of incorporation include the following
However, incorporation also has disadvantages, so it is important to consult with a specialist before making a decision based on the size of the investment and future plans.
There are various options for real estate investment. The first step to success is to understand the characteristics of each and select the investment target that best suits your investment objectives and financial resources.
Description: An investment method in which you purchase a single condominium unit and earn rental income by renting it out.
Characteristics: The investment amount is relatively small (several tens of millions of yen).
Suitable for: First-time real estate investors, those who want to start with a small amount of money, and those who want to minimize management hassles.
Description: An investment where you purchase an entire condominium or apartment building and rent it out to multiple tenants.
Characteristics: High yields can be expected compared to condominiums.
Suitable for: Those who are considering full-scale real estate investment, those who are considering inheritance tax planning, and those who have a certain level of financial resources.
Description: An investment method in which office, retail, and commercial buildings are purchased and leased to businesses.
Features:.
Suitable for: Those who are considering large-scale asset management, those who value stability, and those who have experience in real estate investment
Description: A financial instrument that collects funds from many investors, invests them in real estate, and distributes the profits to investors.
Features:.
Suitable for: Those who are not comfortable with direct investment in real estate, those who want to start with a small amount, and those who value liquidity.
Real estate investment is often an uncharted territory, even for those who have been involved in business management for many years. In order to make your first investment a success, we recommend that you pay attention to the following points.
Give top priority to location: Location is so important in real estate investment that it is often said, "Location, location, location. The following points should be emphasized:
Look for a balance between supply and demand: Investigate demographic trends, number of households, new supply, etc., and choose an area where you can expect stable demand over the long term.
Building quality and management status: Especially when purchasing an existing property, it is important to have an expert check the building's structure, age, past repair history, and management status.
Balance between personal funds and loans: Generally, it is standard to prepare about 20-30% of the property price as personal funds and finance the rest. Wealthier borrowers can reduce risk by investing more of their own funds.
Consult with multiple financial institutions: Loan terms vary from financial institution to financial institution. Consult with several financial institutions to compare interest rates, repayment terms, and fees.
Secure a cash reserve: It is advisable to have at least 6 months' worth of cash available to cover unforeseen contingencies.
Successful real estate investors do not do everything themselves, but rather build a team of professionals:
Tax accountants: Advice on how to take full advantage of the tax benefits of real estate investment.
Real estate brokers: It is important to find a reliable broker who can provide quality property information.
Lawyers: Advice on reviewing contracts and assessing legal risks.
Management Company: If you choose to outsource the management of your property, choose a management company with a good track record and reputation.
Modern real estate investments can be managed efficiently through the use of technology:
Property management systems: Cloud-based property management systems allow centralized management of tenant information, rental income, and expenses.
Real estate investment analysis tools: Use tools to simulate income and support investment decisions.
Online information sources: Collect data online on land prices, rent rates, demographics, etc., and use it to make investment decisions.
Real estate investment is not a means to pursue short-term profits, but rather a means to protect and nurture assets from a long-term perspective. Let us consider the importance of "investment from a long-term perspective," which Daisuke Inazawa also emphasizes.
Human "assets" are also an important element in real estate investment. The following points should be considered
Securing quality tenants: It is important to secure quality tenants and have them live in the property for a long period of time in order to generate stable income. To achieve this, it is necessary to enhance the attractiveness of the property and provide management services that meet the needs of tenants.
Selecting a reliable partner: Property management companies, maintenance providers, tax accountants, and other professionals have a significant impact on the success of a real estate investment. Select them based on their reliability and expertise, not simply on their low cost.
Self-education and learning: The real estate market and taxation system are constantly changing. It is important to keep up-to-date with the latest information and knowledge through seminars, books, and networking with professionals.
The following strategies are effective in increasing the long-term asset value of real estate:
Planned repairs and facility upgrades: Keeping buildings in good condition and installing facilities that meet the needs of the times will prevent asset values from declining and keep them competitive.
Investing for the future of the area: Areas with redevelopment plans or transportation infrastructure improvements can be expected to increase their property values in the future.
Improvement of environmental performance: Enhancing the environmental performance of properties by installing energy-saving equipment, smart home features, and other measures can increase their competitiveness and asset value.
When investing in multiple properties, the following portfolio construction concepts can be helpful:
Geographic diversification: Diversifying investments across multiple geographies, rather than concentrating on a single geographic area, can reduce risk.
Diversification of property types: Investing in different types of properties, such as residential, retail, and office, can help build a portfolio that is resilient to changes in market conditions.
Age Diversification: A balanced mix of new and existing properties can create a portfolio with a good balance between cash flow and future growth potential.
Real estate investment is an effective way for high-net-worth individuals to protect and grow their assets. It opens up new asset-building possibilities, especially for those who have never invested in real estate before, such as founders of publicly traded companies.
The Japanese real estate market is expected to continue to grow steadily overall from 2024 to 2025, but disparities by region and segment are widening. Therefore, in making investment decisions, it is important to take a long-term perspective and focus on investment strategy, emphasizing location and property quality.
In terms of taxation, various tax incentives are available, such as income and inhabitant tax measures by utilizing the depreciation system and inheritance tax measures by taking advantage of special exceptions for small residential lots. In order to take full advantage of these measures, it is essential to work with a tax accountant or other specialist.
There are a variety of investment options available, including condominiums, single properties, commercial facilities, and REITs, and it is important to select the most suitable one according to your investment objectives, financial resources, and risk tolerance.
When investing in real estate for the first time, you can increase your chances of success by paying attention to a variety of factors, such as choosing the right property in the right location, having a financial plan with plenty of time to spare, building a team of professionals, and utilizing technology.
Finally, remember that real estate investment is not a pursuit of short-term profits, but a means of protecting and growing assets over the long term. By adopting a human capital investment perspective, implementing strategies to increase asset value, and managing risk through diversified investments, stable and sustainable asset building will be possible.
We hope that real estate investment will become a strategic means for high-net-worth individuals to achieve both asset protection and growth.