Why High Net Worth Investors Are Eyeing Japanese Real Estate

In recent years, investment in Japanese real estate bywealthy foreign investors has expanded rapidly. This phenomenon is not merely a temporary trend, but the inevitable result of the unique appeal of the Japanese real estate market and changes in the global investment environment.

For foreign investors, the Japanese real estate market offers three major advantages: high yields, political stability, and a sense of affordability due to the weak yen.

INA&Associates K.K. has accumulated a wealth of experience in real estate transactions, mainly for ultra-high-net-worth individuals. In this article, we provide a comprehensive guide to successful Japanese real estate investment by high net worth individuals from overseas, with our professional opinion. We provide detailed, practical information on everything from investment considerations to actual purchase procedures and long-term asset management strategies.

Why Are High Net Worth Individuals from Overseas Focusing on Japanese Real Estate Investment?

Expanding Investment Trends as Seen in Market Data

The presence of wealthy foreign investors in the Tokyo real estate market is increasing every year. According to the Ministry of Land, Infrastructure, Transport and Tourism's "Land White Paper," real estate purchases by overseas investors in the year 2024 totaled 939.7 billion yen, a 63% increase from the previous year. This figure indicates that the percentage of foreign investors in Japan's real estate investment market has remained above 30% and can no longer be ignored.

The investment focus is on wealthy individuals from Greater China (Mainland China, Hong Kong, Taiwan, and Singapore). Many of them purchase properties with a budget of 300 to 500 million yen in cash and rarely use loans. Western investors are also on the rise, especially large investments by private equity funds and ultra-high-net-worth individuals.

Looking at investment trends by region, the following characteristics clearly emerge.

In these areas, wide penthouses of over 120 square meters are particularly popular and are expected to maintain and increase asset values due to their rarity.

Excellent Investment Opportunity due to the Weak Yen

The sharp depreciation of the yen since 2022 has been a major tailwind for foreign real estate investment. Japanese real estate prices in dollar terms have fallen significantly, creating a "bargain sale" situation for foreign investors.

Specifically, the yen has depreciated from about 115 yen to the dollar at the beginning of 2022 to the 160 yen level at one point in 2024. This makes the acquisition of yen-denominated assets an extremely attractive investment opportunity for investors holding strong currencies such as the US dollar and Hong Kong dollar.

For example, to purchase a 500 million yen property, an investment of approximately 4.35 million dollars would have been required in early 2022, while the same property can be purchased for approximately 3.12 million dollars in 2024 when the yen is weaker. This price difference of approximately 28% is an important factor that has a direct impact on the return on investment.

High Yield and Market Stability

Tokyo penthouses have an estimated yield of 3.5% to 4%, which is high compared to other major cities. Please see the comparison table below.

In addition to this yield advantage, the stability of the Japanese rental market (low vacancy rates and stable rents) is also an important factor in the investment strategies of wealthy individuals who are looking for long-term investments.

In the rental housing market in Tokyo's 23 wards, the vacancy rate remains extremely low at around 3%, and the risk of a significant decline in rents is limited. This is because the supply-demand balance remains favorable to investors due to the continuous population inflow and limited new supply.

Advantages for Foreign Investors Purchasing Japanese Real Estate

Legal and Institutional Advantages

One of the most important features of the Japanese real estate market is that there are no restrictions or regulations on the purchase of real estate by foreigners. Regardless of nationality, visa type, or permanent residency status, anyone can become an owner of land or buildings under exactly the same conditions as a Japanese national.

This institutional advantage is extremely rare in the world. Many countries place some restrictions on the purchase of real estate by foreigners, for example, limiting the types of properties and areas where they can be purchased, or requiring government approval. In Japan, however, it is possible to own a single apartment, condominium, office building, or even land, which is a major advantage for wealthy foreigners investing in Japanese real estate.

In terms of taxation, there is no discrimination between foreigners and Japanese. The rules for taxation when acquiring real estate (registration license tax and real estate acquisition tax), while holding it (fixed asset tax), and when selling it (transfer income tax) are all the same as those for Japanese nationals. This equality greatly reduces the risk of unexpected additional costs in investment planning and profit calculation.

In addition, the purchased real estate can be sold, donated, or inherited freely, and there is no set expiration date on ownership. This makes it possible to incorporate Japanese real estate as part of a long-term asset-building strategy.

Value as a "safe asset" due to political and social stability

Japan's political stability and good social order are extremely important investment decision factors for wealthy foreign investors. In particular, Japanese real estate is highly valued as a "safe asset" in the current international climate of heightened geopolitical risk.

Good public safety is one of the major attractions of investing in Japanese real estate. Japan consistently ranks high in the GlobalPeaceIndex, ensuring the safety of physical assets. This is an important factor to consider when holding physical assets such as real estate abroad.

The transparency of the legal system is also a great source of reassurance for investors. Japan's judicial system is highly independent and ensures that ownership rights are protected. Investors can expect fair and predictable outcomes in contract enforcement and dispute resolution.

Furthermore, although Japan is at risk from natural disasters, its preparedness and recovery capabilities are among the best in the world. Strict earthquake resistance standards under the Building Standards Law, a well-developed insurance system, and a rapid disaster recovery system ensure that the risk of damage to asset values due to natural disasters is properly managed.

Asset Diversification and Risk Hedging Effectiveness

Due to the uncertainty in the Chinese real estate market and growing friction with China in Western countries, wealthy individuals in Greater China are rushing to diversify their assets geographically. Japanese real estate investment is positioned as an important part of this asset diversification strategy.

Diversification into yen-denominated assets offers the combined benefits of reducing currency risk and at the same time securing a future migration destination. In particular, investments are increasingly made from a long-term perspective, taking into account the educational environment of children and the living environment of the elderly.

Japan's high level of education, excellent medical system, and high quality of social infrastructure go beyond mere investment targets, adding value to Japanese real estate as a "lifestyle hub. Easy access to international schools and advanced medical facilities is an important factor for high net worth individuals who are considering long-term family stays in Japan.

The relative maturity of the Japanese real estate market and low risk of sudden price fluctuations also enhance the risk hedging effect. Compared to the real estate markets of emerging economies, the limited risk of significant price declines due to policy changes or economic shocks is a major attraction for high-net-worth individuals who value stable asset protection.

Disadvantages and Risks of Investing in Japanese Real Estate

Impact of Currency Fluctuation Risk

One of the biggest risks in Japanese real estate investment is the impact of exchange rate fluctuations. While the current weak yen is working to the advantage of foreign investors, future appreciation of the yen may have a significant impact on investment returns.

For example, if a 500 million yen property is purchased at 150 yen to the dollar, the investment would be approximately 3.33 million dollars. However, if the yen appreciates to 120 yen to the dollar at the time of sale, the same 500 million yen would be worth approximately 4.17 million dollars, resulting in a 25% gain in dollar terms even if the price in yen terms remains the same. Conversely, if the yen depreciates to 180 yen per dollar, this would result in a loss of approximately 7%.

To cope with such foreign exchange risks, many foreign investors consider the following hedging methods.

Main foreign exchange hedging techniques

• Fixing the rate at the time of future sale through forward exchange contracts
• Limiting risk through currency options
• Diversifying assets in multiple currencies
• Natural hedging through borrowing in Japanese yen

However, these hedging methods involve costs and the impact on investment returns should be carefully considered.

Response to Natural Disaster Risk

Japan is relatively prone to natural disasters such as earthquakes, typhoons, and floods, and these risks are factors that cannot be ignored in real estate investment. In particular, damage to buildings caused by large-scale earthquakes or flooding caused by typhoons can have a direct impact on asset values.

However, Japan's Building Standard Law has the strictest earthquake resistance standards in the world, and buildings built after 1981 under the new earthquake resistance standards are highly safe in the event of a major earthquake.

The insurance system is also well-developed, and earthquake insurance can be added to fire insurance to cover losses caused by natural disasters. It is especially important to carefully consider the insurance amount and coverage for expensive properties.

Key Points of Natural Disaster Risk Countermeasures

• Selection of properties with new earthquake resistance standards (1981 or later)
• Include earthquake insurance
• Confirmation of location risk using hazard maps
• Regular maintenance of buildings

Language and cultural barriers and the importance of using specialists

The peculiarities of the Japanese language and business practices unique to Japan can be a major barrier for foreign investors. In real estate transactions, there are many situations that require specialized knowledge and Japanese language skills, such as understanding the contents of contracts, grasping legal procedures, and conducting tax reporting.

In particular, expert support is essential in the following situations.

Situations requiring expert support

• Detailed investigation of the property (building conditions, legal restrictions, etc.)
• Confirmation of the contents of the purchase agreement
• Implementation of registration procedures
• Tax reporting and tax-saving measures
• Rental management
• Development of future sale strategies

INA&Associates Inc. provides comprehensive support services for overseas investors to ensure smooth real estate transactions that transcend language barriers. Our professional staff, who are available in English and Chinese and have extensive experience in overseas projects, provide comprehensive support from investment consideration to sale.

In order to avoid misunderstandings and problems caused by cultural differences, we provide detailed explanations of Japanese business practices and legal requirements, creating an environment in which investors can proceed with transactions with peace of mind.

Procedures and Legal Requirements for Foreigners Purchasing Japanese Real Estate

Basic Purchase Procedures

The procedures for foreign investors to purchase Japanese real estate are basically the same as for Japanese investors, but some special documents and procedures are required. The following is a standard purchase flow.

Basic Flow of Purchasing Japanese Real Estate

1. Property search and selection
   • Initial consultation with a real estate agent
   • Clarification of investment objectives and budget
   • Listing of potential properties
2. Detailed survey of properties
   • Site inspection
   • Building condition survey
   • Confirmation of legal constraints
3. Submission of proof of purchase
   • Formal declaration of intent to purchase
   • Commencement of price negotiations
4. Conclusion of purchase agreement
   • Final confirmation of contract terms
   • Payment of deposit
5. Financing procedures (if necessary)
   • Negotiation with financial institutions
   • Obtaining loan approval
6. Settlement and delivery
   • Payment of remaining balance
   • Ownership transfer registration
7. Ex Post Facto Procedures
   • Submission of foreign exchange law report
   • Preparation of tax returns

Required Documents and Special Requirements

When a foreigner residing abroad purchases real estate in Japan, special documents must be prepared in addition to the documents normally prepared by Japanese nationals.

An affidavit is an important document used by overseas residents as an alternative to a certificate of residence or seal impression. This document certifies the identity and address of the individual and must be authenticated by a local notary or Japanese consulate.

Reporting Obligations under the Foreign Exchange and Foreign Trade Law

Non-residents are required to report under the Foreign Exchange and Foreign Trade Law (Foreign Exchange Law) when they purchase real estate in Japan. This report must be made to the Ministry of Finance within 20 days of acquisition of the real estate.

Outline of the Foreign Exchange and Foreign Trade Law Report

• Reporting deadline: within 20 days of acquisition of real estate
• Reporting location: Ministry of Finance (regional finance bureaus)
• Reporting method: Submission of a written report in the prescribed form
• Required documents: Sales contract, certificate of registered matters, etc.

Failure to submit this report may result in penalties as a violation of the Foreign Exchange and Foreign Trade Act, so it is important to make sure to complete the procedures within the deadline.

Registration Procedures and the Role of the Judicial Scrivener

Registration of transfer of ownership of real estate is a mandatory procedure under Japanese law. Since this procedure is complex and requires specialized knowledge, it is usually performed by a judicial scrivener.

The role of a judicial scrivener in the registration procedure

• Preparation of documents for application for registration
• Application to the Legal Affairs Bureau on behalf of the client
• Receiving documents after registration is completed
• Handling procedures specific to foreign nationals

By selecting a judicial scrivener with extensive experience in foreign matters, you can be assured that language issues and special procedures will be handled appropriately. INA&Associates, Inc.

Key Points for Successful Japanese Real Estate Investment

Important criteria for property selection

The most important factor for a successful Japanese real estate investment by a wealthy foreign investor is to select the right property. Careful consideration must be given to three factors: location, property type, and potential.

Importance of Location Selection

Even in central Tokyo, investment characteristics vary greatly by area. It is important to comprehensively evaluate the following factors

• Transportation access: distance from major stations, availability of multiple train lines
• Surrounding environment: availability of commercial, educational, and medical facilities
• Future potential: redevelopment plans, planned infrastructure improvements
• Internationality: presence of foreign community, multilingual services

In particular, prime locations in Minato-ku, Shibuya-ku, and Chiyoda-ku have high international recognition and are expected to maintain or increase their asset value in the future.

Characteristics by Property Type

For foreign investors, we recommend starting with luxury condominiums for ease of management and liquidity.

Building a Team of Experts

Building a reliable team of experts is essential for successful Japanese real estate investment. By working with the following experts, we can minimize investment risk and maximize returns.

Required Experts and Their Roles

1. Real estate companies
   • Property introduction and market analysis
   • Support for sales and purchase negotiations
   • Provision of after-sales service
2. Judicial scrivener
   • Representation in registration procedures
   • Confirmation of legal risks
   • Checking the contents of contracts
3. Certified tax accountant
   • Acting on behalf of tax returns
   • Proposal of tax reduction measures
   • Response to tax system revisions
4. Real estate management company
   • Rental management services
   • Building maintenance
   • Tenant Relations

INA&Associates Inc. provides comprehensive support to foreign investors by utilizing our network of these professionals. Based on our management philosophy, which places "human capital" and "trust" at the core of our operations, we aim to realize transactions that make all parties happy.

Building a Long-Term Investment Strategy

In a wealth investment strategy, it is more important to focus on long-term asset building and preservation than the pursuit of short-term profits. We recommend building an investment strategy that takes into account the following factors

Establishment of holding period

• A medium- to long-term holding period of five years or more is the basic rule.
• Consideration of timing of sale in consideration of market cycles
• Consideration of permanent holdings as an inheritance measure

Diversification of exit strategies

• Realization of capital gain by sale
• Secure income gains through long-term holdings
• Passing on assets to the next generation

Portfolio construction

• Diversify risk through multiple properties
• Investment in different areas
• Diversification of property types

Conclusion

Attractiveness and Cautions for Investing in Japanese Real Estate

For high net worth individuals overseas, investing in Japanese real estate is an excellent investment opportunity that offers three major attractions: high yields, political stability, and institutional advantages. In particular, the current weak yen is an excellent investment opportunity for foreign investors.

On the other hand, there are also challenges such as exchange rate fluctuation risk, natural disaster risk, and language and cultural barriers. Properly managing these risks and leveraging expert support can significantly increase the probability of success.

Critical Factors for Success

1. Selecting the right property: comprehensive evaluation of location, property type, and potential
2. Building a team of experts: Working with a trusted partner
3. Long-term perspective: an investment strategy that is not distracted by short-term market fluctuations
4. Risk management: use of currency hedging, insurance, and diversification
5. Continuous learning: adapting to market trends and changes in the legal system

Next Steps

We recommend that high net worth individuals considering investing in Japanese real estate begin by consulting with a trusted professional. INA & Associates, Inc. offers free consultations for international investors and can recommend the best investment strategy for your investment objectives and budget INA&Associates, Inc.

As a "Human Capital Investment Company," we put our clients' success first and aim to build long-term partnerships with them. If you have any questions or concerns about Japan real estate investment, please feel free to contact us.

Frequently Asked Questions

Q1: Can foreigners purchase real estate in Japan?

Yes, there are no restrictions on foreigners purchasing real estate in Japan. Regardless of nationality, visa type, or permanent residency status, you can purchase real estate under the same conditions as Japanese nationals. You can acquire ownership of both land and buildings, and can sell or inherit them freely.

Q2:How much money is required to invest in Japanese real estate?

It varies greatly depending on the property to be invested in, but for an investment condominium in central Tokyo, the typical amount is between 30 million yen and 100 million yen. In the case of high-net-worth individuals from overseas, investments in high-end properties in the range of 300 to 500 million yen are common. Cash purchases are the norm, but financing is also available depending on conditions.

Q3: How should I manage the property after purchase?

For investors residing abroad, outsourcing to a reliable property management company is common. They can provide comprehensive support for rental management, building maintenance, and tenant relations. The typical management fee is about 5% of the rent.

Q4:Is it possible to purchase real estate without a visa?

Yes, it is possible. You do not need a visa to purchase real estate. However, you cannot obtain a Japanese residence visa simply by owning the purchased real estate. If you wish to stay in Japan for a long period of time, please consider obtaining a separate "business management visa" or other visa.