The Japanese real estate market has been booming in recent years, with a clear upward trend in prices. According to the public land price survey by the Ministry of Land, Infrastructure, Transport and Tourism, the national average land price (all uses) in 2025 will increase by 2.7% year-on-year for the fourth consecutive year, recording the highest rate of increase since the bubble era. In particular, both residential and commercial land prices in urban areas increased, with residential land prices increasing 2.1% and commercial land prices increasing 3.9% over the previous year. In the background, demand is being supported by a moderate economic recovery and prolonged ultra-low interest rates, and residential demand remains strong in central Tokyo and areas with high living convenience. In commercial use as well, land prices have continued to rise at a high rate, supported by an expansion in demand for stores and hotels due to a sharp increase in inbound tourism and a pickup in demand for offices after the Corona convergence. In fact, the recovery in the number of tourists and the weak yen have boosted the appetite for investment in hotels and commercial facilities throughout Japan, and it is reported that in 2024, 64% of all locations will have land prices that are higher than they were before Corona (2020).
However, despite the strong market performance, regional disparities are also widening. While urban areas continue to experience a shortage of supply due to excess demand for real estate, making it a seller's market, rural areas have a serious housing surplus due to a declining population. According to the Ministry of Internal Affairs and Communications' Housing and Land Survey, the number of vacant houses in Japan will reach approximately 9 million by 2023, and the percentage of vacant houses to the total number of houses has reached a record high of 13.8%. Many of these vacant homes are concentrated in suburban and rural areas where demand is low, and the real estate market is becoming increasingly "polarized. On the other hand, in the Tokyo metropolitan area and other major cities, demand is strong while the supply of quality new real estate is limited, creating a supply-demand gap that is pushing up prices. In recent years, the combination of soaring construction costs, coupled with a curb on new housing starts and a shortage of inventory, has also supported the prices of existing properties and land. Thus, the Japanese real estate market as a whole has a duality of "tightness in urban areas and oversupply in rural areas." For high-net-worth individuals, however, investment targets are mainly in urban areas and popular areas where demand is strong, and market trends are generally firm.
The financial environment is another important point. The Bank of Japan's long-term monetary easing measures have continued to keep interest rates low, making real estate investment more profitable. Although the expected yield (cap rate) on real estate has been declining, the yield spread (yield gap) between the yield on real estate and the yield on long-term government bonds has remained at more than 2%, which means that investors can earn relatively high returns compared to the safe assets such as government bonds and deposits. For example, the expected yield on a Class A building in the center of Tokyo, such as Marunouchi, is low at around 4%, but the difference from the 10-year government bond rate (about 0.5%) is several percentage points, and the attractiveness of this yield has been a factor in attracting investment funds from Japan and abroad. However, since 2023, the Bank of Japan has begun to adjust its long-standing ultra-easy monetary policy and has begun to gradually raise interest rates, and in the second half of 2024, the negative interest rate will be lifted and the policy rate will be raised. As a result, the advantage of low interest rates is fading away, and there is a sense of caution that higher cap rates may lead to price adjustments in the future. However, the impact on the real estate market is limited at present. In fact, the lending attitudes of major Japanese financial institutions toward real estate are generally favorable, and there is little concern that their lending attitudes will sharply tighten through 2025. Thus, the prevailing view is that the Japanese real estate market, while facing the challenge of rising interest rates, will remain stable for the time being, supported by the supply-demand environment and the financial environment.
Real estate investment plays an extremely important role in the asset allocation of high-net-worth individuals. According to a survey by Nomura Research Institute, Japan's top 1% of HNWIs hold an average of 77% of their total assets in real estate, which is significantly higher than the global average for HNWIs (about 15%). Thus, Japanese HNWIs tend to hold the majority of their assets in real estate, making real estate "the key to asset preservation for the HNWIs. What are the specific objectives of the HNWIs in investing in real estate? The main objectives are as follows
Preservation of asset value and protection against inflation: Real estate is a real asset and tends to have relatively low price volatility and a firm underlying value. It is not exposed to daily market fluctuations like stocks, and the risk of a sudden crash due to corporate performance or market sentiment is small, making it suitable for high-net-worth individuals as a means of preserving their wealth. In addition, when prices rise, real estate prices and rents tend to rise in tandem, making it a strong asset during inflationary phases. In fact, there are many cases where wealthy individuals incorporate real estate as an "inflation hedge," contributing to the overall stability of their assets.
Stable income gain (rental income): The major attraction of real estate investment is the continuous rental income from rental operations. As long as tenants can be secured, a stable monthly cash flow can be expected, which supports the asset formation of wealthy individuals as unearned income. In particular, wealthy individuals with ample personal funds can easily gain economies of scale by investing in a single condominium or multiple properties, and can generate large amounts of rental income. In addition to the higher yield compared to stock dividends and bond interest, rent income is a source of income that is less susceptible to economic fluctuations because of the stable income that comes in through contracts. This stable income makes real estate investment a popular investment option among wealthy individuals.
Inheritance and tax benefits: One of the main motivations for high-net-worth individuals to invest in real estate is to avoid taxes. Compared to cash or securities, real estate has the advantage of having a lower assessed value for inheritance tax purposes. For example, land is valued at approximately 80% of the official land price, and in the case of rental properties, it is not uncommon for the assessed value to be significantly lower than the actual value because of the deduction for the percentage of land leased and the percentage of building leased as "land with leasehold interest. Buildings are also assessed at the property tax value (approximately 60% of the construction cost for new buildings), and if the property is being leased, a deduction for the right to lease is added, further lowering the assessment. Furthermore, there is a system whereby the assessed value of land up to a certain area can be substantially reduced by utilizing special exceptions such as small-scale building lots. In this way, owning real estate can reduce the taxable amount at the time of inheritance, making it an effective inheritance tax measure for wealthy individuals. In addition, by recording a loss on the books due to depreciation and amortization in the rental business, high-income earners may be able to reduce their income tax and inhabitant tax burdens. Since Japan's income tax system is progressive, the wealthier a person is, the higher the tax rate is, and the greater the effect of reducing taxable income by recording expenses. This type of income tax taxation is also an important role of real estate investment.
Leverage Effect and Asset Expansion: Real estate investment allows investors to aim for returns that exceed their own funds by taking advantage of loans from financial institutions and making large investments. High-net-worth individuals are in a better position to take advantage of the leverage effect because they can obtain favorable loan terms based on their high creditworthiness and financial strength. Under low interest rates, they can invest in high-yielding properties with low borrowing costs, thereby increasing their return on equity (ROE). Of course, a balance must be struck with borrowing risk, but in the case of high-net-worth individuals, they have sufficient resources to repay their loans or have other assets backing them, so they take a strategic approach to leverage to expand the size of their assets. This can accelerate the overall growth rate of their assets.
As described above, real estate investment is a useful tool for high-net-worth individuals in all aspects of asset preservation, management, and succession. The position of real estate in the asset portfolio is extremely important, not only because it contributes to asset building as a stable source of income, but also because it reduces the tax burden and facilitates the smooth transfer of assets to the next generation. In fact, a look at the asset composition of Japan's wealthy shows that real estate accounts for a higher percentage of their assets than financial assets such as savings and stocks, indicating that real estate functions as "real asset insurance for the wealthy. However, real estate investment also entails challenges such as low liquidity and time-consuming management, and HNWIs are required to carefully select and manage properties in cooperation with reliable real estate companies and experts.
Compared to other asset classes such as stocks and bonds, real estate has distinct risk/return characteristics and roles. Stocks are assets with high growth potential and liquidity, but with high price volatility and high short-term volatility risk. Bonds offer relatively stable principal and pre-fixed yields, but have low levels of return and are vulnerable to inflation. In this context, real estate can be positioned as an "intermediate asset" that does not fluctuate as much as stocks, but generates higher returns than bonds.
From a risk-return perspective, real estate is an asset with lower risk and medium return than stocks. Real estate prices are less directly affected by corporate performance and investor sentiment, and it is rare for prices to plunge by more than half in a short period of time. In addition, the regular income gains from rental income mitigate the fluctuation of total returns. On the other hand, although they carry more price fluctuation risk than bonds, their rental yields (or distribution yields in the case of real estate investment trusts) are higher than those of safe assets such as government bonds. Yields expected by real estate investors are generally in the several percent range per year, and since long-term interest rates in Japan have remained in the 0% range for many years, cash flow yields have been much higher than those of bonds. For example, the average distribution yield of J-REITs (real estate investment trusts) has been around 3-4%, and the difference (yield spread) with the 10-year government bond rate is still around 4% in recent years. This spread is thicker than in major cities in Europe and the U.S., and is one of the reasons why Japanese real estate yields are relatively attractive as an investment target. Since real yields on bonds have been negative at times during the ultra-low interest rate environment, real estate has been seen by high net worth individuals as a reliable inflation-hedged yield product and has been included as a third pillar (or even more important) in their investment portfolio after stocks and bonds.
There are also differences in terms of liquidity and time horizon. Real estate is less liquid than stocks (which can be traded immediately) and bonds (which can be traded in the market) because of the time and cost required to buy and sell real estate. However, by holding real estate for a long period of time, one can earn a stable income without worrying about short-term market noise. High-net-worth individuals have ample funds to spare, so they tend to set up real estate as a long-term stable asset rather than necessarily focusing on quick cash conversion. While holding liquid assets such as stocks and investment trusts as needed in their overall portfolios, they tend to hold real estate assets with their feet firmly planted in the ground, thereby enhancing the stability of their overall assets.
The correlation and diversification effect cannot be overlooked. In general, trends in real estate prices and rental income are not perfectly linked to the stock market. While they share some of the same influencing factors, such as economic growth and interest rate trends, real estate values are also affected by local supply and demand and inherent real factors. Therefore, adding real estate to a portfolio of only stocks and bonds can be expected to reduce the risk of price fluctuations of the overall asset portfolio and improve the Sharpe ratio (return per risk). High-net-worth individuals in particular manage risk by diversifying their vast assets into various classes, and real estate occupies an important position as an alternative asset (alternative asset). In recent years, hedge funds, private equity, gold, and art have been attracting attention as alternative assets, but real estate offers a better balance of stability and profitability among these assets, as well as a sense of security because it is a real asset. Gold, for example, is a hedge against inflation but does not generate income, and art works only aim for gains in price. In contrast, real estate is an excellent asset for high-net-worth individuals because it offers both "rental income and price appreciation," making it an asset with an excellent balance between offense and defense.
However, real estate investment also has its weaknesses. The biggest issues are the aforementioned low liquidity and management burden, which make it difficult to buy and sell in a timely manner or dispose of properties in installments, as is the case with stocks and bonds. In addition, the large investment amount per property tends to lead to concentrated investments, so unless diversification in terms of geography and use is pursued, the impact of a specific asset's failure on the entire portfolio will be significant. Furthermore, there are risks inherent to real estate such as earthquakes and typhoons (physical damage risk), which must be considered when making investment decisions, even though they can be covered by insurance. Because of these characteristics, real estate is generally held in combination with other financial assets in a complementary manner. High-net-worth individuals hold diversified assets in the form of stocks, bonds, cash, real estate, and other alternatives, rebalancing them in response to market conditions in order to achieve long-term asset growth and preservation. Real estate investments serve as a portfolio stabilizer with stable returns and low correlations.
In terms of macroeconomic factors, cautious optimism is warranted for the Japanese real estate market over the next few years. The economy as a whole continues to grow moderately, and corporate earnings and the employment environment remain solid. Inflation is moving closer to the Bank of Japan's target and wages are picking up in some areas, so real estate demand is expected to remain strong in a moderately inflationary environment. Meanwhile, the shift in monetary policy is the main focus of attention. The Bank of Japan is beginning to explore a phased exit from monetary easing after 2024, and the era of ultra-low interest rates is coming to an end. The possibility that interest rates will rise further into 2025 cannot be ruled out, and this could be a headwind for the profitability of real estate investment. Rising loan rates will cause investors' yields to decline, and a global reassessment (increase) in yield levels will put downward pressure on real estate prices. Currently, however, investor sentiment and market fundamentals are calm. According to an investor survey conducted by the Japan Real Estate Institute (JREI), more than 90% of investors answered that they will "continue to actively invest in real estate, " maintaining a bullish attitude despite the changing financial environment. The expected yields (yields demanded by investors) did not increase significantly in the most recent survey, indicating that even when interest rates rise, the impact on real estate yields seems to be limited. This is evidence that investors still value the stability and profitability of the Japanese real estate market.
From a longer-term perspective, demographic change is an unavoidable theme. Japan's declining birthrate, aging population, and shrinking population will have a significant impact on the demand structure for real estate. According to future projections by the National Institute of Population and Social Security Research, the total number of households in Japan is expected to peak around 2030 at approximately 57.73 million, followed by a gradual decline. Previous estimates had projected a peak in 2023, but the peak has been slightly postponed due to the increase in the number of single-person households. However, by 2040, the number of households is projected to decrease by approximately 5% from the 2020 level, and there is a strong possibility that the absolute volume of housing demand will shrink over the long term. This means that the real estate market is likely to experience pressure in the direction of easing supply and demand over the long term. This will be a downward pressure on real estate prices, especially in rural and suburban areas where the population is declining rapidly. On the other hand, urban areas will continue to see population concentration in highly convenient areas as compact cities and urban redevelopment projects continue to be implemented to accommodate the declining birthrate and aging population. Qualitative changes in demand will also occur, such as demand for urban housing for the elderly and single-person households, and suburban needs to accommodate new ways of working (remote work, etc.). In real estate investment, it will become even more important to make selective investments in light of these demographic changes. High-net-worth individuals are expected to hold their assets for the long term, so they will need to invest heavily in areas and uses where demand will remain strong in the future (e.g., residential properties in urban centers, facilities that meet the needs of the elderly, commercial properties in redevelopment areas, etc.). Conversely, real estate in areas where demand will inevitably shrink due to population decline should be carefully evaluated, even if yields are currently high.
Trends in foreign investors are another important factor affecting the Japanese real estate market. In the past few years, foreign money has flowed into the Japanese real estate market in search of low interest rates and stable market conditions, resulting in a series of large investments in hotels, office buildings, and logistics facilities. However, from the second half of 2023 onward, against the backdrop of rising interest rates in Europe and the U.S. and stagnant overseas real estate markets, there were moves by foreign investors to sell some of their Japanese properties to lock in profits. In fact, a survey showed that in the second half of 2023, foreign investors turned to selling Japanese domestic real estate for the first time in four years. The Bank of Japan also noted in its Financial System Report that "there was a change in the second half of 2023, when foreign investors turned to overselling for the first time in four years, as a localized sense of overvaluation was observed in central Tokyo commercial areas. Despite this temporary adjustment, in the second half of 2024, there was once again a series of large transactions by foreign funds, and the amount of foreign money invested reached a new record high. Behind this trend is the fact that Japanese assets appear undervalued due to the weak yen, Japanese real estate yields are relatively high compared to Europe and the U.S., and trust in the stability of the Japanese market (stable legal system and contracts, low political risk). In particular, for wealthy individuals and institutional investors from neighboring Asian countries, Japanese real estate is seen as a safe investment destination, and foreign buyers are increasingly present in a wide range of asset classes, from large office buildings in Tokyo and Osaka to resort properties in Niseko, Hokkaido. While we need to pay attention to the movements of foreign investment money in the future, the basic scenario is that "overseas demand for Japanese real estate will remain strong over the medium to long term, even if there is a temporary inflow and outflow of funds in response to changes in the financial environment. Although short-term temperatures may change depending on exchange rates and overseas economic trends, the transparency and stability of the Japanese market remain attractive, and the structure is unlikely to experience large-scale capital outflows. However, there is no zero risk that any deterioration in global real estate market conditions or modulation of financial markets will spill over indirectly to the domestic market through funds. As a high-net-worth investor, it is important to keep a close eye on the movements of foreign investors and pay attention to the overheated market.
In general, the Japanese real estate market is expected to move toward "a market that maintains stability amid moderate economic growth and structural changes, while becoming more selective. From a macroeconomic perspective, the market will face the challenge of rising interest rates, but if rising rents and strong demand prevail, a major adjustment is expected to be avoided. The long-term challenge of a declining population will continue to be overcome through the concentration of population in cities and the creation of new demand. From the perspective of foreign investors, the Japanese market will remain an attractive investment destination. In this context, high-net-worth individuals will be required to maintain and adjust their investment ratios in real estate appropriately in their asset allocation strategies. It is important to take a long-term view of market trends, taking into account both aspects of real estate asa fortress for asset preservation and as a driver of income.
In real estate investment by high-net-worth individuals, it is extremely important to choose which areas to invest in. Even within Japan, growth potential and stability vary by area, and the future outlook for asset values is not uniform. This section provides an overview of trends and prospects by region, broadly divided into the "Tokyo metropolitan area," "major regional cities," and "high-end resort areas.
Tokyo metropolitan area: The Tokyo metropolitan area, especially central Tokyo, is the most important area for high-net-worth individuals to invest in real estate in Japan. The 23 wards of Tokyo, particularly the three central wards of Tokyo (Chiyoda, Chuo, and Minato) and the Shibuya and Shinjuku wards, are known as areas with extremely high expectations for maintaining or increasing real estate values. In fact, demand for housing by wealthy individuals has remained strong in the high-end residential areas of central Tokyo in recent years, and condominium sales prices in brand-name areas have continued to rise moderately in the high price range. With the extremely limited supply of land, developers have been rushing to acquire land for condominiums, and land prices in prime, scarce areas have been holding strong, and are unlikely to collapse sharply in the future. Tokyo is also the center of the Japanese economy, and demand for office and commercial space is stable. Looking at the rental market, the vacancy rate for office space in central Tokyo temporarily rose after the Corona disaster, but has since turned downward, and there is solid demand, especially for high-grade buildings. In terms of infrastructure, there are a number of redevelopment projects underway, including the Tokyo Station Tokiwa Bridge and the Toranomon-Azabudai Project, which will see the completion of skyscraper complexes, and the city continues to improve its attractiveness. With big projects such as the opening of the Linear Shinkansen Line (between Tokyo and Nagoya) in the latter half of the 2020s, the Tokyo area's medium- to long-term development potential is still high. For high-net-worth individuals, Tokyo real estate is a "safe asset with solid asset value," and even if the yield is a little low, it is worth holding for the purpose of asset preservation. In fact, surface yields on prime Tokyo properties are low, at around 3-4%, but buyers are still attracted to these properties because they expect to receive a comprehensive return that includes future gains in value and the effect of reduced valuation at the time of inheritance. The Tokyo area will continue to be the most important investment area for high-net-worth individuals, with a particularly strong preference for high-end residential properties in the city center, commercial buildings in urban areas, and single-family rental condominiums.
Major regional cities (Osaka, Nagoya, Fukuoka, etc.): Wealthy individuals are increasingly interested in major metropolitan areas other than Tokyo. Osaka, in particular, is attracting attention both domestically and internationally, with many bright spots such as the Osaka-Kansai Expo in 2025 and the integrated resort (IR, including casinos) project scheduled to open in 2029. Real estate prices in Osaka City are also on the rise, with commercial land prices growing by 7.1% year-on-year in 2024, the strongest growth among the three major metropolitan areas. However, property prices are still less expensive than in Tokyo, with some saying that the price of a studio apartment is "almost half the price of a Tokyo apartment. This price gap is attracting an increasing number of wealthy people from the Tokyo metropolitan area to purchase properties in Osaka. If the inflow of funds into Osaka continues, capital gains can be expected from the convergence of prices. The economic effects of the Expo and the increase in tourists due to the opening of the IR are expected to stimulate demand for real estate in the Osaka area, which is expected to spread widely from offices, hotels, and commercial facilities to residential properties. Nagoya also has a solid economic base centered on the automobile industry, and the anticipated opening of the Linear Central Shinkansen Line is drawing increasing attention. Commercial land prices in the Nagoya area are already rising at an annual rate of 7% (by 2024), and as one of the three major metropolitan areas, Nagoya is expected to continue to experience stable growth. Fukuoka has one of the highest population growth rates among government ordinance-designated cities and is a promising market with a large influx of young people. With a population of approximately 1.65 million (as of 2025), it is estimated that population growth will continue until around 2040, and demand for housing is strong. Fukuoka City ranks high among regional cities in terms of the rate of increase in land prices, and both commercial and residential land prices are growing steadily. Fukuoka's proximity to Asia and its extensive international air routes are attracting increasing interest from overseas investors. Regional hub cities such as Sapporo andSendai are also expected to see a certain level of demand, with Sapporo in particular offering bright prospects for improved accessibility and increased tourism demand with the opening of the Hokkaido Shinkansen bullet train extension in 2030. However, the market size of regional cities is smaller and less liquid than that of Tokyo, so they should be carefully selected as investment targets for high-net-worth individuals. Basically, cities with population growth or maintenance and a solid economic foundation (Osaka, Nagoya, Fukuoka, etc.) are the main candidates for investment, while other regional cities should be considered after carefully examining the attractiveness of individual properties (existence of redevelopment projects, uniqueness of the location, etc.).
High-end resorts and tourist destinations: High-net-worth individuals are also interested in resort real estate in Japan and abroad for their actual needs. In Japan, there are resorts that have gained worldwide acclaim in recent years, with Niseko in Hokkaido at the top of the list. Niseko is a ski resort known for its high-quality powder snow, which has triggered a real estate investment boom, especially among wealthy Australians and Asians, and land prices have risen dramatically over the past 15 years. This has had a ripple effect on the surrounding area, which is also known as the "second Niseko. For example, in Kitanomine-cho, Furano City, Hokkaido, the official land price increase rate for residential land in 2024 was +31.3% over the previous year, the highest in Japan. This is the result of the influx of investment money, combined with overseas demand due to the weak yen, which has attracted attention as a ski resort second only to Niseko. Furano and Niseko have seen a string of hotels and condominiums being built, attracting vacation home buyers and investors from Japan and abroad to search for properties. According to a local real estate agent, "the depreciation of the yen has made them more affordable from an overseas perspective," which is one reason for the increase in demand. The number of foreign overnight guests has increased 4.2 times that of 10 years ago, and is expected to continue to rise at a high rate in the future. Thus, Hokkaido's luxury resorts are experiencing a kind of bubble-like upsurge, and are an attractive area for wealthy individuals to invest and own.
Other summer and hot spring resorts that have long been popular with the wealthy in Japan, such as Karuizawa (Nagano Prefecture) and Hakone and Atami (Kanagawa and Shizuoka Prefectures), also remain popular. Demand for vacation homes is strong, and after the Corona disaster, real estate prices rose in some areas as the number of wealthy people staying at resorts near cities for long periods of time increased due to the spread of teleworking. Prices for vacation home properties in Karuizawa have turned upward, and transactions have become more active. Resort properties in Okinawa are also attracting attention, with luxury condominium developments in Onna Village, Miyakojima, and other areas being purchased by wealthy individuals from Japan and abroad. The recovery in tourism and the increase in inbound visitors are providing a tailwind, and the potential for income from resort rentals and private accommodations is increasing the attractiveness of these properties as investment targets.
Although the price movements of high-end resort properties are different from those in urban areas and are easily affected by the economy and trends in foreign tourists, they are a unique investment option for high-net-worth individuals, offering both the enjoyment of owning assets andinvestment returns. However, for high-net-worth individuals, this is a unique option that combines the enjoyment of owning an asset with investment returns. However, liquidity is limited and market participants are also limited, so careful decisions must be made with exit strategies in mind. Nevertheless, the international reputation of Japanese resort destinations is rising, and the success of Niseko is a symbol of this. Demand is expected to continue from wealthy individuals around the world, especially in Hokkaido, and for high-net-worth investors, luxury resorts are worth considering as assets to add color to part of their portfolios.
As we have seen above by region, the basic strategy for real estate investment by high-net-worth individuals is to "focus on Tokyo as the core, while also keeping an eye on promising regional cities and resorts. This multifaceted regional diversification will strengthen the asset portfolios of high-net-worth individuals. This multifaceted regional diversification will strengthen the asset portfolios of high-net-worth individuals. It is important to monitor economic trends, development plans, and infrastructure in each region and make the most appropriate investment decisions.
From an asset allocation perspective, real estate investment continues to be an indispensable pillar for Japan's high-net-worth individuals. While the domestic real estate market remains strong, it is facing the challenges of interest rates and demographic changes, and HNWIs will protect and increase the value of their assets while responding appropriately based on their long years of experience and knowledge. Real estate offers a combination of stability and earning power that no other asset class can match. At the same time, however, one must pay attention to changes in the market environment and individual risks, and be thoroughly diversifiedand careful to identify areas and properties without overconfidence. It is essential to make sound and logical decisions in asset management while referring to reliable public data and the knowledge of experts. The position of real estate investment among high-net-worth individuals will continue to maintain its importance as a means of both asset preservation and growth, and will continue to evolve in step with trends in the domestic market.