Reading the Future of Investment Real Estate｜Market Forecasts and Strategies for 2025 and Beyond

The real estate investment market is constantly changing, and accurately predicting market trends after 2025 and developing appropriate investment strategies are the keys to sustainable asset building. at INA, we emphasize asset management from a long-term perspective, rather than simply pursuing short-term profits. This paper analyzes demographic and interest rate trends beyond 2025, and discusses strategies during the price decline phase, as well as the impact of ESG investment and renovation demand.

1. analysis of demographic and interest rate trends from 2025 to 2030

1-1. Impact of Demographics on the Real Estate Market

Japan's declining population is an unavoidable challenge for real estate investment. However, contrary to the overall population decline, there are phenomena such as changes in the number of households and population concentration in urban areas.

In central Tokyo, the working population is increasing as job openings rise due to rising stock prices, and demand for housing for single households is expected to remain strong in the future. As a real estate investor, it is important to note that rental demand is linked to the increase or decrease in the number of households rather than the number of people; the total number of households in 2040 is expected to be an estimated 50.75 million, so it is important to assess the supply-demand balance in each area rather than a uniform population decline across the country.

Even in an era of declining population, investments in prime properties that focus on location and quality will maintain their value over the long term. By investing in high quality properties, rather than simply chasing numbers, you will be able to build an investment portfolio that can cope with demographic changes.

1-2. interest rate trends and their impact on real estate investment

Since the removal of the negative interest rate policy in March 2024, the BOJ has been gradually raising interest rates; an additional 0.25% increase in January 2025 caused many financial institutions to raise their benchmark variable interest rates. Long-term interest rates (10-year government bond rate) had fallen to nearly minus 0.3% in the fall of 2019, but have since been on an upward trend, temporarily reaching the 1.2% level in January 2025 for the first time in 13 years.

Rising interest rates will have the following effects on real estate investment

1. Increased financing costs: Investors with floating-rate loans will have an increased repayment burden.
2. Impact on cap rates: Higher interest rates also increase expected yields, putting downward pressure on property prices.
3. Fewer buyers: Increased financing costs may reduce the number of buyers in the market.

From our perspective, which emphasizes investment in human capital, it is important to focus on long-term asset value, not just short-term profitability, even when interest rates are rising. It is precisely in times of rapid interest rate fluctuations that we need to make investment decisions based on calm judgment and a long-term perspective. 2.

2. strategies for buying more assets when prices are declining

2-1. understanding market cycles

The real estate market is subject to cyclical fluctuations. In particular, rising interest rates and changes in the social environment can lead to a price adjustment phase. During these periods, it is important not to fear short-term price declines, but rather to view them as opportunities to strategically increase purchases.

In order to make calm decisions during a price decline, you should focus on the following points

1. Thoroughly analyze the area: Determine which areas have potential by comprehensively analyzing demographics, infrastructure development, redevelopment plans, and other factors.
2. Confirming the supply-demand balance: Avoid areas of oversupply and prioritize areas where demand is stable or increasing.
3. Determine the bottom line: Since it is difficult to purchase at the complete bottom line, make investment decisions with a focus on mid- to long-term value.

2-2. specific strategies for buying more properties

The following approaches can be used as specific strategies for increasing purchases during a price decline

1. Diversify investments: Diversify risk by making multiple investments, rather than one large investment at a time.
2. Concentrate on properties that can add value: Focus on properties that can be renovated to create additional value.
3. Invest for the long term: Focus on long-term cash flow rather than short-term price fluctuations
4. Strengthen financial position: Establish a repayment plan with sufficient funds to allow for additional investment.

In INA's experience, real investment opportunities emerge during price declines. By acting without fear of failure, you will increase your chances of acquiring quality properties at a time when other investors hesitate.

3. impact of esg investment and demand for renovations

3-1. Importance of ESG Investment in Real Estate

Environmental, social, and governance (ESG) considerations are becoming increasingly important in real estate investment. The Japanese real estate ESG investment market is estimated to be approximately 12 trillion yen as of 2021, and is expected to continue to grow.

The benefits of ESG real estate investment are as follows

1. Long-term maintenance and improvement of asset value: Properties with high environmental performance reduce the risk of future value declines.
2. Increased demand from tenants and residents: Demand for environmentally and health-conscious properties will increase.
3. Reduced operating costs: Reduced running costs due to improved energy efficiency
4. Improved financing conditions: Potential for more favorable ESG-related financing conditions

The Japanese ESG real estate investment market is expected to grow in the future, although there are some issues to be addressed, such as the establishment of evaluation methods and standardization of information disclosure.

3-2. Rising Demand for Renovation

The renovation market is steadily expanding. According to a forecast by Yano Research Institute Ltd., the used home purchase and resale market is expected to reach 50,000 units in 2030, up 22.0% from 2022. The Ministry of Land, Infrastructure, Transport, and Tourism also aims to expand the combined market size of renovation/renovation and used home distribution from 12 trillion yen as of 2018 to 2030.

The following factors are behind the growing demand for renovation

1. Diversification of lifestyles: need for unique living spaces rather than standardized new construction
2. Impact of the "Corona Disaster": reevaluation of the living environment due to the increase in the amount of time spent at home
3. Reevaluation of existing homes: more options for renovating existing properties in good locations
4. Growing environmental awareness: Utilization of existing stock rather than scrap-and-build

From a real estate investment perspective, purchasing properties on the premise of renovation is attracting attention as a new investment strategy. Appropriate renovation can add value to the property and raise the expected rent. 4.

4. investment strategies for 2025 and beyond

The real estate investment market after 2025 is likely to shift to a more selective market, as the price appreciation trend of the past years comes to a halt. We propose the following points as investment strategies under such an environment. 4-1:

4-1. restructuring of area strategies

1. Selective investment in urban areas: Invest in highly convenient areas that respond to changes in work styles, rather than simply returning to urban centers.
2. Strategic investment in suburban areas: Selective investment in suburban areas with high-quality living environments due to the spread of teleworking
3. Consideration of regional core cities: High quality properties in regional core cities that can maintain a certain economic scale even under population decline

4-2. selection of property types

1. Properties for singles: Demand for properties for singles will remain strong as households continue to separate.
2. High-quality properties for families: Demand for high-quality properties is increasing as the child-rearing generation becomes more conscious of their living environment.
3. Senior properties: Demand for barrier-free properties and properties with good access to medical facilities as the population ages

4-3. review of financing strategy

1. Rethink borrowing strategy: Balance between variable and fixed interest rates, design conservative repayment plans
2. Review the equity ratio: In an environment of rising interest rates, it is necessary to consider increasing the equity ratio.
3. Secure a cash buffer: Secure sufficient funds to prepare for vacancy risk and increased repair costs.

4-4. upgrading of property management

1. Strengthen property management: Promote long-term occupancy by improving tenant satisfaction
2. Appropriate investment to increase value: Maintain asset value through systematic repairs and renovations
3. Technology utilization: Efficient property management using IoT and AI

Conclusion: Toward sustainable real estate investment

The real estate investment market after 2025 will look different from the past due to various factors such as demographic changes, fluctuations in the interest rate environment, expansion of ESG investment, and rising demand for renovation. In such an environment, sustainable investment strategies based on a long-term perspective, rather than the pursuit of short-term profit, are required.

I believe that an investment stance that is not afraid of failure, has a clear vision, and aims to achieve both social and economic value will be the key to overcoming the uncertain market environment after 2025.