# Merits of Japanese real estate investment



## sherman

Hello everyone. I just signed up to the forum.

I actually signed up for the specific purpose of wanting to ask expats in Japan about real estate.

To give a brief description of the situation, we (my family and I) have been looking into buying Japanese real estate over the past few months (yields seem higher than back home, interest rates in Japan are quite low...). They are not in Japan, but I have been for the past few years, that's where the idea came from. We have also been talking to different people regarding setting up a company to manage the potential property purchase (though that is a separate issue).

However, I would really like to know if there are people on this forum who, as foreigners, have gone through the hurdles of buying property in Japan for investment purposes. It would be very helpful to get the perspective of someone who has already been through all of that, and could let us in one some of the things that we'd need to watch out for.

One of the biggest issues we still have at the moment is concerning the depreciating value of the property over time. As we have been told by several sources, Japanese houses and buildings lose value over time as opposed to elsewhere in the western world. We're aware of that. So our concern is really that, if the building loses value over time, what would be the merit of investing in Japanese real estate in the first place if the only profit one will be able to make is from the rent alone (since you'd be selling the building itself at a loss)? Does the land where the building was built also lose its value?

This doesn't seem very attractive from a foreign investor's point of view, but I assume there must be something we are missing here, otherwise I can't imagine that even Japanese investors themselves would want to invest in their own domestic market.

Thanks, and looking forward to everyone's comments.


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## larabell

I don't believe land depreciates anywhere in the world. It's value may go up or down, depending on changes in the economy but land is already millions of years old... it's not going to get much older in our lifetimes. The buildings depreciate here the same as they do anywhere. If one wants to buy a house, a brand-new one will cost a lot more than one that's 20 years old. But none of that is unique to Japan.

If you buy anything in Tokyo that includes land (ie: an entire apartment building or a single-family house), the land is by far the bulk of the price. Therefore your future value depends more on where the economy goes than on the age of the building. Right now, Japan's birth rate is dropping so that may not bode well for housing demand.

What does seem a bit unique here is that buying a used single-family house and living in it doesn't seem to be as popular as where I'm from. It's more common to buy a house in order to tear down the old house and build a new one. That could just be Tokyo, though, where the house itself is only a small part of the price. If you're buying to become a landlord, small condos (called "mansion" here) might be a better bet. Families who are established in a neighborhood seldom move around so your best market is probably young singles who have to move because of a job in some other city. At least most of the income properties I've seen advertised seem to be smaller places... not single-family homes.

I'm interested to see if anyone has more relevant personal experience.


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## texasrangerichi

sherman said:


> Hello everyone. I just signed up to the forum.
> 
> I actually signed up for the specific purpose of wanting to ask expats in Japan about real estate.
> 
> To give a brief description of the situation, we (my family and I) have been looking into buying Japanese real estate over the past few months (yields seem higher than back home, interest rates in Japan are quite low...). They are not in Japan, but I have been for the past few years, that's where the idea came from. We have also been talking to different people regarding setting up a company to manage the potential property purchase (though that is a separate issue).
> 
> However, I would really like to know if there are people on this forum who, as foreigners, have gone through the hurdles of buying property in Japan for investment purposes. It would be very helpful to get the perspective of someone who has already been through all of that, and could let us in one some of the things that we'd need to watch out for.
> 
> One of the biggest issues we still have at the moment is concerning the depreciating value of the property over time. As we have been told by several sources, Japanese houses and buildings lose value over time as opposed to elsewhere in the western world. We're aware of that. So our concern is really that, if the building loses value over time, what would be the merit of investing in Japanese real estate in the first place if the only profit one will be able to make is from the rent alone (since you'd be selling the building itself at a loss)? Does the land where the building was built also lose its value?
> 
> This doesn't seem very attractive from a foreign investor's point of view, but I assume there must be something we are missing here, otherwise I can't imagine that even Japanese investors themselves would want to invest in their own domestic market.
> 
> Thanks, and looking forward to everyone's comments.


Traditionally, a piece of land is where the value is. You must remember that the Japanese have agricultural DNA inside of them. For investment purposes, just hedge the currency risk if that is some risk that you do not want to take. 

I personally think that the Japanese real estate properties, especially in residential areas are still too inflated, or I should say that the correction they had made in the past 20yrs is still not enough for various reasons such as;

*a fact that the Japanese mortgage loans are recourse loans unlike the US non-recourse loans. there is a liquidity risk for the owners( because of liquidity reasons, price may stay higher than it should be)

*wealth distribution tilted too much to elderies. younger generations cannot afford to buy a house without getting their parents' financial support. As a result, prices tend to be kept higher than what they can pay for. If you are not getting a support from your parents, you are paying for the buffer that average parents would give to their child(prob. $100-200k)

*"the Building Standards Act" restrictions are quite annoying but considering the fact that there is an earthquake somewhere in Japan everyday, it needs to be strict which will end up in cost increase. So you are practically paying for more for the same thing for what you would get elsewhere in the world where there is no earthquake.

On the other hand, properties in commercial areas maybe worth looking into but if you put in account that the poplulation is still somewhat decreasing, why can you be so bullish?


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## larabell

texasrangerichi said:


> I personally think that the Japanese real estate properties, especially in residential areas are still too inflated, or I should say that the correction they had made in the past 20yrs is still not enough for various reasons ...
> 
> *wealth distribution tilted too much to elderies. younger generations cannot afford to buy a house without getting their parents' financial support. As a result, prices tend to be kept higher than what they can pay for.


Which causes the younger generation to rent -- at least until their parents depart this mortal plane -- at which time the eldest son takes over the fully-paid-for house. One might think that would mean fewer buyers on the market and, thus, cheaper houses. But maybe the downward pressure won't kick in until more of the older generation passes on? I'm not sure... I can see the effect going both ways.

At the same time, if fewer young people are able to purchase their own homes, you'd think that would put upward pressure on rents -- and rental income is at least a part of the profit picture in an investment property.



> * ... So you are practically paying for more for the same thing for what you would get elsewhere in the world where there is no earthquake.


But earthquakes aren't going to suddenly go away in the next 20 years. If one buys a house today, as an investment, and sells it 20 years from now, you'd think the prices would still be higher here than elsewhere because Japan is always going to be the "land of earthquakes".

On the other hand, if a major seismic event in the future, or even improved construction technology, were to motivate the creation of stricter building codes, there's a risk that the house you buy today may not meet the building codes when you go to sell it, which destroys the value of any buildings on the property.

Of course, depending on where you buy (Tokyo, for instance) the price of the building is still a very small percentage of the total price of the property, even taking strict building codes into account.

Your point about the population decrease is probably the most important. Unless that trend turns around soon, housing isn't likely to get any more valuable in the near term.


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## larabell

I read a short article yesterday on NewsOnJapan.com that reported a general rise in housing prices due to Abenomics. Apparently the looser monetary environment has been encouraging people to borrow money to buy houses. They said that boosting the price of assets such as property was one of the Abe's main goals. This might be a reasonable time to buy, before Abe's 2%-per-year inflation target starts to put upward pressure on interest rates.


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## TheDomingoGroup

Unless you plan to live in Japan the rest of your life, and perhaps you plan to, I would look at investment vehicles such as investment trusts or REITs to give you exposure to the Japanese real estate maker without having to be an expert in picking and then managing the right property, and dealing with all the costs of ownership - expected and non-expected. 

Some risks, such as earthquakes, cannot be effectively hedged. If you own a single property and disaster occurs, you may be in the weeds. Holding a portfolio of real estate investments hedges the geographic risk of an adverse event taking down your entire investment.

Note: I am not a financial advisor, have no interest in pushing any investment vehicles, and this is not investment advice. I'm just offering an opinion for you to consider.

Good luck!

James


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## GlennSimon

I am Glad to find this post through Google ..


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