Japan’s favourable exchange rates, population growth and economic upside from the upcoming Olympics and Casino projects have caught the attention of many property investors. Many have now started to recognise Japanese Real Estate as an attractive asset class. Before you jump on the bandwagon, here are 6 things to take note of before investing in Japanese Real Estate.
It is better to deal with a Japanese seller directly
Engaging with and purchasing a property directly from a Japanese seller is challenging because of language and is usually not a great idea. Japanese property laws require real estate agents and sellers alike to explain rules and regulations clearly and in detail to potential buyers. Given these laws, there are cases where Japanese agents and home owners walked away from a transaction to avoid legal liability. From a buyer’s perspective, it is also difficult to strike a good deal or handle all the administrative and legal issues of buying a property if you are not familiar with the language. If you are looking to invest in Japan, work with someone who is well-versed and experienced in handling Japanese property transactions.
Japanese property regulations are not foreign investor friendly
Japan is one of the most investor-friendly market for property investment. Foreign property buyers are entitled to the exact same privileges as local Japanese buyers. Similarly, foreigners investing in Japan pay the same taxes as locals and are not subject to additional buyer stamp duties. There is also no concept of a fixed seller stamp duty (as is the case in Singapore where property investors pay 4-12% taxes on the selling price within the first 3 years). For Japanese Real Estates, sellers only pay taxes on capital gains even if they sell within 5 years. This gives investors and even foreign investors in Japanese Real Estate greater flexibility.
Furnished units attract better rental demand
Did you know? Japanese tenants make up 97% of all rental transactions in Japan and they prefer renting unfurnished units. Locals are not used to keeping second-hand furniture, and tend to throw out or replace existing furnishings. In fact, having a furnished unit can lower the chances of renting it out. Foreign investors are usually advised against furnishing their units, or otherwise keeping their property minimalist. A typical unfurnished unit rental is for a two-year period with an option to renew.
There is higher rental demand in tourist areas
Foreign property buyers investing in Japanese Real Estate for the first time tend to think that popular tourist areas are better. This is a misconception and tourist areas tend to have lower rental demand even though they may attract AirBnB demand during certain seasons. Many foreign companies are based in the Central Area, in the Chiyoda, Roppongi, Akasaka and Nihonbashi ward. The Chiyoda ward (Marunouchi / Otemachi / Hibiya / Ginza Area) in particular boasts high rental demand because of a sizable working expat population. However, there are limited new developments in this areas and available units tend to sell out quickly.
Japanese property prices are expensive compared to other cities
Japan’s Yen has dropped by 18% against the dollar since 2014, making prices of property in Tokyo significantly more attractive for foreign investors. According to Bloomberg and DREA’s independent research, home prices in Tokyo’s Central Business District are significantly lower than other cities globally. The lower PSF price is not only more attractive, but also makes the investment quantum much more accessible for individual investors.
It is difficult to get financing
First time investors are sometimes unsure about how to secure financing for foreign property investments. Thankfully, our local banks in Singapore have mostly rolled out attractive packages for foreign real estate market. UOB’s International Property Loan is one great example and includes loans for Japanese properties in five main cities including Tokyo.
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