Land Institute of Japan data showed prices rose in the country by 3% in 2020, before jumping by 6.9% in 2021. Prices are back at 20-year highs. Japan hasn’t enjoyed its current rates of growth since prices began to inflate in the 1980s.
Inflation is beginning to eat into Japan’s economy as some global pressures make their way to the country’s shores. Cabinet Office of Japan data shows prices rose by 2.8% year-on-year. While that’s a fraction of the increases seen in the UK, the US and the EU, it represents the fastest price rises seen in Japan since 2014.
Japan is enjoying an unconventionally hot property market amid foreign stimulus and increased demand. But clouds are on the horizon. With a yen that has fallen 20% against the US dollar, Japan’s already-strong attraction to foreign real estate investors could be amplified. Despite high macroeconomic volatility and the upheavals caused by the pandemic, investments in residential real estate in Japan in 2021 once again proved to be sustainable and resilient assets.
Japan has historically dealt with minimal inflation and even deflation, tied in part to the country’s ageing population. Price rises above the central bank’s target rate of 2% will cause some discomfort. That has intensified as prime minister Kishida ordered fresh stimulus to help the economy continue its rebound putting more pressure on policymakers.
Japan’s central bank, the Bank of Japan (BoJ), has held off on increasing its base interest rate. The bank instilled negative interest rates for a number of years and rates close to zero for more than a decade as deflationary pressures long present in Japan spread around the globe. Rates stayed at -0.1% after the bank’s sixth meeting of 2022.
The central bank’s inaction has contributed to a fall in the yen’s value. The currency is down 20% against the dollar this year. That decline has put more pressure on vital food and energy imports, which are prone to the most volatile upticks in prices. That downgrade may not be a disaster for the economy, particularly one that has been starved of vital tourist income for more than two years. Incoming travel demand will work favorably for the nation’s economy because border restrictions are lifted.
On the property side, a weakening yen may also encourage more foreign investment in the country’s property sector, particularly as Western markets show signs of correction. Japan is already an attractive market thanks to the rest of Asia’s restrictive attitude to foreign real estate investment. Japan is a safe haven for wealthy individuals in Asia, and nowhere else in Asia can you buy freehold land as a foreigner.
We believe Japan will continue to be on an upward trajectory between this year and 2024, pointing towards a sustainable recovery following the pandemic. Even so, short-term tailwinds remain, as inflation rates in the region’s largest economies are projected to accelerate rapidly.
We are expecting the real estate sector to remain resilient in the next few years, with largely stable capitalization rates across the office, logistics, and retail segments. Japan’s luxury real estate sector is expected to register consistent growth in the longer term.
The average rate of land price fluctuation for all usages in Tokyo has increased by 1.7% from last year (2021), which marks the 10th consecutive year of the increase rate. For Commercial Areas, the average price fluctuation rate has increased by 2.0%, which is the first increase in 2 years, and for Residential Areas, the average price fluctuation rate has also increased by 1.5%, which is a larger increase than the same rate in the last year (increase by 0.2%) and the 10th consecutive year of increase. While easing the spread of Covid-19 pandemic, it is observed that the upward price trend has been coming back mainly in highly convenient areas.
The average land price fluctuation in Tokyo has turned positive to the increase by 2.0% from the decrease by 0.3% (from 2020) in 2021. This year’s average price fluctuation, within the 23 wards of Tokyo, is 2.2% from 2021, which has also turned positive from the decrease by 0.3% (from 2020) in 2021.
The highest price point in Japan is the Meijiya Ginza Building at 2-6-7, Ginza, Chuo-ku. The price, 39,300,000 yen per square meter (39,500,000 yen in 2021) has decreased by 0.5%, which is the 3rd consecutive year of negative fluctuation.
However, for foreigners wanting to purchase real estate property in Japan but do not live in Japan it can be very difficult to deal with the various procedures required to purchase property within the period of their stay in Japan. Such procedures include the previewing of properties, applying for the purchase, negotiating the terms and conditions, obtaining the necessary documents, arranging the purchase funds, concluding the contract, and payment for the purchase.
In order to complete these necessary procedures in a short period of time, it is necessary to make in-depth meetings and arrange a detailed schedule to follow with a real estate broker. Japanese people tend to be (obviously not in all cases, but tend to be) very honest. When you have tenants, problems are very rare. the quality of the tenants in Japan tends to be very good. You don’t tend to have such problems with collecting rent or unexpected bills and people basically acting in disreputable ways.
If you are interested in investing in real estate in Japan, please contact us in Japanese or in English or French at the email address below（info@ua-inc.jp）. We are ready to answer any questions.