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Property Investment for Expats in Japan

Submitted: March 2014

There are no restrictions of foreign property ownership in Japan. Unless you’re really familiar with the process of buying property in Japan, you will need a reliable estate agent.

Property rights in Japan are strongly protected. The cost of buying and selling property in in Japan is moderately high by international standards (around 15%).

There are no official housing market statistics in Japan. Nevertheless, there are many ways to find data to make up your mind. The Japan Real Estate Institute (JREI), for example, regularly publishes valuable housing market data.

It is also possible to invest in Japanese property through collective investment vehicles. These are commonly referred to as “J-REITS”.

 

Japanese housing market generally

Japan is not a really expensive country when it comes to housing, especially when you compare it with Hong Kong or Singapore. In central Tokyo, prices per square metre are between $5,000 and $7,000. Elsewhere in Japan, prices can be much lower.

Japan has experienced an unprecedented house price boom since the mid-1990s, but it stopped in 2008. Since then, prices have broadly stagnated, though there might be variations of ± 5 to 10% from one year to another. Because of the so-called “Abenomics”, however, further price rises could well be expected because of tremendous monetary loosening.

Don’t forget that the Japanese economy has one of the lowest interest rates in the world. As interest rates are already very close to zero, any rate rise, even for 0.5%, would likely have a lot of consequences on the housing market. That being said, Japan is currently embarking on monetary loosening, not tightening. Therefore, no interest rate rise can be reasonably foreseen for the next few years.

An assessment of the Japanese housing market must include many additional macroeconomic factors, including:

 

Mortgaging

Get your documentation right before applying for a mortgage, and do it early to avoid disappointment.

 

Remember that:

 

Property taxes

There are local property taxes in Japan, which are levied on property owners. The aggregate tax rates vary range from 1.7% to 2.4% of the property’s rateable value. Some deductions are available, e.g. in respect of residential buildings.

Higher land taxes mechanically shrink property values and rental yields. Prior to purchasing property, it is essential that you check how much land tax and municipal rates you can expect to pay.

 

Letting your property

Rents are quite high compared with prices per square metre. In central Tokyo, you can get a gross rental yield of about 8.5% for a studio. Gross yields may be a bit lower elsewhere in Japan, but they frequently exceed 6%. Given Japan’s demographic and macroeconomic fundamentals, Japanese rents are not eager to go up as compared with other countries.

If you decide to let your property, you must be aware of the applicable landlord and tenant law. Do not attempt to evict your tenant illegally. Here are the main things you need to be aware of in Japan:

 

Taxation (basics)

In addition to land value taxes, you must pay tax on your capital gains and your rental income, if applicable. Rental income is subject to the progressive rates of income tax unless you are non-resident. See Investment Taxation for Expats in Japan.

Capital gains are subject a flat tax rate, and they may even be exempt if they arise from the sale of your main residence. Mortgage interest is not deductible, but you may qualify for a tax credit in respect of 1% of your mortgage if you buy a newly built principal residence.

 

 




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