Sep 2020

How to Make Money in Japanese Real Estate Investment

Real estate investment has proven its usefulness in a diversified portfolio. It provides various advantages to the investors that they can acquire in the long run. In many countries, investing in real estate can be difficult, especially for foreigners as there will be restrictions. There are a lot of processes that need to be completed which include legal aspects.

Considering these facts, the Japanese property market is quite different from many other developed nation's markets. One reason is that unlike other Asian countries, Japan allows foreigners to purchase land without citizenship or visa. Another thing is that Japanese properties typically have a low purchase price.

There are a lot of good reasons for Japanese real estate investing. But let’s dig deeper into what makes it different from other countries.


Capital Gains Are Unlikely


Did that make you feel a bit alarmed? Don't worry. It doesn't mean that capital losses are certain either. You are probably wondering why it is unlikely to make capital gains with Japanese real estate. Even though you know that real estate meant that its value appreciates over time, correct?

Here is an interesting fact with Japanese real estate. The Japan tax system recognizes real estate investment into two different parts: the land and the building attached to it. In their system, the land and the building undergo valuation differently. The land will retain or appreciates its value over time, while the building's value depreciates over its lifespan.

The building's lifespan is the number of periods that it can be economically feasible and beneficial to the owner. It is also interchangeable with the term useful life. It is typically measured using the total amount of time that it can be in service to generate revenue.

The value of the building declines each year because the depreciation expense lessens the original cost. The depreciation expense is the cost incurred for each period of its usage throughout its lifespan. Thus, when the building reaches the end of its lifespan, it will become worthless.

On the other hand, the valuation of the land is not the same as the building. The land will either retain its value or increase over time. There are two main reasons why land can appreciate its value:

  • Inflation
  • Urban development, increasing the official land valuation

Unless there are no significant changes, its value will remain the same as when the owner acquired it.

Hence, if you purchase only a certain apartment in Japan, you will not make capital gains out from it. You cannot sell the apartment more than the amount you paid for it.

So, how can you make money in Japanese real estate investment?


High Yield of Returns in the Long Term


One of the impressive features of investing in Japanese real estate is that foreigners can own real estate without restrictions. If you are not a Japanese person, you don't have to worry about the requirements of the state's regulations. You can acquire real estate even if you are not a citizen or you don't have a visa. You don’t have to live in Japan, as some investors can buy off-plan before they have even visited.

Another interesting fact is that Japan has the highest middle-class people in the developed world. Japan also has the lowest unemployment rate across all major industrial and emerging countries. Accordingly, the employment rate reached approximately 60% in 2018, compared to 58.8% of the previous year. This means that many employees seek house rentals. Thus, rental yields are flourishing continuously.

Just imagine – to the succeeding years, the rental business in Japan will surely expand even more. Landlords will gain so much from it over time.

But hey, it doesn't stop there. Rental business in Japan has more financial security than those in other developed markets. There are high yields in this investment because landlords can have stable and long staying tenants.

Tenants must sign a contract with a minimum term of two years. Therefore, rental houses are unlikely to be vacant right away. Additionally, you don't have to worry about having bad tenants. Tenants in Japan are incredibly responsible. This is the reason why the landlord's investments and cash flows are secured.