Why choose Japan, and if choosing Japan, out of all the cities and megalopolises in Japan, including Osaka, Nagoya, Fukuoka, etc., why choose to invest in Tokyo? There are 195 countries in the world today in which you can invest, and many other big cities in Japan, so first of all, why Japan, and second of all, why Tokyo?
No Restrictions on Foreign Ownership
In Japan, anyone can buy real estate. This includes foreign residents and overseas investors who are not even physically present in Japan. The property can be a condominium, a house, commercial real estate, or even land. It is based on the freehold system in which the land belongs to the owner eternally as long as he or she pays property tax. This is different from 70-year leases China has for land, or “Right to Use” like Indonesia has for both buildings and land. In Japan, there are no restrictions on real estate ownership for Japanese nationals or foreigners.
Strong Economy and Political Stability
Japan also has the third largest economy in the world, and it is politically stable. You will never see a violent protest, demonstration, coup d’état, or rebellion. The government also protects property rights very carefully.
The Weak Yen Has Lowered Property Prices—How Long Will It Last?
Now is a great time to buy real estate in Japan because of the weak yen. Back in October 2011, the yen strengthened to ¥76.72 to the US Dollar. Now, due to the Abe administration’s emphasis on an export-driven economy which requires pursuing a weaker yen, it is only ¥108.42 to the US Dollar. This means that a ¥10 million property that was once $130,344.10 is now $92,330. Abe-san is now the longest-serving Prime Minister in Japanese history, and Abenomics will not last forever. How long will these weak exchange rates continue?
Tourism, Airbnb, and Other Minpaku Services
Tourism is booming. The government aims to have 40 million foreign tourists visit Japan next year, in 2020. This is also when the Tokyo Olympics will be held. A hotel room in the 23 Special Wards goes for, on average, ¥18,000 ($166) per night. Investors have a chance to capitalize on this upward trend in tourism through Airbnb and similar services, which are classified as minpaku (民泊, “private residences temporarily taking lodgers”).
Although some buildings are getting strict about minpaku and even banning it outright, if you own the whole building, then you make the rules. Exploit the loophole of putting your stayers on one-month leases, and it is no longer legally considered minpaku anymore. Alternatively, if investing in Tokyo, you can get a hotel license relatively easily. Since 2016, a “hotel” only needs to have five rooms, and the reception desk no longer has to be manned. The number of tourists is increasing every year, and the demand for hotel rooms far outstrips the supply, so cash in on it.
Why Invest in Tokyo in Particular?
Why not Osaka, Nagoya, Fukuoka, etc.? Well, actually, those would also be fine places in which to invest. Why invest in Tokyo, specifically? Tokyo has tenancy rates for residential property of around 95%, but then, so does Osaka. Nagoya and Fukuoka will also give you great return on investment (ROI). However, here are some compelling reasons to choose to invest in Tokyo over those fine cities.
Tokyo Is a Highly-Ranked Metropolis
First of all, Tokyo is the largest megalopolis in the world. In its “Global Cities of the Future Overall Megacities” ranking, Financial Times ranked it No. 3. Of the Fortune 500 companies, the second most in the world are headquartered in Tokyo. Only New York has more. However, Tokyo’s economy is bigger than that of New York. Tokyo’s GDP is over $1.61 trillion, whereas New York’s is just over $1.40 trillion. There is more wealth in this one metropolis than in the entire country of Spain, or all of Australia. Although the news frequently reports on the economic rise of China, China’s most prosperous city is Shanghai. Shanghai has an economy of $594 billion. That is less than half the size of the Tokyo economy.
High Occupancy Rates
Tokyo’s occupancy rates are also extremely high. Tenancy rates for residential real estate are around 95%. In Chiyoda, Chūō, Minato, Shibuya, and Shinjuku Wards, the vacancy rate for office buildings is now only 1.68%, on average. Vacancy is one of the greatest risks to your investment. Therefore, vacancy numbers this low are great news for the investor.
Great Return on Investment
The gross Return on Investment (ROI) for Tokyo is also very strong. For rental units in the 23 Special Wards, the average ROI is 5.5%. This average ROI increases to 6.5% in the outlying suburbs. ROIs above 6% are often in buildings with 4~5 storeys and no elevator.
Laws on Subleasing Are More Liberal Than Other Parts of Japan
Yet another advantage of owning investment real estate in Tokyo is that the laws in Tokyo regarding subleasing are less strict than in other cities. With subleasing, instead of having to worry about whether your unit is tenanted or vacant, you can simply sign a contract with a company that will rent it for a fixed period of time. It will then pay you a fixed amount regardless of whether it is occupied or empty. This company then tries hard to find tenants to put into the unit, but your income is unaffected by whether or not they succeed in doing so. Subleasing is slightly less profitable in the very long run, but removes the volatility. Therefore, it is an excellent option for more risk-averse investors.
Japan is an excellent country in which to invest in real estate. This is thanks to its laws, which allow free ownership of both land and buildings to overseas investors. It also has the world’s third-largest economy, a stable government, and a booming tourism industry that offers numerous opportunities to the smart investor. The yen is weak at the moment, meaning that, in US Dollars, a given property is now 29% cheaper to buy than in October 2011. If you act fast, that is. How long will this continue?
Investing in the real estate of any core Japanese city would be a solid decision, but if you invest in Tokyo, you have access to literally the world’s largest metropolis with a $1.61 trillion economy full of major global corporations. It has extremely low risk thanks to high tenancy rates and liberal subleasing laws. Return on investment is, on average, 5.5% in the Special Wards and 6.5% in the outlying suburbs. Therefore, for your next real estate investment, it is highly recommended to invest in Tokyo.
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