There are a number of good reasons for buying a residential income property in Japan. These include:
- Relatively low risk for relatively good returns compared to the “risk-free” rate, which is the rate of the local benchmark long-term bond yield. Earlier in 2016, for the first time, the Japanese government issued benchmark 10-year bonds with negative yields. In comparison, yields for residential income properties in Tokyo’s central wards are averaging between 4.5% to 5%.
- Opportunity for capital gain. This point is dependent on how much confidence you have in the effectiveness of Abenomics going forward and the potential economic upsides of the 2020 Tokyo Olympics! That being said, there are certainly both institutional and individual property investors investing in Japan now who do not discount the potential for capital gain in residential property.
- Japanese residential real estate is still a good value compared to other Asian countries (think Hong Kong and Singapore).
- High construction standards and building material standards in Japan.
- Stable demand due to the country’s population trends and the relatively low home-ownership rate in Japan. In 2013, the home-ownership rate in Japan was about 62%. This compares with home-ownership rates of over 90% in such countries as Singapore and China.
- Political stability and an established legal framework and high levels of public safety.
- Demographics are favorable. Even though the population of Japan will decline, the population in the Tokyo and Fukuoka are still increasing. The biggest change though is the decreasing family size and aging population. More and more people are living alone, with seniors the fastest growing group. This segment is projected to grow for another 20 years. However most new apartments that are built are larger properties suitable for families with children. This means that we expect a continuous strong rental demand for very small units.
The aging population are slowly abandoning the larger houses and units in rural areas and moving into urban environments, typically preferring smaller low cost housing that is close to subways and medical centers.
The mobility rates of the current demographic in Japan is the lowest in the world, meaning that the property could be rented for decades as typically single renters will not move out often if the property is well positioned and near to local bus and metro stations.
- Low cost buy-in. Smaller apartments with higher yields, depending on the location, can range from as low as USD$25,000 to USD$30,000 with a pre-tax return of 6%-14%. This kind of cash return beats any bank interest rate and most investment fund returns.
- Properties can be bought while the renter is still leasing.This is This is called “Owner Change” in Japan. The advantages of buying such properties are that there is no need to search for a renter and you can start collecting rent as soon as the deal is done.
These are some of the factors that make investing in Japan properties a wonderful opportunity.