By Vincent Lyn
Recently, Shenjumiausuan unveiled a research outcome regarding the appeal of Japanese real estate to Chinese investors. Their findings indicate that a staggering 89% of Chinese investors express a keen desire to embark on house-viewing tours. Shenjumiausuan, a subsidiary of the GA technologies group headquartered in Tokyo, Japan, and led by CEO Jie Zhao, operates the largest platform service catering primarily to customers in Mainland China, Taiwan, and Hong Kong, providing comprehensive Japanese real estate information.
The new central bank Governor of the Bank of Japan Kazuo Ueda stated that “When looking at current economic, price, and financial developments, it’s appropriate to maintain yield curve control.” His decision not to upset the economy and markets during this important transition in leadership is to be applauded. With inflation running around two percent, the backdrop means we will see sustainable negative real yields. So, the bottom line is that, despite some softness in the depth of the market, now is a perfect time to be an issuer relative to where the rates are probably headed in Japan. It also means that in order to earn an adequate return on a real basis as Japan potentially exists deflation, both individual and corporate savers, especially deposited holders will find alternative investments to Cash.
Conducted through an online questionnaire, the survey encompassed 100 platform users, delving into their investment interests in the Japanese real estate market. The results demonstrate that Chinese buyers’ enthusiasm remains unabated, even three years after the onset of the pandemic and amid stringent travel restrictions. Notably, major cities such as Tokyo, Hokkaido, Osaka, and Kyoto continue to hold the top spots in popularity among Chinese investors.
Regarding budget allocation, a significant 34% of respondents are willing to invest between $77,500 and $232,600. Moreover, the preference for one-room layout apartments or studios remains predominant, capturing the preference of 40.6% of investors. In second place, the option of acquiring entire buildings garners substantial interest, with 28.7% of respondents considering it. High-rise condominiums secure the third spot, garnering the attention of 12.9% of potential investors. Evidently, Chinese investors maintain a robust and unwavering interest in the Japanese real estate market.
I won’t delve into discussing Japan’s merits as the world’s third-largest economy, its stable political and legal framework, and its high level of public safety, even though these factors are commonly cited as advantages of living and investing in Japan. So, what drives the interest of foreigners, particularly Chinese nationals, in considering homeownership in Japan?
Below, we will examine these key factors:
Absence of Residency Requirement and Special Procedures for Foreigners In stark contrast to numerous countries, Japan imposes no legal restrictions on foreigners when it comes to property acquisition. Regardless of your current place of residence, whether within Japan or abroad, and irrespective of your citizenship, you have the liberty to purchase a property in Japan.
However, it’s crucial to note that purchasing property in Japan does not grant the buyer eligibility for a Japanese residence visa. Thus, acquiring a home in Japan does not serve as a means to qualify for a visa enabling residence in the country.
Additionally, there are no specialized processes or fees mandated for foreigners to engage in real estate transactions in Japan. In some countries, the purchase procedures differ for residents and foreign nationals. For instance, in Australia, foreign investors seeking to purchase investment properties must apply to and pay an application fee to the Foreign Investment Review Board (FIRB). Moreover, foreigners are restricted from acquiring existing dwellings, being limited to purchasing only new dwellings or vacant land with the intention of constructing on it. These regulations are in place to ensure that Australian citizens do not miss out on property ownership opportunities.
Importantly, Japan imposes no residency requirements for property acquisition. In contrast, China allows foreigners to purchase property but imposes a condition requiring them to have resided or worked in the country for at least one year on a residence permit. Furthermore, foreigners in China are typically allowed to buy only one residential property for personal dwelling purposes and are generally prohibited from renting out the property or acting as landlords.
Exemption from Special Taxation for Foreign Buyers
In Japan, foreign individuals who acquire residential properties are not subjected to any special taxation. In contrast, certain countries and regions, such as British Columbia in Canada, Singapore, and Hong Kong, levy specific taxes on real estate transactions involving foreign buyers.
For instance, British Columbia enforces a Foreign-Buyers Tax of 20% when a purchaser, who lacks Canadian citizenship or permanent residency, buys residential real estate within specific areas of metro Vancouver. This tax was introduced to significantly augment the cost of home acquisition for affluent foreign investors and to curb the rapid surge in property prices, which was rendering homeownership unattainable for local residents.
Unrestricted Land Ownership
Japan stands out for its absence of land ownership restrictions. In the case of purchasing a freehold property, you acquire not only the property itself but also perpetual ownership of the land it occupies. However, it’s important to note that Japan also offers leasehold properties, a detail worth considering when perusing property listings.
Conversely, in some other countries, property buyers secure ownership solely over the dwelling itself, without acquiring the land beneath it. Instead, the government grants a leasehold for a specified duration, such as 70 years in the case of China. In such instances, the government retains the authority to revoke the leasehold at its discretion.
Very Low Mortgage Rates
In March 2022, the interest rates on mortgage loans in Japan, particularly the widely favored Flat 35 loans with a fixed rate spanning 35 years, stood exceptionally low. These rates are expected to maintain their low trajectory in the foreseeable future. To offer a comparative perspective, on Monday, March 28, 2022, according to Bankrate.com, the average 30-year fixed-mortgage rate in the United States was recorded at 4.56%, marking a marginal increase of 1 basis point over the preceding week. In Japan, even variable rate mortgage loans are currently anchored at historically low levels. For instance, au Jibun Bank, an online banking entity operating as a joint venture between KDDI and Mitsubishi UFF Bank, advertised variable rate mortgages with rates as low as 0.310%, as of March 2, 2022.
Japan has consistently maintained a state of low inflation spanning the past three decades. If you secure a low-interest, fixed-rate mortgage, your home expenses will remain steady even as your property’s value appreciates. In 2021, the average sales price for newly constructed apartments in Japan reached an all-time high of ¥51,150,000 (equivalent to $443,000 USD), reflecting a 2.9% increase compared to the previous year. This marked the fifth consecutive year of year-on-year record price surges. Both newly constructed condominiums and pre-owned homes in Tokyo and other major urban centers have seen their prices soar to unprecedented levels in recent years. Leading up to the Tokyo Olympics, this surge was partially driven by speculative buyers anticipating an “Olympic effect,” wherein increased Olympic-related construction and tourism inflow would drive housing prices upwards post-2020.
However, when the pandemic struck, developers of new properties and existing property owners refrained from listing their properties, resulting in a substantial reduction in the residential housing supply, a shortage from which Tokyo and Osaka have yet to fully recover. Concurrently, demand has surged, buoyed by persistently low mortgage rates and an increasing number of companies permitting employees to work remotely. The upshot has been record-high prices, with supply lagging behind the escalating demand.
Affordability and Value
Japan’s residential real estate market offers a notable degree of affordability when compared to major cities worldwide. In 2021, the average cost per square meter for purchasing a newly constructed apartment in Tokyo’s 23 Wards was ¥1,282,000, roughly equivalent to $10,343 USD per square meter (as reported by the Real Estate Economic Research Institute in the 2021 Tokyo New Condominium Market Report). To provide a comparative perspective, the following table, compiled with data from Numbeo, illustrates the per square meter cost of buying an apartment in the city center of various global cities:
Rank City Price per Square Meter to Buy Apartment in City Center
1 Hong Kong, Hong Kong 33,138.29
2 Seoul, South Korea 22,384.44
3 Santa Barbara, CA, United States 20,870.03
4 Queens, NY, United States 20,864.45
5 Beijing, China 20,359.32
6 Shenzhen, China 19,719.26
7 Shanghai, China 18,626.51
8 Singapore, Singapore 18,489.73
9 Fremont, CA, United States 17,077.47
10 London, United Kingdom 16,533.72
11 New York, NY, United States 15,524.78
12 Tel Aviv-Yafo, Israel 14,867.71
13 Geneva, Switzerland 14,571.57
14 Zurich, Switzerland 14,560.77
15 San Francisco, CA, United States 14,420.48
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