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Updated 11 months ago

At first glance, the Japanese real estate market seems to be doing well. It should be at least as active as its capital, Tokyo, the city that never sleeps between new constructions and restorations. The 2020 Olympic Games are boosting the market thus giving hope for a better future. Here is all that you should know.

Tokyo's real estate market: a look over the 'lost decade'

In the early '90s, years after the economic boom, Japan started faltering; it's the speculative bubble burst.

At the end of the Second World War, Japan, defeated, embarked itself on a vast restoration policy: it was essential to quickly rebuild the country and work hard, to regain a decent standard of living by redesigning cities and restoring growth. The voluntarism policy paid off, and Japan returned to the forefront of the international scene. (Conferring success to companies like Sony, Mitsubishi etc.) In the 1970s, the country experienced the equivalent to the French thirty-year boom period. These were "My car" years, referring to the Subaru car model, quickly considered as representing modern life.

While the two oil crisis considerably slowed down the Western economies, particularly the French market, Japan miraculously escaped them.

In 1985 the Japanese government decided to support its companies - because the yen, stronger than the dollar, threatened to slow their development. This support enabled companies to finance their investments at very competitive costs. Banks, on the other hand, began to invest heavily in real estate loans. This was the beginning of the speculative bubble.

From 1985 to the early 1990s, the speculative bubble continued to grow. The government, fearing inflation, tried to react but the bubble burst, plunging the country into a slow and prolonged recession. Companies were going bankrupt. Until the end of the 1990s, the growth rate barely reached 1% (compared to the growth rate of the 1960s where it was 10% or more). Real estate prices regressed to their pre-bubble level in the early 1980s. Economists will refer to that period as the "lost decade".

The "Abenomics" turning point

In 2012 Shinzo when Abe came to power, he launched a vast economic program known as "Abenomics". While long-term results are undefined/mixed, the real estate sector seems to be coming out on top, with a significant increase in construction. Tokyo has particularly benefited from this policy, which is based mainly on the devaluation of the yen and the increase in public infrastructure expenses: we must build up because a healthy real estate market is an economy that is starting to recover, new jobs are being created directly and indirectly, and an entire neighbourhood (shops, housing, etc.) is being upgraded.

However, these new constructions blended with an increase in prices. According to the Japanese Real Estate Institute, between 2013 and 2017, the cost of a condominium in Tokyo moved from 47.2 million yen to 58.2 million yen.

When real estate focuses on luxury

How to attract foreign investors? Low rates of Yen and low-interest rates. Hong Kong, Singapore, enjoyed the boom in the luxury sector in Japan. Because, even if prices increased, they remained lower than those of high-end properties sold in Hong Kong or Singapore. A boon for both: foreign investors and the Japanese economy. The Japanese Institute of Real Estate sees it as an excellent opportunity to boost the market. In the centre of Tokyo, prices of real estate products increased drastically. The vibrant district of Ginza became one of the most expensive in the world, with a price per square meter that can reach 40 million yen.

What about the locals?

Not everyone can afford to buy an apartment in Ginza. The real estate market still gives a large part to rental, which is considered much less restrictive by many Japanese people. Becoming an owner, especially in Tokyo, remains difficult. The explosion of the speculative bubble has marked people's minds, thus reminding them to be cautious. Between 2005 and 2009, Japan is shaken again by a new speculative bubble. Fortunately, it was not as severe as in the 1990s. Land prices, which had started to rise again, finally went stable. Nobody wanted to re-experience the dark years of the recession.

While the economic crisis has encouraged the Japanese to move away from the hyper-centre of Tokyo, the stability of the Tokyo market has encouraged more households - especially those with two incomes - to return to the heart of the capital. The effect of the crisis has brought a whole social model to be reexamined. Women, no longer stop working after marriage or after the birth of their first child. On the other hand, old people continue working long after their retirement.

The real estate prices in central Tokyo remain inaccessible for many Japanese people: Shinjuku, Shibuya, Chiyoda, Chuo and Minato are the most expensive districts in Tokyo. The middle class opts for other, more affordable areas, even if the price of their housing remains higher than that of nearby cities, such as Saitama or Chiba.

Aspired by Tokyo

Japan faces a challenge: that of the birth rate. As a direct result of the lack of births, the population is ageing, and small towns are emptying themselves of their inhabitants. According to the Ministry of the Territory, 8.2 million homes are reported to have been abandoned. This figure is expected to double by 2030. The phenomenon is particularly visible in remote, mountainous regions: young people prefer to live in the capital, which offers more opportunities: employment, social advancement, family, etc. Thus Greater Tokyo accommodates more than 37 million inhabitants or about a third of the Japanese population.

Buying property

Can a foreigner buy real estate in Japan?

Legally, there is nothing to stop you from buying a property. You do not need to be a permanent resident, or even temporarily reside in Japan (valid in case you do not need to take out a loan in Japan to acquire your property). You can buy a home to live in (primary or secondary home) or invest in. But the complexity of the procedure, the economic climate, the state of your own finances, may put your endurance to the test.

To purchase in Japan, especially in Tokyo, where prices are high, you have to be prepared to pay a significant amount of money even before entering the home. You also have to deal with the Japanese language, which will make it even more difficult to communicate with the seller. It should be noted that there are agencies that offer translations into English and/or specialise in selling to foreigners.

One of the first questions to ask yourself is: will you need to take a loan in Japan?

If so, it is essential to be a permanent resident beforehand. Also be aware that Japanese banks, like all banks, will seek for guarantees: the more stable your situation is (regular employment, fixed income), the more easily you will obtain a loan.

In practice

  • Notify the seller of your purchase offer in a letter.
  • When signing the contract, you will have to pay 10% of the price of the property.
  • If you have used the services of a real estate broker (the broker who is the link between you and the bank), you will also have to pay a portion of the brokerage fees. The advantage of going through a broker: you benefit from a competitive interest rate. You will not have to negotiate with the banks yourself: the broker will do it for you.
  • You are also responsible for the payment of taxes (property taxes, etc.), maintenance and any repair costs for the property.

Tokyo's real estate market can be compared to those of large cities, capitals, in general: a market that hides several of them, with a hyper-centre accessible to the wealthiest. The majority prefer the periphery, to enjoy a better quality of life with lower prices, and larger housing.

Useful links:

Century21 Japan
Real Estate
Housing Japan

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