Why should you consider investing in real estate in Japan?
Japan is one of the most developed countries in the world. Its GDP is in the top three of the whole countries in the world. Its standing had been overtaken by another neighboring country a decade ago, but Japan’s economy is still fascinating for global investors for some reasons.
By the way, the country uses the Japanese Yen currency under a very low-interest rate set by its financial authorities. We usually call this monetary policy ‘Yield Curve Control (YCC).’ Under YCC, the authority intentionally fixes the interest rate of one’s country’s sovereign bond. In the case of Japan, it has been maintained for about a decade up to now. On the other hand, the central banks of other countries, such as the United States, the EU, and the United Kingdom, have raised the base interest rate from the dawn of the coronavirus outbreak. As a result, the Japanese currency has depreciated recently following the interest rate difference between the other major reserve currencies and the Japanese Yen.
Comparable currency depreciation of the Japanese Yen has been alluring many global investors for recent years and got them put in their money to Sunrise country. One of the leading Japanese Stock Market Index, NIKKEI225, has hit its pick since its desperate collapse from the all-time high in the early 1990s. On July 19, 2023, the index is up and down near 32,500 points. The index has been slightly down from the recent pick of last month, but still, this country’s stock market is attractive to investors.
Besides, let me tell you about the real estate market in Japan. You can find and read a lot of articles on the price rise of the Japanese domestic real estate market through newspapers. I want to raise a real case that describes the up-rise of asset prices in the Japanese real estate market. The case is my example.
I bought my first own house on October 23, 2020. Fortunately, and thanks to my real estate agent, I got to know one of the sectional apartments in central Tokyo. It has 43.3 square meters and 1LDK (LDK; Living, Dining, and Kitchen.) It constructed about 22 years ago. I used a mortgage loan and purchased 40.8 million Japanese Yen to buy the apartment.
After owning the room, I married, and my wife gave birth. So, our family decided to move to another apartment shortly. My wife and I finally found another lovely apartment with 4LDK in the suburban area of Tokyo. We moved to the new apartment after it took one and a half years when I started to live at my first apartment. Ultimately, I could sell my first one in February this year (2023.) I received 46 million Japanese Yen from the buyer.
It took almost two and a half years to experience one real estate sales cycle. During this period, the price of my apartment has risen more than 12%. I could not make any profit because I should pay the brokerage fee to the real estate agent and the bank who lent money to me. Aside from that, I could feel the price rise of the real estate market on my skin through my experience.
Let me introduce one more case. I got my second apartment with my wife with the purchase of 67.8 million Japanese Yen in December 2021. Then, can you expect how much it is now, in July 2023? Its expected market price is 77.5 million Japanese Yen. What a surprise!? Only for about one and a half years, its price has risen about 13%.
Like these two examples, the price level of real estate properties in the Great Tokyo Area has risen from 2020 to 2023. Its trend has continued from mid-2010 to these days. After the Corona Outbreak, the year-to-year ratio of price up-rise has become more steepen. With the depreciation of the Japanese Yen, although the trend of the price up-rise has slowed down, the price trend of the real estate market in several big cities in Japan has been maintained at the same level as its peak.
Meanwhile, Japan is scheduled to hold some international events, such as EXPO 2025 in Osaka and the Kansai region and the 20th Asian Games Nagoya-Aichi in 2026. From the Tokyo Metropolitan Area to the West Japan Area, the second most populated region of Japan, there is no reason for the price level of real estate in those regions to go down in about three to five years from now.
Japan’s population peaked in 2011 at about 127 million people throughout the Islands. The population decreased by about 3 million from 12 years ago to 124 million in the first month of this year. The government authority expects that the country’s population will diminish to 90 million people in the 2070s. Under these statistics, someone is probably anxious about the property price in Japan. However, it is just a concern not to make the one investing in the country.
Why? That is because the economy of Japan is very stable. The stability of the country’s economic state makes its properties’ price level stable. So, the Japanese real estate market will be robust in decades. Undoubtedly, while the whole population of the country will decrease within the same period, some suburban properties will struggle with their valuation decrease. But, as the number of people who live in the suburbs decreases, the remaining people will continue to live in and be populated in the urban area of big cities.
According to recent news on the real estate market in the world, real estate prices have been in a downtrend in some developed countries and regions such as China, Hong Kong, and the United States. What does it mean? Why does it happen? Raising interest rates is one of the main reasons for the down valuation of properties. Generally, a property transaction brings a purchase with a loan by a buyer. A buyer will have difficulty making a loan from a bank for either a mortgage loan or investment loan since the interest rate has risen. Generally, when the interest rate increases, real estate prices decrease. Nevertheless, the price level of real estate in big cities in Japan is robust, even though some in suburban areas have been slightly down. It has been possible because the Japanese Central Bank, the Bank of Japan, maintains its level of base interest rate under zero substantially.
Therefore, consider investing your money in real estate in Japan. To support your understanding of the market, I will introduce ‘THE REAL’ Japanese real estate in the following articles. It continues soon!
On July 19, 2023
