property investments Japan

Japan is an economic powerhouse rich in culture and technical wizardry. This unique country is known for its distinct culture and tradition. Long isolated from other countries, Japan has developed its culture without outside influences. For more than 40 years, Japan served as the world’s second-largest economy from 1968 to 2010, ceding its position to China. For its economic situation, many are wondering if property investments in Japan would be a good idea. 

Japan Economic Status

Japan’s economic status is not doing well at the moment. It has fared worse than expected as a result of a downgrade in capital expenditure. Many experts believe that this drop in capital expenditure was due to Prime Minister Shinzo Abe’s decision to proceed with the long-delayed sales tax hike from 8% to 10%. In 2014, when the first sales tax was increased, the economy collapsed as private spending dropped significantly. This time, while the government said fiscal countermeasures are in place, consumer confidence is still down. Much of this economic difficulty is compounded by uncertainty in the global economic outlook. 

In the 2019 Economic Freedom Index, Japan ranked 30th with a freedoms core of 72.1, decreasing by 0.2 points. Analysts believe that “Abenomics” has significantly contributed to the mild economic recovery that Japan is experiencing. Abenomics brought forward strong monetary and flexible fiscal policies along with structural reforms. While trade liberalization is also on the plate, it is generally overlooked due to mounting tensions in global commerce. Its substantial government debt causes much of its economic decline. 

In the final quarter of 2019 and the first quarter of 2020, Japan’s economic growth is forecasted to soften, due to the sales tax hike this month. FocusEconomy experts see economic growth of only 1.0% in 2019 and an even lower 0.4% in 2020. However, many are hoping that the 2020 Olympics will cushion against sharp declines. 

Keiretsu remains a problem area for Japan. The practice reduces the impact of free-market forces and discourages foreign direct investment. Japan’s ageing population is also contributing to slow economic growth. Older families mean lower domestic spending – they don’t buy new houses and other properties as much as younger ones. The government also has to pay more retirement benefits than what it can get from income taxes. 

Liveability in Japan

Despite the economic challenges the country is experiencing, Japan remains one of the most liveable countries in the world. Tokyo, the country’s capital, and Osaka both made it into the top 10 of the world’s most liveable cities released by the Economist Intelligence Unit. Osaka ranked fourth while Tokyo took the seventh spot. The city’s low crime rate, comprehensive infrastructure, and stable public transport contributed largely into the ranking. 

Cost of living in Japan is one of the most expensive in the world. Tokyo is ever-present in the world’s top ten most expensive cities. Similar to most major cities in the world, the rental rate takes up a considerable chunk of the cost of living in Japan. However, the cost depends on the location. By choosing to purchase local products, the cost of living can be pretty affordable. 

Property Investments in Japan

For foreigners who wish to make property investments in Japan, they should not worry about any legal restrictions. Foreigners must only provide written notification to the Bank of Japan within 20 days of the purchase. There is no need to acquire citizenship or to have a residence visa to make property purchases. However, property ownership does not provide Japan residence visa. Although, it might be challenging to take out a loan in Japan if you cannot establish a work history in Japan or if you are not a resident of Japan. Additionally, Japan does not impose any land ownership restrictions. 

Most of the foreign property investments in Japan come from Europe and North America, with an increasing number of Chinese investors shifting their focus on Japan after declines in the US market. In 2018, inbound investment from the US amounted to $4.2 billion. 

Property Market Trends in Japan

While Japan’s real estate is a picture of stability, significant economic challenges lie ahead for Japan. As a result, PM Shinzo Abe laid down economic changes that could have positive effects on the Japanese property market. 

Property prices remain static this year, with most properties in the Tokyo area experiencing price falls of 0.3% during the year to January 2019, according to the Land Institute of Japan. However, strong rental yields of 3.4% to 5.4% can be seen in Tokyo’s central districts, with smaller apartments giving higher returns than larger ones. Despite tensions in the global market, Japan’s housing market remains stable. It is, in fact, expected to rise following the country’s successful bid to host the 2020 Summer Olympics. As a result, construction will remain robust.

CHG Recommendation: Invest in Tokyo’s Condominium Projects 

While the economy is not doing great, the government has remedial measures in place that will keep property prices at bay. In preparation for the 2020 Summer Olympics, Tokyo will surely have a great demand for condominium rentals.

If you’re thinking about post-Olympics, your properties will still do great, as the country receives tons of tourists all year round. During the first half of 2019, Japan had a record high of 16.6 million tourists. In August of this year, the number of international travellers to Japan was about 2.5 million, according to the Japan National Tourism Organization. While it decreased in number from the previous year, it is expected to attract more as the Olympics nears.

If you are considering long-term tenants, you can bet on the number of foreign workers in the country. Japan has more than 1.46 million foreign workers, thanks to the engagement of skilled foreign workers, technical interns, and exchange students. Japan has a low unemployment rate, and improvements in these areas significantly contributed to more companies hiring permanent residents. 

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