August 6, 2021
Japan’s real estate market on the rise in 2021! What is the yield on income-producing properties?
The following is a forecast of the Japanese real estate market for the year 2021.
It is based on the latest statistical figures as of 2021.
We have provided specific figures such as real estate price trends, yields, and price rates compared to the rest of the world to help you consider your purchase.
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Japanese real estate price trends What will happen after the Tokyo Olympics?
Real estate prices in Japan are generally on the rise.
The Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) publishes a monthly real estate price index with the 2010 average of 100.
The segments are, in order of most recent value, green for condominiums, red for total housing, blue for detached houses, and yellow for residential land.
Image Source: Ministry of Land, Infrastructure, Transport, and Tourism website, “Real Estate Price Index, March 2021, 1st Quarter”
In general, you can see that the market has been growing steadily since 2013.
In the first half of 2020, the market declined due to the spread of the new coronavirus, but it is now showing a rapid recovery.
The rise in condominium ownership has been particularly notable, with prices soaring nearly 60% in just over 10 years.
Also, although not shown in this graph, commercial real estate such as stores, offices, and single condominiums and apartments have also seen a 30-40% increase compared to 2010.
The reason behind the rise in Japanese real estate prices is the unprecedentedly low-interest rates.
The Japanese government and the Bank of Japan introduced the inflation targeting strategy in 2013, showing that they are thoroughly committed to a stable rise in prices.
Falling market interest rates will lower mortgage rates, making it easier to buy a home.
Thus, the real estate market has become more active and transaction prices are likely to rise.
It has been widely believed that the rise in real estate prices will be a bubble until the 2020 Tokyo Olympics, but this theory is not very convincing.
The 2012 London Olympics, the most famous Olympic Games held in a developed country, has been shown to have various legacies such as continued redevelopment and increased economic activities even after the event, according to a survey conducted by the British government.
The Tokyo Olympics have been pushed back a year due to the Corona disaster.
The Corona disaster has also depressed inbound demand, another factor that has pushed up real estate prices.
Once the Corona disaster is over, the Olympics will bring Japan closer to the rest of the world, and the suppressed inbound demand will come flooding in.
Although the Japanese real estate market has been showing continuous price increases, Mizuho Research Institute, in its “Emergency Report: Is the Real Estate Market at a Turning Point?”
In the report, Mizuho Research Institute shows that the number of inbound visitors to the host country has increased after the six summer Olympics since Barcelona in 1992.
It is conceivable that economic activities and real estate transactions will become even more active.
Rental Yield of Real Estate in Japan
If you are looking for real estate as an income-producing property, you are probably more interested in yield rather than price.
According to the 44th Real Estate Investor Survey by the Japan Real Estate Institute, rental yields in major cities in Japan are around 5%.
Image Source: Japan Real Estate Institute, “The 44th Real Estate Investor Survey”
The chart shows the trend of yields in the south area of Tokyo.
Yields in the south area of Tokyo have been declining since around 2009 and will stop declining around mid-2019.
According to the Holmes Residence Index, apartment rents in Tokyo have been on the rise since 2013.
It is natural to assume that the reason for the decline in yields is that the rise in rents has not kept pace with the rise in prices.
By city, the rate for studio-type apartments was 5.5% in Sapporo and Sendai, 5.0% in Nagoya and Fukuoka, and 4.8% in Yokohama and Osaka.
There was no change from six months ago, except for a 0.1% drop in Yokohama.
Office buildings and commercial stores are mostly in the 3% range in central Tokyo and the 5% to 6% range in other cities. According to the survey, 94% of investors are willing to make new investments, up to two percentage points from six months ago.
How would you view a yield of 3-6%?
The average yield on the Japanese stock market was around 2% in 2020, and the World Bank IMF’s global economic growth rate for 2019 was 2.5%.
The yield on Japanese real estate will not be below. Moreover, real estate has the characteristic of stable profitability.
We published an article on the real estate market in Hokkaido in January 2021.
Please take a look if you are interested.
Market Price of Real Estate in Japan
If you are interested in Japanese real estate, you may be wondering how expensive it is compared to other countries.
According to the 16th International Real Estate Price and Rent Index by the Japan Real Estate Institute, the price level of luxury housing is 204.0 in Hong Kong, 180.5 in London, 126.6 in Shanghai, 93.2 in New York, 23.6 in Kuala Lumpur, 19.6 in Jakarta, and 10.4 in Ho Chi Minh City, with Tokyo at 100.0.
In Japan, Osaka was at 57.0.
Although it is not as cheap as in Southeast Asian countries, it is easier to buy than in Hong Kong or London.
To be more specific, a new apartment in the suburbs of Tokyo costs US$600,000 to US$700,000 for a 3 bedroom apartment.
If you go to a rural area, you can get a detached house with a garden for US$300,000. For a rental apartment, a used property in a rural area can be had for around US$200,000.
If you have US$1,000,000 for an apartment and US$2,000,000 for a reinforced concrete apartment, you will have a wide range of properties to buy.
Real estate prices in Japan are growing steadily as of March 2021, and so far there are no signs of a decline.
Yields in the rental market are relatively high, in the 3-6% range.
The price range for luxury apartments in Tokyo is slightly higher than in New York, but apartments in rural areas can be sold for as little as US$200,000.
Why not consider it as one of your investment options?