Realestock Blog

A combination of low property prices and increased overseas investment from Asian investors seems to be heating up the Japanese investment property market.

Japan was just one of the countries seriously affected by the global economic downturn in 2009, and that downturn was reflected in reduced demand and dropping real estate prices. The urban land price in Japan’s six largest cities dropped by almost 8% in 2009, reflecting the flood of Japanese real estate investment funds leaving the market in the wake of the recession and a sharp decline in building permits following the adoption of tough new building regulations at the end of 2008. In 2010, the price of residential land in Japan fell 3.4%, still dipping, but much more slowly. 2010 marks the 19th straight year of property price declines in Japan, a still-lingering after effect of the spectacular 1980s real estate bubble collapse. 

However, the Japanese economy is looking up – thanks to a combination of stimulus and tax reforms, the economy in Japan is starting to improve and has shown moderate growth. Low interest rates combined with attractive expected annual income yields of 4.5% – 5% a year have caused a new influx of foreign investors from other Asian countries. 

While still priced relatively highly, Japanese property is seen as a very stable investment despite dropping prices. Asian investors were much less hard hit by the global crisis than their American or European counterparts, giving them money to invest in assets like real estate. However, the booming Asian markets in Beijing, Singapore and Hong Kong are much more high risk, and have lower rates of return due to the volatile level of growth in those areas.  Adding in the unpredictability of possible financial policy shifts from the Chinese government to tame the extreme levels of speculation and inflation in the Chinese real estate market, and Japan’s steady and stable market becomes much more attractive.

In 2010 Asian firms made over $370 million dollars of real estate investments in Japan, almost doubling the amount of deals made in 2009.  As more middle class Chinese look to invest and diversify their assets, the prestige and safety of owning Japanese property is bringing more and more investors into the market.

Sources: Asian Investors Shop in Japan, The Wall Street Journal; House Price Falls in Japan Accelerate, Global Property Guide

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