Nowadays, Tokyo is one of the hottest cities to invest in real estate, with both domestic and foreign property investment pouring in into the market. This is quite an interesting feat as the city’s housing demand is relatively weak and Japan’s economy is barely growing.
Furthermore, the population is declining and that’s not a good sign for the local property market. However, these issues are neither stopping the city from being very attractive to real estate investors nor preventing Tokyo property prices from rising.
Why Japan’s Shrinking Population is Exactly What’s Helping Them
It has been quite well known that Japan’s population is dramatically shrinking. This is mostly because of the low birth rate that led to an ageing population. Along with the demographic crisis, employment and income have been stagnant, and the economy is barely growing. Thus, there are fewer people who are capable of buying property in Japan these days, especially with Tokyo property prices rising.
Even with the generally weak local demand, the residential property pricing index has been continually increasing. CNBC ironically alludes this to the country’s ageing population. Due to rising inheritance taxes, high-net-worth individuals would invest in real estate to save money from taxes. Recently, there has been an increase in sales for Tokyo property such as rental apartments and tower condominiums mainly as a countermeasure from inheritance taxes.
This is due to the fact that a property is taxed at the government’s valuation, which is usually at a price lower than the purchase price. Since cash is taxed at full value, it is more profitable for these individuals to invest in Tokyo property rather than using it for other ventures. Thus, the property market is seeing a boost with investors buying property in Japan at full price and even competing for deals. Thus, there has been a 10-20% increase in Tokyo property prices for a couple of years now.
Tokyo Remains as a Top City Worldwide
Even with Japan’s demographic crisis and the stagnant economy, Japan still remains a strong global economic force. In fact, according to Housing Japan, it is the third largest economy in the world. Tokyo, in particular, has the largest GDP out of all the cities in the world, significantly edging out New York which comes in second.
Worldwide Comparative GDP Graphs (2013) | Photo courtesy of Housing Japan
It may have an ageing population, but Tokyo is also the most populated city in the world. Despite weakening local real estate demand for Tokyo property, the city remains highly attractive to investors due to the city’s big population.
Top 10 Most Populated Cities in the World (2013) | Photo Courtesy of Housing Japan
Why You Can’t Help But Invest in Tokyo
There are also several other factors that cause foreign property investments to continually pour into Tokyo’s real estate market.
One factor is that compared to other cities in the world, Tokyo property is relatively cheap. Furthermore, the yen’s circa-18% drop against the US dollar a couple of years ago makes buying property in Japan much more of a bargain for foreign investors. The exchange rate is even expected to decrease much further, according to some analysts. Along with low rates, the government is also not that involved in the property market; thus, prices are set in a clear market basis.
Investors are also definitely attracted to the fact that Japan has no restrictions or prohibitions for overseas real estate investors. The government is also taking more steps to increase the profitability of the Tokyo property market. It is already making attempts in attracting more tourists and foreign workers by loosening employment passes and offering long-term visas for retirees. Due to more planned developments in Tokyo, there is also an expected increase in local and foreign residents in the city within a few years.
Along with having a stable economy, Japan is a safe society. Crimes, social violence or political demonstrations do not happen that often within the country.
Even with the reported population decline, the city continues to be a hotspot for foreign property investment. This is because the Tokyo property market still remains to be a steady and profitable place for interested investors. Want to know more about the latest real estate news in Tokyo? Follow us on our Facebook page. Or are you interested in the properties themselves? Contact us to send us a business inquiry.