Is Japanese property a solid investment for foreigners?
At present, the economy favors foreigners owning property in Japan. It is considered an investment with good growth potential even though the Japanese property market is presently confronted with currency and tax challenges. This particularly applies to Tokyo and Osaka, which currently have fewer residential and commercial vacancies, probably resulting in property rentals rising at a rapid rate.
Tokyo is recommended as one of the major cities for good residential returns over the next few years. However, with the recent increase in consumption tax, some cautious investors are watching the movement of the Yen carefully, before investing their capital in Japanese property.
Low borrowing costs
Not only are borrowing costs attractive, offering very low rates, but residential properties have attained occupancy levels of more than 95 per cent for the past four years. Condominium prices in Tokyo are also on the rise for the first time in six years, with vacant land prices on the increase in the major cities. It is recognised by aware investors that owning property provides an asset against inflation, and this factor is a further cause for prices to rise in the near future.
Weaker yen a bonus for Japan residents
As the cities of Tokyo and Osaka experience ongoing population growth, they also unfortunately have to contend with the world’s highest cost of living and therefore, for them the weaker Yen currency is the best of news. It is uncertain yet how the increase of the sales tax from 5 per cent to 8 per cent in March, at the end of the Japanese fiscal year, will affect the economy. It is the government’s plan to further raise it 2 per cent to an effective 10 per cent in October 2015.
Prime Minister Shinzo Abe is considering offsetting the higher sales tax with a corporate tax cut. Japan has a far higher corporate rate of 25 per cent, as against the developed world average of 25 per cent. The higher sales tax can be cause for higher wage demands by employees, with Toyota already implementing a higher wage structure for its employees.
Tightening of the fiscal policy
Through the increase of consumption tax, the fiscal policy has become tighter, but this is partially offset with the large expenditure on projects for the 2020 Summer Olympics, with tax cuts on housing, and related investment. This provides significant environmental support for the property market in Japan as there are no special restrictions for foreigners wanting to buy and invest in Japanese properties.
Japanese commercial real estate
With the growth for online retailing, there was a major 80 per cent hike for warehouse storage space in Tokyo last year. The biggest single building complex in Ginza in Tokyo is undergoing a refurbishment of what was the Matsuzakaya Department Store. It is being turned into 250 shops and restaurants due for completion during 2016. There is already a demand for space by potential tenants, indicating the solidity of central Tokyo commercial real estate.
There are all the signs for real estate market growth in Japan through highly active real estate values, together with the new “Abenomics” policies of restoration and new constructions, in which requirements for the 2020 Olympics play a major part. Prime Minister Shinzo Abe feels that deflation has been the cause of deterring Japan’s growth potential through the past two decades. However, if the inflation rises as the property prices suggest, then, Japan’s GDP will regain its strength quickly. This all leads to promising property investments providing foreign investors with good returns on the Japan real estate market.