Investing in Residential Real Estate

Advantages of Buying a Condominium as a Tokyo Investment Property

By Nils Herchenroeder

Investors interested in purchasing a residential property in Japan have the choice between condominiums, detached houses and regular apartments to add to their portfolio. Having personally managed many condominium properties for overseas owners over the years, I would like to highlight some advantages to owning a condominium property.

Security

Condominiums in general do provide the best security for tenants since they are often equipped with security cameras and a locked main entrance to the building. Also, most units are linked to a security system by one of the main providers, like SECOM or ALSOK which can dispatch staff quickly in the case of an emergency. This makes condos a good choice for families with children as well as single women.

Accessibility

Also, condominiums are usually located with good accessibility to public transportation. Most people would prefer a location less than 10 minutes from the nearest train station, but buses are also a valid option because in Japan they run on a regular schedule and have an extensive network of bus stops, especially in bigger cities.

Construction

Condominium buildings are usually built with reinforced concrete. This means that the walls are usually thicker (than the walls of detached houses, which are usually made of wood). This also means less sound leakage, but tenants still have to be mindful of noise which could irritate neighbors. They are also more earthquake-resistant than structures made of wood.

Size and Layout

When purchasing a condominium, you have a wide selection of layouts and sizes. This ranges from 1 room units (1R) to units with several bedrooms (for example, a 3LDK which means 3 bedrooms and living/dining/kitchen). This will allow you to target several segments of the tenant market depending on your investment strategy. Smaller unit sizes usually command a slightly higher rent per tsubo (equal to 3.3 square meters) than more spacious units in the same building, while the rent per tsubo will increase for higher floors.

Monthly Fees

As you may have heard, living in a condominium building requires all owners to pay monthly fees for building management, the repair reserve fund and the building management association. By paying those monthly fees, you will gain the following advantages:

  • Management/Front Staff on-site can help with daily issues that tenants might have and are often the first point of contact for tenants. They can serve as a buffer between the owner and tenant and also to your property manager.
  • In some condominium buildings there is management staff on-site who will take care of regular cleaning of the common areas, garbage disposal, etc.
  • Regular legally required inspections will be provided, for example, for fire safety equipment inspections and drain pipe cleaning.
  • By having all owners pay monthly into the repair reserve fund, individual owners are protected against potential big repair costs that would be required for the building.

Taxes

For tax purposes, it used to be beneficial to purchase units on higher floors, but recent changes to the tax code which apply to new condo buildings with 20 or more floors to be sold in 2018 and later have changed that situation a bit. For more information, please see: Loophole in inheritance tax for high-rise apartments to be changed.

Proportion of Ownership

In condominium and apartment buildings, depending on the ratio of land ownership, your portion of ownership may be significantly less, so decreasing building value when holding a property for a long time might affect you more. This is sometimes the case in big tower residential condominium developments. However, there are also condominium/apartment buildings with fewer units that will provide you with ownership of a bigger portion of land, but the monthly building management fees and yearly property taxes may be higher.

Current Market Very Active

The second-hand market for condominiums in Japan is very active at the moment. This is due to new developments becoming more and more expensive because of rising construction costs. This is good if you are planning to re-sell your unit in the future. Also, some foreign investors prefer to buy second-hand to enjoy lower prices. However, you should be mindful of the possible need to replace outdated equipment or necessary repairs before you can put the unit up for leasing.

I hope the information provided in this article will be helpful if you are deciding to invest in residential properties. Rents are rising in centrally located areas much more slowly than property values, but we expect leasing activity to stay stable and high due to continued urbanization.

Tokyu Housing Lease Corporation

Tokyu Housing Lease Corporation is one of Japan’s leading property management companies.

If you are interested in learning more about Tokyu Housing Lease’s PM services, please fill out the form below, and a representative will contact you shortly.

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