Buying a Tokyo Investment Property

  |   By: Nancy Tonnu

Interest in Tokyo investment properties has surged this year among foreign buyers due to the weak yen, and inquiries for investment properties on Real Estate Japan have also experienced a healthy jump.

In this post, we give a brief overview of why investment properties in Tokyo have been popular for years among buyers, both foreign and domestic.

To start, let’s answer one of the first questions that may come to mind if you’re a foreigner looking to buy property in Tokyo.

Can a foreigner buy property in Japan?

Yes. You can buy property in Japan regardless of your nationality or country of origin. There are also no residency requirements for buying real estate in Japan. Securing financing as a resident foreigner is more complicated. For info on financing, please see “Basic Requirements for Getting a Mortgage as a Foreigner in Japan.”

For more in-depth information, please considering attending one of our free webinars on how to buy property in Japan as a foreigner.

Now let’s get back to to Tokyo investment properties.

Why Tokyo is advantageous for income property investment

Tokyo’s population is growing

Although the population of Japan is declining, Tokyo’s population is forecast to continue growing in the near future.

In the latest forecast, the government estimated that the population of the entire city of Tokyo will peak in 2025, at about 14,171,000. The population of the city’s 23 wards is expected to continue growing until 2030, peaking at 9,790,900, while Tokyo’s western suburbs, also known as the Tama region, has already peaked and is expected to continue declining. Demand for rental condominiums is expected to grow inline with population growth, particularly in the 23 wards.

Currently, the population of Tokyo stands at 14,029,726 (June 1, 2022), almost reaching the government’s forecast for 2025, and an increase of 12,780 people compared to the same month last year.

Single- and two-person households are growing

Population growth in Tokyo will be led by single-person and two-person households, not nuclear family or two-generation households.

The number of households is forecast to peak in 2035, when about 7,237,000 households will comprise Tokyo’s population. After 2035, this number is forecast to decline. By 2040, the government expects the city will have about 7,215,000 households, which would be an increase of 7.8% compared to the number of households in 2015.

The number of households is forecast to grow in the 23 wards of Tokyo but to decrease in the western suburbs and islands. By 2040, there will be about 5,322,000 households in the 23 wards, an increase of 11%, or about 528,000, compared to 2015. However, the western suburbs and Tokyo islands are expected to lose about 0.2% in the number of households compared to 2015.

Example of a 1R (one room) apartment for sale in the Hiroo neighborhood of Tokyo. Image: Real Estate Japan

Many ward governments in Tokyo have ordinances related to one-room (1R) condominium properties that are meant to limit the construction of 1R condominiums, in favor of larger family-sized apartments. The purpose of the ordinances is to increase the supply of family-friendly properties but one (perhaps unintended) effect is that in many neighborhoods, there is an undersupply of smaller units suitable for single-person households.

These trends suggest an investment strategy focused on rental condominiums suitable for single-person and two-person households.

Neighborhood redevelopment is going strong

The Tokyo metropolitan government has committed to a master plan for long-term development and redevelopment of major stations and neighborhoods in both the 23 wards and western suburbs. Some of these projects are being carried out in partnership with private rail companies and developers. Others are private initiatives.

For example, the Toranomon Azabudai project is the brainchild of Mori Living. This is a massive undertaking that will encompass 8.1 hectares (81,000 square meters) in central Minato-ku. It will include offices, residential units, commercial facilities, a hotel, cultural facilities and an international school.

Other well-known examples include the neighborhoods around Hibiya, Shibuya, Tokyo station, Otemachi, Ikebukuro and Shinagawa. Redevelopment, of course, improves livability and adds to the neighborhood amenities, which increases demand for housing. Projects carried out at major stations also have positive effects for local stations along train lines connecting to the hub.

Steady investment income and estimated gross yields

Tokyo investment properties offer very steady investment income in a stable legal, political and economic environment. However, buyers of investment properties in Japan should not expect appreciation in asset values.

Sales prices of both newly constructed and previously owned properties in Tokyo have been on a hot streak in the past year-and-a-half, as buyers are facing very low inventory.

Newer properties have higher average sale prices than older properties, with respect to both buyer-occupied and investment real estate.

Table created using data from: Kenbeya.com (PDF in Japanese)

Older properties in the Tokyo wards tend to hold value more than those in the Tokyo western suburbs, but in general, a typical investment property that was built 20 years ago will be worth only about 43.6% of a comparable new property, if we take 2020 as the base year, for example.

It’s important to point out that this is aggregate data. Average sales prices will vary a lot depending on many factors, including location, construction materials and the type of property (single unit condominium, whole building manshon-type condominium, whole building apartment, for example).

Table created using data from: Kenbeya.com (PDF in Japanese)

Older properties will tend to have higher yields. The table below shows typical average gross yields by year of construction. In general, income properties in Tokyo provide very steady yields due to the demographic and demand and supply factors discussed above.

You will also see different estimated gross yields depending on what data set you look at. The data below is within the average range of what you can expect for single-unit properties. Older whole-building apartment buildings will have at least double-digit estimated yields.

Where to invest in Tokyo

Where are the best places to buy an investment property in Tokyo?

Location is everything in real estate and where you choose to buy will depend a lot on your investment objectives and risk tolerance.

We can’t emphasis enough the importance of using a local bilingual agent. They will be the best source of information about current market trends in specific neighborhoods, help you find the most suitable properties for your objectives and work with you throughout the transaction.

That being said, there are a a few demographic trends that are worth keeping in mind.

The total population of Tokyo’s 23 Wards is expected to peak at about 9.79 million in 2030, then start to decline to about 9.52 million by 2040.

However, the three central wards of Chiyoda, Chuo, and Minato are forecast to continue increasing in population until 2040.

The five wards of Bunkyo, Taito, Shinagawa, Shibuya and Itabashi are expected to peak in population around 2025 and Koto ward by 2035.

In terms of long-term rental demand we would expect the Tokyo 23 Wards to have greater demand than the western suburbs.

Generally speaking, buyers looking for stable income in neighborhoods with great amenities and transportation, the central five wards (Minato, Shibuya, Shinjuku, Chuo and Chiyoda) are considered the best neighborhoods. However, yields tend to be lower in the central wards because property values are much higher than for the rest of the city.

For those looking for higher yields and lower property values, apartments outside the city center, especially in northern and eastern Tokyo offer a great balance of low initial cost and relatively high yields.

In this article we’ve only given a very rough overview of some of the advantages and trends in the Tokyo residential investment property market. We recommend following our blog for more information about buying property in Japan and consulting a qualified local agent to get information specific to your investment needs.


Sources:

Tokyo population summary of forecast results, Toko metropolitan government (PDF in Japanese)

Tokyo population as of June 1, 2022 (PDF in Japanese)

Tokyo redevelopment summary (PDF in English)

収益物権市場動向年間レポート2020 (Income producing property market trends annual report for 2020), Kenbeya.com (PDF in Japanese)

Lead image: Tokyo skyline with Tokyo SkyTree, iStock/ASMR


Bilingual Agents

All of the agents who list properties on realestate.co.jp are bilingual in Japanese and English. Some agents can also handle inquiries in Traditional Chinese, Simplified Chinese, and other languages. Please click on the links below to see their listings:

All For Sale Property Listings

Investment Property Listings

FAQs About Buying Property in Japan

Can a foreigner buy property in Japan?

Yes. You can buy property in Japan regardless of your nationality or country of origin. There are also no residency requirements for buying real estate in Japan. Securing financing as a resident foreigner is more complicated. For info on financing, please see Basic Requirements for Getting a Mortgage as a Foreigner in Japan

Webinars on Buying Property in Japan

Please see our seminar page for a current list of seminars on: how to buy a home in Japaninvesting in Japanese real estate for beginnershow to apply for permanent residency in Japanhow to sell property in Japan, and much more.

How do I get a property loan as a foreigner in Japan?

Please see this article for information on: Getting a property loan as a foreigner in Japan

Mortgage rates in Japan: May 2022

What is the process for buying a property in Japan?

Please see our step-by-step guide: Guide to Buying Property in Japan

See how much you can borrow and your monthly payments in yen: Yen Mortgage Loan Calculator

For information about purchase and brokerage fees: Breakdown of real estate purchase fees and taxes in Japan

Need to Know

Leasehold rights in Japan: Advantages and disadvantages

Earthquake building codes and technology in Japan

Can I legally rent out my home in Japan on AirBnB?

Repair reserve fund fees explained

Parking spaces in Japanese condominium buildings explained

Building your own home in Japan

7 reasons why foreigners are interested in buy a home in Japan, especially now – March 2022 Update

Average price of an apartment in Japan by prefecture – 2022 Ranking

Bilingual Real Estate Agent in Tokyo Answers Your FAQs on Buying and Managing an Investment Property

How much is my property worth?

Real Estate Japan is pleased to offer free, no obligation appraisals for owners of property in Japan. Please click here and fill out the form: How much is my property worth?

7 situations when you should consider selling your investment property in Japan

What are the main factors affecting home sale prices in Japan in 2019?

Akiya Banks in Japan

Tokyo Apartment Market Forecast: Trends to watch for in 2022

Kansai Apartment Market Forecast: Supply and price trends to watch for in 2022


Photo Credit: iStock/ASMR