With 2019 now fully in swing, and with most major global companies having already published their end of year summaries, it is time for us to once more review last year’s trends, statistics and major developments in Japan’s property market, and look to industry experts in an attempt to see what they believe the coming year holds for the market. We have collated and categorized some of the main takeaways from the usual suspects, such as Price Waterhouse Coopers and the Urban Land Institute, CBRE, Mitsui Fudosan and Nomura Research Institute, and are happy to share their summaries and predictions with you. But first, to understand their outlook for Japan, we had better take into consideration a more global shift in attitudes from property investors worldwide, which mainly boils down to this - 

Capital Gains are No Longer the Main Focus

Globally speaking, it has long been an underlying assumption of real-estate property investors worldwide that, over time, assets increase in value. The traditional cycle that realtor agencies and long term buy and hold investors have held fast to, used to refer to an average of 7 year gain periods, followed by another 7 years of flattened – or, in case of economic crisis, price drops – and back to another 7 years of gains. Market volatility over the last decade, however, has shattered this expectation in many places around the world, and the paradigm has now shifted to more creative, diversified investment styles, which are looking to utilize maximal yields on an annual basis, rather than banking on growth which, in today’s global political and economic climate, may or may not occur. This means that far more investors are now ready to venture outside of their familiar backyard property markets and many naturally turn to the Asia-Pacific region, where much of the world’s capital is now centered, as opposed to the Western dominance of previous decades.

Japan Remains Asia’s Safe Haven for Non-Speculators

Considering the fact that, of all the countries in the Asia-Pacific region, Japan is the only one with zero restrictions on foreign property ownership – barring a handful of historically protected locations and structures – the country remains the region’s largest real-estate property investment market, and its fully documented, legal-recourse entrenched business climate continues to make it the prime choice for non-speculative, high-yield-rental-income oriented investors worldwide.  

European and North American institutional investors have continued to buy heavily into the country throughout 2018, as Asian assets offer better returns when comparing rental rates over the cost of borrowing. Diversification and creative investment plans have been on the forefront regardless of the size of investment, and this has been particularly attractive to US investors, for whom USD/JPY exchange rates, coupled with the uncertainty of interest rate hikes back home and more of the same projected for 2019. Inbound investment from the US into the Japan totaled 4.2 billion USD in 2018, and the flow isn’t likely to taper out this year either. 

The trade and political grandstanding wars between China and the USA have also pegged a potential for increased capital inflow from China into Japan, as Chinese companies seek to relocate and investors seek to avoid heavy tariffs when considering investment in the USA - and would most likely seek to direct at least some of those funds towards other Asian countries instead.

Investors Aren’t Deterred by Slow and Steady Property Prices 

Reflecting low inflation, low interest rates and low growth environment, residential land prices continued to remain stagnant in 2018 with only a slight increase in Greater Tokyo, slight decrease in Osaka and relatively unchanged in Nagoya. Similarly, Japan’s Real Estate Institute (JREI) forecasts only slight price hikes on condominiums until 2020, mainly cooperative housing (condominiums) of no less than three stories with reinforced concrete, steel-reinforced concrete and steel frame apartment buildings. With the belief that Tokyo condo prices are approaching their last pre-bubble peak of 1991, also comes the belief that further price hikes may be unlikely, pushing capital to other areas of the country such as Osaka, Yokohama and other regional centres such as Fukuoka and Nagoya. Of the major cities, Tokyo, Osaka, Nagoya, Sapporo, Kanto, Hokuriku, Hiroshima and Fukuoka held the highest number of condominium developments, with the average price in Greater Tokyo up from 59,000,000 JPY in 2017, and in Osaka, down from 40,000,000 JPY.  
Commercial investors have not been deterred by stagnant/dropping rents in major cities either. The median price of rent on large scale industrial properties stood virtually unchanged from 2017 at 3,350 JPY/month per tsubo (35.5 sqft) in the Kansai area and a slight increase of 4,300 JPY in Greater Tokyo. Japan’s largest cities by population, will continue to be the target markets for commercial investment in 2019 as rural and provincial Japan ages. Tokyo’s Ginza has always held the highest roadside land price based on fixed property tax appraisement. In 2018 it stood at 35,200,000 JPY per sqm, a 70.9% increase from the previous year. The slow and steady appeal still offers relatively high returns compared to local interest rates.
Some investors have been switching over to more specific alternative assets. With Japan’s aging population no surprise that institutions for the elderly have also been gaining traction providing nursing care services such as bathing, meals, and other day to day accommodation services. The majority of care facilities for the elderly are long-term. Other active prospects for 2019 are data centres, shared offices, student housing, affordable housing, business parks, self-storage and resorts. 

This blog was co-authored with Ziv Nakajima Magen - Nippon Tradings International

(Sources – “Emerging Trends in Real-Estate, APAC” - PwC/ULI, CBRE, Nomura Research Institute, Mitsui Fudosan)

Similar to this:

Real Estate in Japan - Investing with Confidence

History and the rise of Japan properties

Top 4 tips for investing in the Tokyo real estate market