It’s often said that trends are a great thing to ride – as long as you’re the one setting them. Once something has been tried, true and immortalised everywhere, it becomes far less attractive – or, in investment terms, far less profitable. The same can be said of real estate property investments, of course, and Japan is no different to the rest of the world in this regard.

So what, where and how have international and local investors been spending their yens, as far as the world’s second-biggest real estate property investment arena is concerned?

As 2012-2016 has seen the bottoming out and reversing of Japan’s two-decade-long deflationary cycle, global attention was naturally directed towards Japan’s most popular investment destinations, historically – namely, Tokyo, Osaka and their immediate metropolitan subsidiaries, such as Yokohama, Kawasaki and Kobe. Since late 2014, however, prices in these two hot-spots have started becoming too hot for comfort for most opportunistic investors – who have moved on to secondary markets such as Nagoya, Sapporo and even more so Fukuoka, the nation’s Western gateway and link to South-East Asia, which has also been gaining a lot of traction as Japan’s newest start-up hub (which, while still a far cry from Silicone Valley, Berlin or Tel-Aviv, is certainly ahead of its times as far as the rest of the country is concerned – particularly as far as foreign entrepreneurs are concerned).

Fast forward to mid-2016, and, while Sapporo prices are still mostly depressed, Fukuoka and Nagoya have also jumped on the price hikes bandwagon, and once again, opportunistic investors are setting their sights on other targets. These days, while price hikes have ground down to a halt, they have yet to drop, and so foreign investors these days, unless they’re specifically targeting low, safe and stable returns, are looking to tier 3 cities such as Kumamoto, Nagasaki, the less agricultural spots in and around Chiba, as well as satellite cities such as Sagamihara in the East and Kurume in the west, where those coveted high returns can still be achieved.

Those who are wary of venturing that far afield, due to population and economic growth concerns, are instead getting more creative, converting existing or newly purchased residential properties into share houses, “monthly mansion” type serviced apartments, and even guest houses – although the latter require more licensing and compliance than the former two. Airbnb and other “minpaku” (short term stays under one month) platforms, which were the go-to for investors seeking to maximise their profits on residential properties, have suffered a huge blow with the latest legislation which came into effect last month – which has strictly limited unlicensed short-term stay operators, as well as placed the responsibility and right to ban these residences from operating with local municipalities and building management companies.

The advantage of the above trends, however, is clear – they are newly established, potentially highly profitable and creative uses of residential spaces, which are still mainly untapped by foreign investors, and as such, offer a huge opportunity for those willing to go the extra mile and be a bit more involved and hands-on in their portfolio management. And for those who prefer a more passive approach – some of the tier 2 and 3 locations mentioned above can still command respectable yields, even if not in the double digits common up until 2013 or so – even with standard, long-term leases.

For more information about investing in Japan's property market email Ziv Nakajima Magen of Nippon Tradings International (NTI) via the contact details listed below. 

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