Flipping property is a term used mainly in the United States to describe purchasing a house at a low price and quickly reselling it for profit. It is a popular tactic in a real estate market that sees appreciation of older buildings and generally has a ‘renovation culture’, where home improvement stores and TV shows on refurbishments and house flipping are part of the way of life. However, the Japanese real estate market can be almost unrecognisable to an American or European buyer with its bad housing stock that isn’t built to last more than 30 years and usually depreciates to zero after 25 years.

Is it possible to flip a house in Japan? 

The short answer is yes, but in a different way. While Americans aim to quickly buy, renovate and resell — usually within six months in a rising market — the process in Japan will be more drawn out and needs careful planning and execution with an expert team. Further, in the low- and mid-market range, it is usually only profitable to buy, renovate and rent, for at least several years, to create revenue before finally selling the property.

The Ministry of Land, Infrastructure, Transport and Tourism (MLITT) reported that more than eight million (about 14% of the total) houses and apartments in Japan were empty in 2013. This number also includes individual units, though the number of akiya (empty buildings) is closer to 2.2 million, many of them in a disastrous state. While trustworthy real estate agents in Japan will generally warn against buying a severely distressed property (e.g. a foreclosed home) for financial, legal and cultural reasons, some old and abandoned houses can actually be flipped if they fulfil certain conditions and the process is done right.

First, select the location wisely. Most akiya are located in rural or suburban areas. Rural areas suffer the most from Japan’s declining population and it might be hard to resell or rent out such a property. A suburban property close to a large and bustling station can, however, be popular. You can find empty houses listed in akiya banks. Run by local governments, the abandoned properties are listed to promote transactions of akiya houses, as they pose a social issue: they can attract pests and burglars, constitute a health and safety hazard and devalue the respective area for current and future residents. So interest in selling the properties at a low price is great. Often, a small family home akiya in suburban Tokyo or the Kanto area can be found for a price as low as JPY 3 million.

Renovation costs to consider 

But renovations in Japan are costly. Recently, renovating historic Kyoto machiya (merchant) houses is trending among foreigners, either as a holiday home or for tourism. The cost is anywhere between JPY 300,000 to JPY 800,000 per tsubo (the Japanese measurement for real estate, equivalent to 3.3 sq m). Even for a regular family home built in the 1980s, renovation costs will easily clock in above JPY 2 million if done properly: kitchen and bathrooms will most likely need to be fully refurbished, and flooring and wallpaper will need to be replaced. And the effort and cost required for restoring a luxury property greatly exceed that. 

For the latter option, you will need a large amount of money and an expert team of experienced realtors and architects to successfully remodel and resell. Consider that it may be easier/cheaper to turn a suburban empty house into an investment. However, if you decide to go the luxury restoration route, it is recommended that you work with a knowledgeable agent who can recommend a property and a reliable construction company that delivers quality work within budget.

Reselling a home, though, would barely fetch a profit after the costly renovations — but renting does. The Tokyo real estate market is heavily distorted; while a suburban home can sell for as low as JPY 3-4 million, a property comparable in size in central Tokyo can easily fetch JPY 50-60 million — in other words, 15-20 times the price. But rents on the outskirts of the capital are not 20 times cheaper than in the heart of Tokyo, usually closer to 5-6 times. Refurbishing and renting out a cheaply acquired akiya can bring gross yields of 10%+ (before taxes and other costs, not including calculations for vacancy and other risks). After you recovered your initial costs, you might still be able to sell your refurbished home at a profit or a break-even price. The market for second-hand homes in Japan opened up with rising real estate costs in Tokyo, leaving many people priced out of buying new homes. They will look at remodelled second-hand homes as real options.

The final verdict

Remodelling suburban homes to flip must be well thought out and is a time-consuming process, but can be very profitable if done right. Remodelling luxury homes in central Tokyo has also recently gained traction and especially upgrading them to energy-efficient homes is finally taking off in Japan. As high-end condos or detached houses tend to have better building substance to work with than the regular prefab Japanese house, their lifespan can be extended well beyond 30 years — but renovations tend to be costly.

By Mareike Dornhege

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