Investment-driven individuals and families who are not nearly so rich account for a greater share of activity. Almost three-quarters of mainland Chinese who enquired on the websiteJuwai.com about Japanese property in 2015 told us they were looking for yields and capital gains. 

Let’s apply that to a 20-sq.-meter apartment in Tokyo’s Shinjuku district whose owner is currently asking 19.9 million yen ($185,000) for it. Five years ago, a Chinese buyer would have needed to scrape together about 1.5 million yuan (USD $230,000) to buy it. Today, they would only need about 1.1 million yuan. If the yen continues its recent rise, will Chinese find apartments like this less appealing? A rising yen could cause Chinese to move their Japanese investments forward in time to maximize their buying power or some Chinese demand could shift to countries with more favorable exchange rates, such as Australia, New Zealand or Thailand.

Push and pull:

Japan’s yields and value are pull factors, but there are push factors in China also at work. One recent report noted that average home prices in Beijing, Shanghai and Shenzhen have increased to as much as 44.4 times average annual disposable income in those cities. That makes places like Tokyo and Osakaeven more attractive. Our data suggests that Chinese buyers will be investing $220 billion per year into global real estate markets by 2020. As total investment grows, a significant portion of it will cross the East China Sea to find a home in Tokyo, Osaka, Kyoto and other Japanese cities.

Japanese property looks like a good investment. Apartment rental yields in China are only about 2.6%, and are not much better in Hong Kong or Singapore, traditional destinations for Chinese offshore investment. By contrast, yields in Japan can reach nearly 5%. Japanese property also can feel like a bargain to Chinese buyers, conditioned as they are from years of high prices and small spaces in China’s largest cities. Consider that in Shanghai or Beijing, $1 million will only buy up to 53 sq. meters of prime residential space. In Tokyo, according to estate agency Knight Frank, $1 million would buy at least 40% more space, or about 76 sq. meters.

The strong Chinese currency also makes its bearers feel rich. While the yuan is down a bit from its high point last June, Chinese buyers still have about 30% more purchasing power in Japan than they did five years ago. While some observers are concerned about the possible impact of tightened controls on foreign currency outflows, this did not prevent Chinese companies from being responsible for a larger share of global mergers and acquisitions in the first quarter of 2016 than ever before in history. Nor did it prevent net capital outflows of $478 billion last year.

In the property business, the impact of capital controls has been limited to slowing down the speed with which Chinese buyers can access the money they need to purchase property overseas. They used to be able to sign and settle immediately and that was an advantage over local buyers who needed a bank’s approval. These Chinese buyers sometimes now miss out on opportunities, but we have not seen any reduction in the desire to invest. In fact, consumers made 191% more enquiries on Japanese propertiesvia Juwai.com in 2015 compared to 2014.

The really interesting story about capital controls has yet to be told. It is the story of what will happen when China acts on its promise to dismantle most of its capital control regime. The resultant wave of international investment, according to a Bank of England estimate, could see China’s holdings of overseas assets soar sixfold. Education also plays a role in Chinese buying of Japanese property, albeit not as much as in the U.S. or U.K. People like the parents of one Shanghai student who is studying science and engineering at a Tokyo university bought the apartment where their son lives as an investment. When he moves to the U.S. for graduate school, the family will rent out the Tokyo unit. Another Juwai.com user recently said his family had already bought an apartment in Tokyo for their own university-age son. They are now looking for a family home that the parents and other relatives can stay in when visiting. Both will serve as long-term investments.

Of every 100 international higher education students in Japan, 56 are Chinese, and Japan hosts nearly 100,000 international students in total. The government wants to attract more, hoping they will inject much-needed dynamism into Japan’s economy. Western media hyperventilate about China’s slowing growth, without mentioning that among major economies, only India is today growing faster. The Middle Kingdom’s gross domestic product is set to increase by more than $700 billion this year.

It seems to make good investment sense for Chinese consumers to purchase Japanese real estate. It helps them achieve personal goals, such as providing an international education for their children or obtaining lifestyle benefits for themselves. Their high rates of savings and their still-impressive economy have given them the means to make these purchases and the government looks set to enable a vast increase in these investments in the coming few years. As a result, I expect Chinese investment to increase in 2016 and for it to set new records by 2020.