Buying Real Estate in Japan: Crazy or Good Investment?

Posted by Jim Ivanoff
May 24th, 2010

While the housing market in Japan is recovering, there is a great debate within the country on whether or not it is really worth buying real estate here anymore. Much of this debate comes from the younger generation’s general fear for the future, but the demographic trends are also unmistakeable. Japan’s population is decreasing so with less demand property prices should logically go down. On top of this, the value of a home drops immediately after someone takes possession just like a car, so land value was the only part that people thought of as an investment.This issue is of course very relevant to future housing market forecasts so I recently attended a seminar on buying real estate hosted by the Canadian Chamber of Commerce in Japan. The guest speaker Christopher Dillon who has just written a book titled “Landed: The Guide to Buying Property in Japan.” He gave a very interesting talk that included some interesting hints for our industry.

The first was that homes/condos that are built for the needs of the elderly will hold their value better. This can include everything from the usage of barrier-free concepts to energy efficiency/ high-insulation values to proximity to good medical care. Basically, make sure you build for what the future purchaser is likely to want.

The second was to forget about all markets outside of Tokyo, Nagoya, and Osaka. Young people have been abandoning rural areas for sometime leading to growth even in regional cities such as Sapporo, Sendai, Fukuoka, etc. (you can find no longer in use homes in the countryside for as little as $60,000!). However, as the population continues to decrease the young will also leave those cities in favour of the “Big Three” where the best job opportunities are. Chris was very positive about Tokyo in particular as it is and will remain the major commercial and cultural center in Japan as well as in Asia well into the future.

Based on his pessimism for rural areas, Chris has doubts about the value of resort developments including Niseko. After visiting Niseko he felt that there was too much farmland available that could be easily developed and thus there was little scarcity to continue pushing prices up. He didn’t feel there was a big enough difference in walking to the slopes versus driving 15-20 minutes to warrant the huge price premium. Chris seemed to feel the area was simply caught up in a classic real estate bubble created by the Australians that can no longer be maintained. 

While I agreed with much of what Mr. Dillon said, especially about Tokyo versus the rest of the country, I somewhat disagreed with his outlook for Niseko. Unlike other resort areas in Japan, it truly is a special place based on its amazing annual snowfalls. It is also a short flight away from key markets such as Hong Kong, Taiwan, and Shanghai meaning that it will be a much more attractive “snow getaway” than Europe or North America for the wealthy but time challenged Asians. 

Chris was correct in that Niseko’s village center is very poor especially in comparison with such famous resorts as Whistler, but I think that with the big Asian investors now involved in the area it is a matter of time before the area has world class amenities to complement the fabulous snow. Once this is done, being close to the village should be worth a nice premium particularly to the brand conscious Chinese.

I really appreciated the opportunity to listen to and meet Chris Dillon. He spent a lot of time researching for his book and has a lot of knowledge about the market so I highly recommend reading it if you are interested in the Japanese real estate market. I’ll be reading it very soon!

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