With the third largest economy globally, Japan’s property market has attracted growing attention from foreign investors in recent years. Key factors driving interests include the market’s stability, strong fundamentals, and improving corporate governance. However, barriers like financing difficulties and lack of local knowledge remain. This article analyzes opportunities and risks foreign investors face when buying real estate in Japan.
Improving corporate governance supports property valuations
Japan’s push to enhance corporate governance under former PM Shinzo Abe is paying off. Shareholder activism is rising, leading firms to increase cash payouts via dividends and buybacks to record levels. Top trading firm Mitsubishi recently unveiled a $2.2 billion buyback plan. More generous investor returns help support property valuations.
Language and cultural barriers hinder foreign buyers
While property demand remains robust domestically, overseas buyers struggle with linguistic and cultural differences when investing in Japan. Complex paperwork compiled exclusively in Japanese creates due diligence hurdles. Hiring a reputable, English-speaking property agent is key to overcoming these barriers.
Financing difficulties plague foreign property investors
Unlike locals, foreign buyers in Japan face major obstacles securing mortgages from domestic banks. The few lending options open to foreigners typically charge higher interest rates of 1.8-2.5% versus below 1% for Japanese nationals. Stricter income and credit requirements also apply to non-resident borrowers.
Undervalued asset prices offer upside potential
With nearly 54% of listed firms trading below book value, Japanese equities remain undervalued versus just 7% in the US, Jefferies data shows. Similarly, property prices in Japan look discounted compared to other developed markets. This valuation gap signals upside potential for foreign investors buying real estate and other Japanese assets.
While risks like financing access and information barriers persist, accelerating governance reforms and underpriced asset values underscore the long-term potential of Japanese property for offshore investors. Overseas buyers should thus look to tap localized expertise when navigating Japan’s attractive but complex real estate market.