What Makes Real Estate Investment in Japan Attractive? A Comparison with Other Countries

Is real estate in Japan truly more attractive than in other countries?

Reading articles solely about real estate investment in Japan may not be sufficient to answer this question.

Understanding and comparing the benefits and drawbacks of real estate investments in other countries, not just Japan, is essential for objectively understanding the Japanese real estate market.

In this article, we will focus on the popular real estate investment destinations of the United States, China, and Dubai. By introducing the advantages and disadvantages of real estate investments in these countries, we will analyze whether Japanese real estate investment remains attractive in comparison.

This article is a must-read for investors considering real estate investment in Japan.

Please read until the end.

Advantages and Disadvantages of Real Estate Investment in the United States

Advantages

• Asset Ownership in US Dollars, the World’s Primary Currency: Owning real estate in the United States translates to holding assets in US dollars, the world’s primary currency. Rental income from apartments or profits from property sales can all be received in dollars. Thus, in addition to the investment returns, you also benefit from diversifying your assets into the world’s most reliable currency, which is a key attraction of US real estate investment.
• Active Secondary Real Estate Market: Although it varies by state, the secondary real estate market in the US is generally active. Well-maintained properties can appreciate in value over time, making it easier to aim for high capital gains—a significant feature of US real estate.

Disadvantages

• Diverse State Laws: The biggest drawback of US real estate investment is the high level of independence among states, resulting in different real estate investment laws and policies. To succeed, you need meticulous information gathering and market analysis on a state-by-state basis, rather than generalizing the US as a whole. Neglecting this can lead to unexpected losses.
• Security Concerns: There are significant disparities in security conditions across states. In areas with poor security, there is a risk of property looting, arson, and vandalism, making it incorrect to assume that real estate investment is safe in all states.

Advantages and Disadvantages of Real Estate Investment in China

Advantages

• The World’s Most Populous Economic Powerhouse: A significant advantage of investing in Chinese real estate is the country’s large population. Despite whispers of economic growth slowing, population inflows and increases in major metropolitan areas remain prominent, ensuring stable rental income in these areas.
• Booming REIT Market: Recently, the Real Estate Investment Trust (REIT) market in China has been growing. This boom has lowered entry barriers and expanded investment opportunities for overseas investors. Additionally, REITs make it easier to diversify risks, which is a welcome development for foreign investors.

Disadvantages

• Land Ownership: In China, land belongs to the state. As a result, neither foreign investors nor Chinese citizens can own land, creating a barrier to real estate transactions.
• Frequent Legal and Policy Changes: Various regulations concerning real estate transactions with foreign investors can be a hindrance. For example, in Beijing, a certain residency period may be required, making it difficult for foreign investors to buy and sell real estate easily. Furthermore, frequent legal changes and shifts in municipal leadership can disrupt previously permissible activities, posing significant risks to all business transactions, not just real estate investments, in China.

Advantages and Disadvantages of Real Estate Investment in Dubai

Advantages

• High Rental Yields: Property prices in Dubai, for instance, are one-third to one-fifth of those in the US or UK, making residential properties generally affordable. High rental yields can be expected, particularly in prime locations, with gross rental yields ranging from 5% to 10%.
• Residency Visas Based on Investment: In Dubai, purchasing property worth over 750,000 AED (approximately 30 million yen) grants a two-year residency visa (as of 2023). Additionally, purchasing property worth over 2,000,000 AED (approximately 78 million yen) allows for a 10-year residency visa (Golden Visa). Obtaining residency rights along with real estate investment is a unique advantage of investing in Dubai.

Disadvantages

• Difficulties in Securing Bank Loans for Foreign Investors: Obtaining bank loans is challenging for non-residents in Dubai. Particularly for first-time investors, securing funding from Dubai banks is nearly impossible. Therefore, purchasing property in Dubai typically requires full cash payment in dollars. Any shortfall must be financed through your home country’s financial institutions, which can be difficult for foreign real estate purchases.
• Tourism-Dependent Demand: Dubai’s unique population structure, with about 10% citizens and 90% foreigners primarily tourists, means the real estate market heavily depends on tourism demand. This dependency makes it challenging to stabilize real estate income due to seasonal fluctuations in tourist numbers, exchange rates, and economic conditions in various countries.

Comparison of Japanese Real Estate Investment with Other Countries

We’ve introduced the advantages and disadvantages of real estate investments in the US, China, and Dubai. Now, let’s compare these countries with Japan.

Weakness Compared to the US: High Humidity and Weak Ground

The US has a large land area with generally drier air and firmer ground compared to Japan. In contrast, Japan has high temperatures and rainfall, leading to weak ground and high humidity, which can negatively impact buildings and residents’ health. Therefore, when purchasing real estate in Japan, checking the ground conditions and humidity countermeasures is crucial.

Strength Compared to the US: Unified Real Estate Investment Regulations

As mentioned, the US has different real estate investment laws and environments across states. Japan, on the other hand, does not have regional variations in real estate transaction laws and procedures, providing a more predictable investment environment.

Weakness Compared to China: Population Scale

In income-focused real estate investment, population is a key factor. China, despite its declining birth rate, has a population more than ten times that of Japan, ensuring stronger rental demand.

Strength Compared to China: High International Trust in Currency

Regardless of rental demand, pursuing economic benefits is difficult if the local currency lacks international credibility. The Japanese yen enjoys high international trust and provides reassurance and liquidity in foreign exchange transactions, unlike the Chinese yuan.

Weakness Compared to Dubai: Residency Rights

As mentioned, Dubai offers long-term residency based on investment amounts. Although Japan is relaxing its visa regulations, obtaining residency rights for investors remains challenging.

Strength Compared to Dubai: Reliable Japanese Tenants

While Dubai’s rental demand is heavily influenced by tourism, Japan does not have such concerns. The primary tenants are diligent and trustworthy Japanese citizens, providing confidence and stability for real estate investors.

In conclusion, what is the most important aspect of investment, including real estate? It is the transparency and reliability of transaction information and systems. Without this, investing with confidence is impossible.

Japan has stringent laws to ensure transparency in real estate transactions, and these laws remain stable even with political changes. Moreover, the Japanese are known for their strong sense of commitment to agreements.

Japan is one of the best environments for making informed investment decisions. For a safe and secure investment destination where you can entrust your precious funds, we recommend real estate investment in Japan.