Japan, the land of the rising sun. From a torn wreck in the 1940s to challenge the U.S. as a superpower in the 1980s. I would argue that no country as a whole (China still has mass equality) has undergone such a rapid transformation into a developed nation. Becoming Asia first developed nation. But, since the miracle, it is now facing financial problems.
The country that despite not growing in real terms for the last 20 years still holds the third-largest economy. This has not come without its cost though. Its once miracle GDP growth in the 80s with a slowdown, and less of a competitive edge from Korea in the Automotive and electronic systems means that Japan’s public debt level has is currently at a whopping 200% GDP this with a growth of less than sub 3% since 1990s and an ageing population means that Japan is not looking the brightest of place from a financial aspect. While from a personal aspect, the Japanese have the word Karoshi that means death by working.
That until recently, was quite common. I knew a Japanese worker at one of the big four accounting companies that had a brain tumour but never went to see the doctor and was found dead. Others, just can’t take the 20 hours in the office and the seemly old fashioned worked lifestyle.
But, with all this, it does carry on to be one of the top-performing nations. And it has taken drastic steps in the last 3 years to reduce the amount of time people can do over time and making it compulsory to have one Friday leaving before 6pm by switching the lights off. On top of this, they are trying to increase productivity and rechange their traditional work culture, by bringing more women into the workforce and combat the older demographic situation by replacing them with robots.
What options do you have when investing in Japan and is it worth investing in?
From a business and investment standpoint, Japan is looking to be pretty popular. Since the 2002 world cup Tokyo has opened up its doors (more so than before) to overseas business and investors with English language signs and adopting the more open-minded term.
What most people don’t understand about Japan is that it is very rich in its culture and this has been driven through to its work life. Examples, are that when you come back from a holiday in working in Japan you have to give sweets to your coworkers to cover you when you were away. Or before, you start a project you say please be kind to me (in Japanese) to promote cooperation. As not so nice examples (but changing) are that you are not allowed to leave the office until your boss has (this is changing) this means many were sat around until the late hours. But, this is changing that is making it easier for expats to be sent to Japan and more open (but still very difficult) to be land and property.
Investing in Property
Japan is now the second most popular country in Asia to buy property as a foreigner, ranking after Thailand. Wealthy Chinese buyers have especially been prominent in Tokyo’s real estate market as of late.
Tourism is to thank for this as seen an influx of personal and is becoming one of the worlds most popular countries to visit.
While buying property in Japan unlike some emerging markets is still pretty stable with rental yields of 7%.
Japan is also one of the few countries that you can own land, so is no different from a Japanese buyer to an overseas one. This is very different from most other countries in Asia, China, Thailand, Cambodia. For one restrict full access of land and two have certain requirements for foreign investors.
Property Taxes
You’ll pay a flat 1.4% property tax, along with a 0.3% “city planning tax”, which equals a 1.7% yearly tax in total.
1.7% annually is a permanent and fairly substantial carrying cost. It’s worth considering before you buy property in Japan, especially if you aren’t living here full-time.
Rent tax is quite high rental income is simple if you aren’t living in Japan. Non-residents, whether foreign nationals or Japanese citizens are taxed a flat 15% rate on their rental income.
Japanese residents pay far less. If you’re living here, rental income tax is based on a ladder system. Either way, rates significantly lower only 3.4% at a minimum and 5.88% at the highest bracket.
Aside from this, you will need to find a foreign real estate as Japanese although advancing is not too friendly towards foreigners. As most of the paperwork is in Japanese and will need stamps that act as your signature.
Besides the difficulties, where is the best place to invest in property in Japan? Like I mentioned earlier that Japan is having a population decline. Unlike, other places in emerging Asia, this could have an effect on property prices. But, at the same time urbanization is more present in Japan than anywhere else in the world (outside China), meaning that if you are looking to buy and not be subject to the population decrease. It would be a feasible option to go to the big cities. The most recognisable is Tokyo with 38 million within the 23 wards the in city Tokyo, will be a popular destination for years to come. Although, still at a premium, per SQM it is not at the dizzy highest of when in the 80s. When the Imperial Palace (the palace inside Tokyo) had a land value of California.
I still see prices in central Shinjuku, Shibuya, Ikebukuro still worthwhile from a demand standpoint. As, well as this you have good pockets for Tokyo value housing where many workers are looking to be based.
Outside, of Tokyo, Yokohama actually considered in the metro area but for all purposes its own city with a population of 2 million right next to Tokyo on the bay. This is where a more valuable option in the Tokyo region would look more appealing.
Outside of Tokyo, Kansai, the region consists of Osaka, Kyoto, Kobe. Not the economical hub but as suggested tourism is growing and Kyoto being the ancient capital seems to be a hot spot due to the abundance of shrines, and history located in the city.
Other areas are the southern city of Fukuoka, which has set up its own special economic zone and seems to be attracting young talent for the country’s drive away from Tokyo.
As well as other areas Sapporo in the north and Nagoya.
Would I invest in Japan?
Personally, I am looking to but not for an investment decision, I like the idea of owning land for retirement in Kamakura or Sendai. But, believe you have more lucrative options in emerging markets.
If you look at the NIKKI 225 it hasn’t grown in real terms for the last 20 years, while comparing that to the U.S S&P 500 that has done around 8.64% a year in the same time frame. With ever more competition from Korea and now China, Japanese products that were so dominant in the 90s, all fading away.
But, it still remains a stable place, and at the forefront of innovation and scientific breakthroughs. Furthermore, property due to the freeness of Japanese land law can make it profitable if you know what you are doing and in the right area. That is one of the few places in Asia open to property investment and in a developed stable country.
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If you have any questions or you want to speak to me please email me at info@investmentsforexpats.com
