Property Analysis in Japan
Should I buy or rent, new construction or condo?
“Rent or Buy” argument never ends. History for most major markets tells us to buy — real estate values have risen double, and triple digits in almost all major markets over the past 5,10, 15 years.
Reasons to Rent
- Corporate pre-tax program giving you up to a 50% net reduction in rent (or fully paying your rent — even better)
- Not sure about staying in Japan or in the same area
- Plan to live a short life or can’t get a loan yet
- Prefer to invest in something with stronger ROI like S&P 500 indexes
Reasons to Buy
- Benefit from potential property appreciation
- Ability to customize your home (wallpaper, floorplan, DIY projects, etc)
- Pay off your loan and build equity instead of paying rent
- Potentially lower cost than renting
Buying options and things to consider
New Condos
Like the rest of Asia, the condo market has been very hot for the last 5yrs. Possible reasons are the flight to urban centers by older Japanese and the influx of foreign buyers who find Japanese real estate relatively cheap.
- Latest build technologies, warranty, and “freshness” of a new property
- Ability to customize if you buy prior to completion
- Ultimate conveniences of a flat with managed services (garbage, roof, elevator, etc)
- Significant price premium for new units, esp on the luxury end
Old Condos
There has been a trend by real estate agencies to buy older ~30-40yo condos, renovate, and resell. What was once a sagging market for older condos has been rejuvenated of late
- Better price performance since older condos are unpopular w/ Japanese
- Higher maintenance and major repair costs as units get older
- Can find much larger units in terms of large living areas and total sqm
- Less up-to-date earthquake standards (esp if pre-1981 see ref)
New Houses
Custom/semi-custom houses are a big thing in Japan with dozens of home-makers that make houses surprisingly cheap (~2–4m JPY / sqm, ie typical 2 story 150sqm house may be as cheap as 30m JPY, land not included)
- Like new condos, new houses can be customized, have the latest tech, and come with warranties
- Better price/perf over condos these days (in terms of livable sqm)
- Most centrally located houses are 2–3 stories with steep stairs and lack the conveniences of condos (trash, elevator, concierge for mail, etc)
Old Houses
Unlike in other countries, it is rare to find a 50 or 100-year-old home that has been maintained and renovated every few decades. Most buyers of old homes plan to teardown and rebuild — hence the discount market for older houses, even ones in good condition
- Like old condos, best price performance but have higher maintenance & repair costs
- As most Japanese plan to tear down and rebuild houses every 20–40yrs, many older houses are not built especially well nor maintained
- Many older houses do not comply with building codes — meaning some cannot be fully rebuilt at all or to the same size/spec. Many of these houses will not qualify for home loans
- You can hire a team or DIY to fully revamp an older house — be realistic, a proper job can be expensive (see ref)
Vacation Properties
One option is to rent your primary and buy a vacation to remote work in or rent out. Beach and ski villas are relatively cheap compared to Tokyo and other prime countries.
- Be wary of cities and condo associations that have outright banned short-term stays like Airbnb.
- Be wary of running costs — ski areas are very expensive to heat, snow clear, and maintain overall. Beach areas decay faster with the salty air.
- Some areas that appear ultra cheap like Yuuzawa carry a severe population decline and buildings with grossly underfunded HOAs.
Rental Properties
There is a general rule — higher ROI (Gross or Net return) is in the outskirts and higher property appreciation is in prime areas. Eg, your investment in Ibaraki may yield 8% but it is likely to depreciate over time, while your investment in Minato-ku may only yield 1% but will surely rise in value.
- Be aware of Gross vs Net yields — maintenance costs on older and luxury properties can be very high
- Investment loan rates are much higher than home loans
- Investment property operating losses can offset regular salaried income so it can be a tax shelter strategy
- Tenants have strong rights in Japan but are relatively safe and reliable
Closing thoughts
- Location is a key factor, the further out you are, the cheaper the land but lower the appreciation potential and resale value
- Condos old and new are highly rentable, but there is less of a market for renting out older houses
- If there is only one bit of advice I give to people, it is to get into real estate early in life!
