Japan: Overview

RENTAL YIELDS

Yields are moderate in Tokyo

Gross rental income on apartments in Tokyo, Japan is around 5.8%. Smaller units have the highest yields. A 60-sq. m apartment generates a yield of 7.93% while a 120-sq. m apartment generates much lower at 4.86%.

Rent and apartment prices both increased from last year. However, yields have become lower because prices increased faster than rent.

Due to a dearth of space in overpopulated Tokyo, apartments in the city centre have always been very expensive. On the average, apartments sell for around US$13,324 per sq. m. Prices can go as high as US$18,350 per sq. m for a unit with 150 sq. m.

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TAXES AND COSTS

Effective rental income tax is low in Japan

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	3.4%	5.9%	5.9%
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Source: Disclaimer

Rental Income: Rental income of non-resident individuals is subject to 10% tax. However, effective rental income tax is low, ranging from 3.4% to 5.9%.

Capital Gains: Net gains realized from selling short-term real properties, i.e. property held for less than 5 years, are taxed at 30%. Net gains on property held beyond five years are taxed at 15%.

Inheritance: Inheritance is based on residency status but foreign individuals inheriting property located in Japan are still subject to inheritance tax, which is levied at progressive rates.

Residents: A permanent resident is taxed on his worldwide income at progressive rates.

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BUYING GUIDE

Moderate roundtrip buying costs in Japan

The total roundtrip transaction cost is around 6% to 10%, inclusive of the 3.15% agent’s fee (inc. VAT and local taxes) plus an additional payment of ¥63,000 (US$526). The Acquisition Tax differs for land and buildings at 1.5% and 3%, respectively.

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LANDLORD AND TENANT

Japanese landlords get key money

Tenancy laws passed in 2000 shifted the balance of power from tenants to landlords, making Japan strongly pro-landlord.

Rents: Rents are freely negotiable. Aside from two to three month’s security deposit, landlords receive key money worth one to two month’s rent.

Tenant Eviction: Automatic renewals of leases were abolished in 2000, making eviction easier. If the tenant prematurely ends the contract the landlord can charge one month’s rent.

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ECONOMIC GROWTH

Fragile economic recovery in Japan

The GDP growth rate was 2.1% in 2007, a slight decrease over the 2.4% growth experienced in 2006. Growth is now expected to dip in 2008, due to higher costs, the appreciation of the Yen, and the global growth slowdown.

Japanese inflation was minimal in 2007 at 0.1%, though there has been a slight uptick in the early months of 2008, leading to a 1.2% y-o-y CPI increase.

Real private sector wages rose by 1.6% in 2006 and are expected to rise further by 2.2% rise in 2007.