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Last Updated: Jul 30, 2016




Despite its seemingly negligible impact on the wider economy, “Abenomics” - i.e., the reflationary policies of Prime Minister Shinzo Abe, who came to power in December 2012 – have helped prop up Japan’s property market.

Abenomics stimulates the economy by increasing public infrastructure spending, devaluing the yen and aggressive quantitative easing by the Bank of Japan (BOJ).  Since the introduction of Abenomics, real estate prices have accelerated strongly in Japan. Transactions started to pick up in 2012 and rose rapidly in 2013, as monetary policy kicked in. Residential construction activity is also recovering.

In Tokyo Metropolitan Area:
  • Existing condominium units’ average prices rose by 3.73% to JPY469,700 (US$4,602) per sq. m. during the year to May 2016, according to the Land Institute of Japan (LIJ).
  • New condominium units’ average prices skyrocketed by 21.2% y-o-y to JPY823,000 (US$8,063) per square metre (sq. m.) y-o-y to May 2016.
  • Existing detached houses prices dropped 1.9% to JPY32,410,000 (US$317,512) over the same period.

In Osaka Metropolitan Area:
  • Existing condominium units’ average prices increased by 7.5% to JPY288,000 (US$2,821) per sq. m. during the year to May 2016.
  • New condominium units' prices fell 11.1% to JPY529,100 (US$5,183) per sq. m. over the same period.
  • Existing detached house prices were up by 6.7% to JPY20,510,000 (US$200,931) over the same period.

Land prices are rising a little, too. During the year to May 2016, average land prices in Tokyo Metropolitan Area rose by 0.5% to JPY198,500 (US$1,945) per sq. m., while in Osaka Metropolitan Area land prices were up by 3.8% to JPY136,000 (US$1,332) per sq. m., according to the LIJ.

Residential property sales continue to rise. During the first five months of 2016:
  • In Tokyo, the number of existing condominiums sold rose by 5.4% to 16,152 units from the same period last year, according to LIJ. Existing detached house sales increased more strongly, by 14.3% y-o-y to 8,224 units.
  • In Osaka, existing condominiums sold rose slightly by 0.3% y-o-y to 7,508 units in the first five months of 2016, while existing detached houses sales rose by 8.4% to 5,642 units.

Land sales are also surging. In Tokyo, lots sold increased 25.5% to 5,096 units in the first five months of 2016 from the same period last year. In Osaka, land sales surged by 21.7% to 1,162 units over the same period.

House prices are expected to continue rising modestly for the remaining months of 2016, given another round of Abenomics stimulus in the second half. Moreover, Tokyo’s successful bid to host the 2020 Summer Olympics should boost property demand and construction over the next 7 years.

Japan house prices graphFrom a US$-based investor's perspective, the Japanese residential market's recent gains were bolstered by the appreciation of the Japanese yen from JPY123.725 = US$1 in June 2015, to JPY105.356 = USD1 in June 2016. However, this is not enough to offset the 31% drop in the value of yen against the dollar from 2012 to 2015.

The Japanese economy grew by an annualized rate of 1.7% in Q1 2016, in sharp contrast with the previous quarter's 1.7% decline - avoiding another technical recession. The economy is expected to grow by a meagre 0.5% this year and to contract by 0.06% in 2017, after expanding by 0.5% in the previous year, according to the International Monetary Fund (IMF).

Analysis of Japan Residential Property Market »


RENTAL YIELDS
Last Updated: Apr 05, 2016



In Tokyo's central districts gross rental yields - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - range from 3.4% to 5.4%. They’re a little higher on smaller apartments. Not great, though not untypical for a city like Tokyo. Yields on the very smallest apartments are 5.4%, a reasonable yield. But then smaller apartments tend to need more maintenance, so a higher yield is justified.

Prices per square metre range from around $8,700 to $13,800, not really so expensive when compared to other global cities. In Yen terms residential prices continue to strengthen. That’s likely to continue so long as Abenomics is in place. More money in the system means lower interest rates means increasing asset prices, especially prices of assets that produce nice incomes, like Tokyo property.

This is going to be interesting. If Abenomics really leads to a revival of the Japanese economy, rising incomes will continue to support rising rents. However as time goes on, the success of Abenomics seems more and more in doubt.

Round trip transaction costs are moderate in Japan. See our Property transaction costs analysis for Japan and Property transaction costs in Japan, compared to the rest of Asia.

Read Rental Yields  »



TAXES AND COSTS
Last Updated: Mar 01, 2016



Rental Income: Rental income of nonresident individuals is subject to 10% tax.

However, effective rental income tax is low, ranging from 3.4% to 5.9%. Nonresident taxpayers are taxed on their net income; depreciation and income-generating expenses such as maintenance and repairs are deductible from the gross rent.

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 taxed on his worldwide income at progressive rates, from 5% to 45%.

Read Taxes and Costs  »



BUYING GUIDE
Last Updated: Jan 30, 2015



The total roundtrip transaction cost is around 13.26% to 13.45%, inclusive of the 3.15% agent’s fee plus an additional payment of JPY63,000 (US$534).

Read Buying Guide  »



LANDLORD AND TENANT
Last Updated: Jun 21, 2006



Japan Shikoku housesTenancy 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.

Read Landlord and Tenant  »



ECONOMIC GROWTH
Last Updated: Jul 30, 2016


Japan’s economy continues to disappoint

Japan gdp inflationJapan is the world’s third largest economy, a major aid donor and one of the primary sources of global capital and credit, with a population of 127 million in 2015 and GDP per capita of US$32,486. The country is the world’s fourth largest exporter and fourth largest importer, and has the world’s largest electronics industry.

From 2000 to 2007, the Japanese economy grew by an average of 1.5% annually. However due to the global financial meltdown, the economy contracted by 1% in 2008 and by another 5.5% in 2009. The economy returned to growth in 2010 with GDP growth of 4.7%.  Then Japanese growth contracted again, shrinking by 0.5% in 2011 due to the impact of the Great Tohoku Earthquake (magnitude 9.0) last March 11, 2011. In addition the economic slowdown in China, Japan’s largest export market, exacerbated the situation. Then there was the anti-Japanese feeling in China sparked by the dispute over Diaoyu/Senkaku Islands.

The economy grew by a modest 1.7% in 2012 and by another 1.4% in 2013. In 2015, the economy expanded by a minuscule 0.5%, after a contraction of 0.03% in 2014, mainly due to weak exports and household spending, according to the IMF.

The Japanese economy grew by an annualized rate of 1.7% in Q1 2016, in sharp contrast with the previous quarter's 1.7% decline - avoiding another technical recession. The economy is expected to grow by a meagre 0.5% this year and to contract by 0.06% in 2017, according to the International Monetary Fund (IMF).

The poor economic performance of Japan is a major blow for the massive growth plan introduced by Prime Minister Shinzo Abe about three years ago, in an effort to kickstart anaemic growth and conquer years of deflation.

PM Abe, who came to power in December 2012, introduced a program of reflationary policies, widely referred to as “Abenomics”, including the following:
  • Inflation targeting at 2%
  • Correction of the excessive appreciation of the yen
  • Negative interest rates
  • Radical quantitative easing
  • Expansion of public investment
  • Buying of construction bonds by the Bank of Japan
  • Revision of the Bank of Japan Act

Japan’s trade balance improved sharply last year, thanks to the weaker yen and a decline in energy import costs. In H1 2016, Japan posted a trade surplus of JPY1.8 trillion (US$17 billion), in contrast with a JPY1.69 trillion deficit in the same period last year, according to the Finance Ministry. It was its first half-year trade surplus since the 2011 Fukushima nuclear disaster, which sent energy import bills soaring.

The Japanese yen has moved significantly in the desired direction since 2012, depreciating from US$1 = ¥78 in 2012 to US$ = ¥123 in 2015. However, this year the yen gained almost 16% against the dollar in just a span of six months, and has moved up strongly against all major currencies since the Brexit vote.

A strong yen is bad news for the economy and many Japanese companies as it makes Japanese products more expensive internationally and makes it much harder for the government to tackle deflation due to cheaper imports.

Japan government gross debt
Abenomics was intended to stimulate the economy, partly by generating inflation. Yet Japan’s core inflation, excluding volatile food prices, was a negative 0.5% in May 2016, after falling by 0.3% in the past two months.

The BOJ sets an inflation target of 2% this year. Aside from maintaining its -0.1% key interest rate, the central bank stepped up its pace of monetary easing in July 2016, adding JPY2.7 trillion (US$26 billion) of equity funds to its annual asset-buying program. The latest move is expected to almost double the BOJ’s purchases of equity exchange-traded funds from the current JPY3.3 trillion a year.

Abe was re-elected unopposed as head of the ruling Liberal Democratic Party (LDP) in September 20, 2015. His new term will run until September 30, 2018.

Abe is not giving up.  The government unveiled a new JPY28 trillion (US$274.3 billion) stimulus package in July 2016 – the third in a row after a JPY10.3 trillion (US$100.9 billion) round in 2013 and a JPY3.5 trillion (US$34.3 billion) package in 2014.

Japan has the world's biggest debt burden. In 2015, the country’s gross debt amounted to JPY1,238 trillion (US$12.13 trillion), equivalent to about 248% of GDP. Opinions differ about how much of a problem this is.







  • Strongly pro-landlord system
  • Low to moderate transaction costs
  • Strong rental market in Tokyo
  • Stable political system
  • Low effective rental income tax
  • Economic malaise for 10+ yrs
RESIDENTIAL PROPERTY FACTS
Price (sq.m): $13,825 For a 120 sq. m. property, usually an apartment.
Rental Yield: 3.43% For a 120 sq. m. property, usually an apartment.
Rent/month: $4,744 For a 120 sq. m. property.
Income Tax: 3.40% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.
Roundtrip Cost: 13.36% The total cost of buying and then reselling an apartment. Includes:

* all transaction taxes and charges:
* lawyers' and notaries' fees
* agents' fees

Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000.
Cap Gains Tax: 15.00% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation.
Landlord and Tenant Law: Strongly Pro-Landlord Rating is based on a detailed study of each country’s law and practice.

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