In this episode, we are going to show you our findings based on a survey data from the Ministry of Land, Infrastructure, Transport and Tourism. Here below demonstrates the ranking of important factors that global investors have considered when deciding which location to make a real estate investment in Japan.
1st – Real estate market stability (77.8%)
Not surprisingly, market stability is the top priority for most investors when engaging in the real estate market. Japan is always considered as a highly developed and stable country to invest in. Japan’s growth rate is comparatively lower than other developing countries, global investors however see investing in Japan is less risky although it also depends on what to invest in and when to invest. As of 2018, Tokyo was also ranked 2nd city with the most Fortune 500 headquarters, after Beijing. The establishment of many global corporations in Tokyo provides a degree of economic stability that creates an environment global investors have a higher incentive to invest.
Data source: The Japanese Real Estate Investment Market 2018, from Nomura Research Institute, Ltd.
2nd – Real estate market liquidity (75.9%)
For most real estate investors, buyer and seller traffic are indicators showing how active the market is. Low transaction volume is the least favorable to investors and drive them away from entering the market as low transaction volume means that it is rather difficult to find a buyer. Global investors, however, have rated Japan’s real estate market as highly active which apparently is a good sign for investment. In Japan, several real estate laws and measures have also been established.
1994 Real Estate Specified Joint Enterprise Act
1998 Act on Securitization of Specified Assets
2000 Act on Investment Trusts and Investment Corporation
Act on Securitization of Assets
These laws aim at generating asset value rather than just driving up real estate prices. Also by utilizing securitized financial instruments, buying and selling activities are encouraged so as to attract more investors’ participation. More investors and more activities together can form a comparatively lower risk market environment for everyone. More details on these laws may be discussed in the latter days of this article series.
3rd – Average yield on real estate (73.6%)
In this survey, 45.9% of respondents have aimed at an investment yield of 3-5% while those of 29.7% have aimed higher, 5-10% yield. The yield can possibly be improved by increasing the rental rate, cutting running expenses, and so on. There are various ways to achieve higher investment returns.
4th – Real estate market size (70.4%)
As shown below, Japan was ranked the 2nd largest commercial real estate market in the world as of 2012 and accounted for about 10% of the world’s total. The US has been the main source of investment whilst Singapore has been an active participant. After 2010, investors from Hong Kong and China have joined in. As of 2015, the inbound scale had seen an upward trend.
※Data source: Ministry of Land, Infrastructure, Transport and Tourism - 2016 Environmental Improvements for the Internationalization of the Real Estate Market
What do you think about the criteria that global investors consider to be important in deciding their investments? Instead of going after a ‘big dream’ in developing countries’ markets, there are many ways to profit from less risky and stable markets with strong legal protection in developed countries.
-The Japanese Real Estate Investment Market 2018 from Nomura Research Institute, Ltd
-Real estate vision 2030 from Ministry of Land, Infrastructure, Transport and Tourism
-2016 Environmental Improvements for the Internationalization of the Real Estate Market by the Ministry of Land, Infrastructure, Transport and Tourism, Land Economy and Construction Industries Bureau
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