If you’ve been watching the real estate market in Tokyo, you might be wondering:
What’s going on? Why is property increasing in value to such an extent this year?
While it may seem like a sudden surge, the truth is that property prices in central Tokyo have been on an upward trajectory for quite some time.
What’s different now is the pace at which these values are climbing.
Let’s explore the factors driving this unprecedented growth and whether it’s still a good investment opportunity.
1. Japanese Loose Monetary Policy and Friendly Lending
One of the fundamental drivers of Tokyo’s real estate boom is Japan’s commitment to a loose monetary policy. Unlike many countries grappling with inflation, Japan has held its interest rates near 0%.
This decision has given borrowers a unique advantage: the ability to secure loans at almost negligible interest rates. In comparison, the United States currently sees mortgage rates hovering around 6-7%, highlighting a stark contrast that makes Japanese real estate even more appealing.
Moreover, Japanese banks offer remarkably favorable mortgage terms to residents meeting specific criteria, such as possessing permanent residency or a Japanese spouse. Homebuyers can acquire residential properties with minimal to no down payment, making buying rather than renting an easy choice.
Even for those looking to buy properties for investment purposes, the ability to secure investment loans with reasonable down payments and relatively low-interest rates adds to the allure of Tokyo’s real estate market.
2. Yen Weakness and Inflation
The yen’s weakness in the global currency exchange has also played a significant role in the booming property market. Coupled with rising inflation, it has amplified property prices. The increasing cost of raw materials has driven up expenses for constructing new homes and apartments, consequently inflating the prices of existing properties.
As inflation rates surge, individuals are less inclined to keep their money in cash, which loses value over time. Instead, they turn to tangible assets like real estate to hedge against inflation. This shift in investment behavior bolsters the demand for properties in Tokyo.
A weaker yen has additionally attracted foreign investors, both individual and institutional, who perceive Tokyo real estate as a bargain. With borders reopening and tourism rebounding, this trend is poised to continue.