Unlocking Tokyo’s Real Estate Boom: Why Property Values Are Soaring in 2023

Written by Martin Zotta

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.

Unlocking Tokyo's Real Estate Boom 01

3. Demographics of Tokyo

Despite a declining national population, Tokyo is witnessing a unique demographic shift. People are flocking from rural areas to major cities like Tokyo and Osaka. This urban migration has led to a net population increase in Tokyo, resulting in heightened demand for housing. As we all know, higher demand invariably drives up prices.

Furthermore, Tokyo’s tight labor market, particularly in high-earning sectors, has empowered more couples to enter the real estate market. Women, encouraged to pursue careers even after starting families, are increasingly occupying higher-paying positions. This trend bolsters the purchasing power of many households, further boosting demand for real estate.

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Daikanyama - Unlocking Tokyo's Real Estate Boom

4. Tokyo’s Desirability

Tokyo’s appeal as a place to live cannot be overstated. Japan’s long-term and meticulous approach to development and planning is evident in projects like the soon-to-be-completed Azabudai Hills, which has been in the works for about three decades.

This massive investment extends throughout Tokyo, from Shibuya and Shinjuku to Tokyo Station and Nihonbashi, creating a clean and safe city that remains a highly desirable location for real estate ownership.

Moreover, Tokyo’s emergence as a hub for ultra-high-net-worth properties signals its intent to compete with global cities like New York and London in the real estate market.

Is It a Good Time for Foreign Investors?

Yes, it is still a good time for foreign investors to consider the Tokyo real estate market, especially given the favorable lending conditions. But you will need to be more strategic than before due to price increases that have already taken place. Having a clear goal and strategy for the property you are after will be helpful.

For example, while some clients may be more interested in potential capital gains, higher income yield is more important for others. Every investor’s circumstances are unique; the same applies to every property.

We recommend consulting with a financial advisor first, to determine how property can fit into your overall financial plan, as well as setting realistic and responsible budgets.

Then, a professional real estate agent can help you find suitable properties that make sense financially and help you navigate the lending landscape. You can also browse our Properties page to view properties we recommend each month. The real estate market is dynamic, and expert guidance can help you make informed decisions.

To learn about Japan’s real estate buying process, you can read our article on the topic.

Ginza - Unlocking Tokyo's Real Estate Boom

Who Is Buying?

As a wealth advisory firm specializing in advising the foreign community in Japan, we have witnessed a steady increase in inquiries from clients interested in Tokyo real estate for both residential and investment purposes. Our clients typically include working professionals with higher incomes who have resided in Japan for an extended period, giving them access to advantageous lending options.

If you’re eager to explore Japanese real estate opportunities, we invite you to visit our property page and contact us for a free initial consultation.

Our team of real estate experts at Argentum is dedicated to helping you navigate the Tokyo market, identify properties aligned with your investment objectives, and guide you through the entire process, ensuring a seamless and stress-free experience. Tokyo’s real estate market awaits – seize the moment.

Argentum Wealth does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Argentum Wealth Management is licensed through the Japanese Financial Services Authority to give financial advice. The FSA strongly recommends that you only receive financial advice and services from a locally licensed and regulated firm.

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