Investing in real estate is a popular strategy for diversifying an investment portfolio and securing steady income streams.
At Argentum, we believe that property is a tried-and-true method to create and protect wealth in a way that offers diversification from capital markets. Tokyo real estate, in particular, offers unique advantages that make it a compelling investment option.
This article will examine five key reasons why investing in Japanese real estate is a smart choice.
Reason 1: Stable and Predictable Income
One of the key benefits of investing in Tokyo real estate is the stable and predictable income it can provide. Japan’s rental market is known for its long-term leases, often lasting up to two years, which can provide investors with a reliable source of income.
Also, Japan is generally considered landlord-friendly, with laws and regulations in place to protect the rights of property owners.
For instance, landlords in Japan have the right to evict tenants who fail to pay rent or breach the terms of their lease agreement, and the eviction process is typically faster than in other countries.
In Japan, landlords require tenants to provide a guarantor as part of the application process. The guarantor is typically a Japanese resident with a stable income and good credit history or a guarantor company. The guarantor is responsible for paying any outstanding rent or damages if the tenant fails to meet their obligations. This system adds another level of protection to the landlord if the tenant does not pay the rent.
Reason 2: Potential for Appreciation
Another reason to consider Japanese real estate is the potential for appreciation. In recent years, the Japanese government has implemented policies to stimulate the real estate market, which has led to increased demand for properties. This demand, combined with Japan’s historically low-interest rates, has created favorable conditions for property appreciation.
With the Tokyo property market currently booming (condominium prices hit all-time highs for the second straight year in 2022), there is increasing interest from clients in Japanese real estate for both residential and investment purposes.
Capital appreciation, when combined with rental yield, high leverage, and low-interest rates, all combine to create potential gains attractive for investors.
Reason 3: Diversification and Risk Management
Investing in Japanese real estate can also provide diversification benefits for an investor’s portfolio. Real estate markets have a lower correlation with other global markets, which can help mitigate risk. The Japanese real estate market is also established and stable, with a robust regulatory framework protecting investors. We’ve included our mortgage calculator below for your convenience.
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Reason 4: Inflation Hedge
During inflationary periods, the value and purchasing power of fiat currencies such as the Yen decreases.
On the other hand, the value of real assets such as property increases, thus making real estate a good inflation hedge. With Japan seeing four-decade-high inflation in 2022, moving to real assets becomes more attractive than sitting in cash.
Owning investment real estate also provides a stream of rental income, which can also serve as a hedge against inflation. As inflation increases, the rental income generated by the property is likely to increase as well, with higher rents helping to maintain the value of the investment.
Reason 5: Leverage
Leverage in real estate refers to using borrowed funds or financing to purchase an investment property. The idea behind leveraging is to use a relatively small amount of capital to purchase a property and then use the income generated by the property to service the debt while the property increases in value.
Leverage allows investors to increase their purchasing power and acquire larger and more valuable properties than they could with their funds alone. Using leverage, investors can earn a higher return on their investment by amplifying the gains made from the property’s appreciation and rental income.
Leverage is another key benefit of investing in real estate. Japan’s low-interest rates and high loan-to-value ratios make it easier for investors to borrow money to invest in real estate, potentially increasing their returns. However, investors should carefully consider their risk tolerance and ability to repay loans before taking on significant amounts of debt.
Please note that property is generally available only to Japan residents with a steady income in Japan. Also, having permanent residency will give you better borrowing opportunities. If you are not residing and working in Japan, real estate purchases will be cash-only.
Putting it all together
Investing in Japanese real estate offers a range of benefits for investors. The stable and predictable income, the potential for appreciation, diversification benefits, inflation hedge, potential tax advantages, and leveraging opportunities make it a smart choice for any investor looking to expand their investment horizons.
If you’re interested in exploring Japanese real estate investment opportunities, please get in touch with us today for a free initial consultation. Argentum’s real estate experts can help you navigate the Tokyo market and identify properties that align with your investment goals and risk tolerance. We will help guide you through the entire process, from start to finish, to ensure a smooth and stress-free experience.
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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