Why Investing in Tokyo Real Estate is a Smart Choice: 5 Key Reasons

Investing in real estate is a popular strategy for diversifying an investment portfolio and ensuring stable income streams.

At Argentum, we believe that ownership is a tried and true method of creating and protecting wealth in a way that offers capital markets diversification. 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 main benefits of investing in real estate in Tokyo 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.

Additionally, Japan is generally considered landlord-friendly, with laws and regulations to protect the rights of property owners.

Landlords in Japan have the right to evict tenants who do not pay rent or violate the terms of their lease, and the eviction process is usually faster than in other countries.

Landlords in Japan require tenants to provide a guarantor as part of the rental application. The guarantor is usually 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 for the landlord if the tenant does not pay rent.

Reason 2: Appreciation Potential
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 an increase in demand for properties. This demand, combined with Japan’s historically low interest rates, has created favorable conditions for property appreciation.

With Tokyo’s real estate market currently booming (condo prices hit all-time highs for the second year in a row in 2022), there is growing customer interest in Japanese real estate for both residential and investment purposes.

Capital appreciation, when combined with rental yields, high leverage, and low interest rates, combine to create attractive potential earnings 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 strong regulatory framework that protects investors.

Reason 4: Inflation Hedge
During inflationary periods, the value and purchasing power of fiat currencies such as the yen decrease.

On the other hand, the value of real assets like property increases, making real estate a good hedge against inflation. With Japan seeing inflation at its highest level in four decades in 2022, investing in real assets becomes more attractive than holding cash.

Owning investment real estate also provides a stream of rental income, which can also serve as a hedge against inflation. As inflation rises, 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 the use of borrowed funds or financing to purchase an investment property. The idea behind leverage is to use a relatively small amount of equity to purchase a property and then use the income generated by the property to cover the debt while the property increases in value.

Leverage allows investors to increase their purchasing power and acquire larger, more valuable properties than they could with their funds alone. By using leverage, investors can earn a higher return on their investment by amplifying the gains generated by property 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, they 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 large amounts of debt.

Please note that properties are generally only available to residents of Japan with a stable income in Japan. Additionally, having permanent residency will give you better loan opportunities. If you do not reside or work in Japan, real estate purchases will be cash only.

Investing in Japanese real estate offers a variety of benefits to investors. Stable and predictable income, appreciation potential, diversification benefits, inflation coverage, potential tax advantages, and leverage opportunities make it a smart choice for any investor looking to expand their investment horizons.