This is the first entry in a three-part series on housing for foreign residents in Japan.

Clickbait headlines like “Get a free house in the Japanese countryside!” have popped up over the past several years — and while the idea of moving into an old home in bucolic rural Japan sounds amazing in theory, the reality is more complex. Nonetheless, a number of factors have collided recently to create unique opportunities in the housing market for foreign residents of Japan.

Japan’s slowly but steadily rising prices, openness to foreign investors, excellent architects and infrastructure for house building — and an increase of resources and agencies for acquiring akiya, or abandoned, often ultra-cheap homes — have combined to make Japan an attractive environment for non-Japanese looking to acquire real estate, be it a primary home, secondary home or investment.

According to reporting on Global Property Guide, Japan house prices increased 0.8% in 2020 year over year, a shockingly modest increase compared to other highly developed countries — for example, 10.3% year over year growth in the U.S. in 2020. And while the pandemic has weakened demand overall, Alex Toyoda at Plaza Homes, a Tokyo-based real estate company, says that while foreigners are scarce due to the pandemic, the market hasn’t changed much due to the increasing demands of wealthy Japanese.

“Shutting the borders completely closed off foreigners from entering the country,” Toyoda says. “But to our surprise, the market for expats has barely changed because of the increasing demand from Japanese. And where we’ve lost expats in the rental market, the buying and selling market has been very strong.”

Some buyers have turned toward searching for larger homes with an extra bedroom for an office or a pet-friendly apartment, but the overall market hasn’t drastically altered.

“Residential property lending has not skipped a beat and has been very healthy throughout the pandemic,” confirms Adam German at ReThink Tokyo, a guide to Tokyo real estate.

On the other hand, COVID-19 has caused rents in the struggling hospitality, restaurant and retail industries to decrease, but most housing markets have remained largely unharmed by the pandemic.

“Housing focused on foreigners is a unique, high-end industry,” Toyoda says. “Most of the buyers are looking for their own homes, seeking a better environment. Most people are focused on Japanese housing not for the investment, but for themselves.”

Since implementation in 2012, the reflationary policies of former Prime Minister Shinzo Abe, known as “Abenomics,” have buoyed the housing market. As a result, the market has seen modest price growth, changing Japanese real estate from a deflationary asset to a growing one. The change has spurred investments in Japanese real estate from wealthy investors throughout Asia.

The benefits of being central

Japanese and specifically Tokyo real estate prices are very low compared to those of cities such as Hong Kong, Singapore and London, so buyers from wealthy countries have taken advantage of Japan’s relatively low real estate prices and high yields. A weaker yen has also encouraged foreign buyers. (Since 2012, one dollar has gone from ¥80 to nearly ¥110.)

“Ninety percent of wealthy Asian clients buy as an investment,” says Mitsuo Hashimoto at Housing Japan, another Tokyo-based real estate firm. “There’s a lot of interest in high-rise buildings in central Tokyo. This central market used to be dominated by expats, but after the market crash in 2008, more wealthy Japanese started to move into the market, especially with stocks and prices increasing since 2012. It’s a healthy rise — not like a bubble.”

Hashimoto also notes that many foreign companies stopped paying moving expenses for expats after ’08 and turned to hiring foreign workers that were already based in Japan. This has led to more expats renting and buying outside of central Tokyo and moving further into the suburbs.

“I still recommend our clients to buy as central as they can, because those residences will appreciate the most in value,” Hashimoto says.

While prices and demand in the housing market have remained steady and slowly growing in recent years, residential construction has plunged, mostly due to Japan’s massive supply glut. An extremely limited supply of the types of housing preferred by many non-Japanese — larger, more spacious, open-plan homes — has further forced expat renters and buyers farther out of central Tokyo.

“The supply is very scarce for top-end properties, while there’s an endless supply of smaller studios,” Toyoda says. “Construction just isn’t fast enough to meet the demand.”

Take your pick: The COVID-19 pandemic has spurred many foreign residents to consider buying property in Japan. Realtors are here to tell you that it’s not as difficult as you may think. | GETTY IMAGES
Take your pick: The COVID-19 pandemic has spurred many foreign residents to consider buying property in Japan. Realtors are here to tell you that it’s not as difficult as you may think. | GETTY IMAGES

Still, the Tokyo market has managed to avoid some of the disastrous housing trends that have struck other major cities.

“If you look at New York, London and Singapore, you have foreign buyers paying very high prices, so prices in the central area go up because of foreign investors,” says Hashimoto. This trend has notably led to gentrification and displacement of locals.

But Hashimoto says he doesn’t see the same trend manifesting in Tokyo, even as more investors capitalize on Tokyo real estate. “Central Tokyo is very large compared to central Hong Kong or New York City. I think the market will still be dominated by local people in Tokyo.”

The current picture of the Japanese housing market is a lot of hustle and bustle around the top, high-end properties, and a massive supply glut for the rest. And while the focus of real estate companies remains at a high-income level — expats, Asian investors and wealthy Japanese — the supply glut presents opportunities for Japan’s large middle class, as well.

“The middle class has arguably been the least affected by recent real estate trends,” says Hashimoto, “since those employed at big companies have stable salaries and protection.”

A house in the country

The akiya homes that have captured the world’s attention are one such opportunity. With the population of Japan in decline, there is a surplus of abandoned homes around the country. The Japanese government has started to put some abandoned houses and apartments back on the market and, in 2017, introduced a scheme to make vacant homes available to rent, but the initiative failed to attract homeowners. Still, companies and services have emerged as of late to help prospective buyers take advantage of these homes.

“(Akiya) started as a quirky thing which was then proven viable, then somewhat desirable, then recently valuable with the onset of coronavirus,” says Matt Ketchum of Akiya & Inaka, a real estate company focused on akiya and rural homes.

The biggest challenge, besides the state of disrepair that many of these homes have fallen into, is that often, akiya do not have updated legal heirs. If the title deed to a house shows someone who was born in the 19th century, chasing down their legal descendants and buying the property can prove to be practically impossible.

“The main reason why attractive akiya don’t move is because they’re locked away behind an anachronistic bureaucratic system that is generally impenetrable to the layperson,” Ketchum says. “So once we find you something that looks nice … engage professional services unless you are extremely confident in your ability to navigate rural real estate agencies’ idiosyncratic methods.”

Companies like Akiya & Inaka and government initiatives such as the Akiya Bank Program have started to turn akiya from an idea into a reality. Experts recommend using exclusively established listings to ensure that a house is actually available for sale and doing extremely thorough due diligence.

Ketchum says that the pandemic has further helped spark interest in these homes. Compared to the high expenses and long time frame of building a custom home, akiya can realistically come in at under ¥20 million.

“Then there are the health, financial, workstyle and lifestyle benefits of extricating oneself from the city center,” says Ketchum. As resources continue to increase for akiya, they appear to be a viable option for foreign residents with either lower budgets or greater flexibility, especially as support for purchasing them continues to rise.

Designing for retirement

For those with larger budgets or more specific requirements for their home, Japan’s expansive house-building industry presents exciting opportunities for foreign residents. Ryoma Katsura, CEO and founder of Titel, a company that specializes in connecting foreigners with Japanese architects, says that the quality and flexibility provided by Japanese architects has made house-building an attractive option for foreign residents who are settling down in Japan for the long term.

“Clients are usually very satisfied with architects’ understanding of what they want and creativity and expertise in realizing it,” Katsura says. “People want to build their houses in Japan with all their wishes assembled together as places to live in that they love.”

Ben Tanaka, a retirement advisor focusing on foreign residents at RetireJapan, says that it is important for foreigners to differentiate buying a home from buying real estate for investment purposes.

“While land can hold its value, many homes end up worthless or with negative value,” Tanaka says.

However, he points out that Japanese financing options make buying a smart financial decision for people settling down in one place for the long term.

“Because of low interest rates, a mortgage will often be a lower monthly payment than rent, for a more comfortable/luxurious home. If you are able to live in the same home for decades … you will pay less and enjoy a higher standard of living. However, every time you move you will pay transaction costs of 5-10%, as well as seeing the value of the building go down.”

The Japanese housing market, while presenting unique opportunities, also has distinct challenges for foreign residents. For example, there is the ever-surprising key money for rentals, an extra fee that serves as a gift to the owner. There are also “right of residence” laws that heavily protect renters. These laws mean that owners tend to have extremely stringent requirements and background checks for renters, which has led to widespread housing discrimination against non-Japanese. In the buying market, those purchasing apartments should conduct thorough due diligence because a wave of recent reports has shown that some real estate companies do not disclose information about land quality and severely underestimate the cost for repairs and maintenance.

Overall, slow but steady market growth and a wealth of resources make the current housing market attractive for foreign residents.

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