7 Reasons Why Foreigners Are Interested In Buying A Home In Japan, Especially Now
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- 14 Jun 2022
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Foreign interest in Japanese residential real estate was strong throughout the pandemic even though people weren’t able to come to Japan to do property viewings.
As the country has started to ease border restrictions, at Real Estate Japan, we have seen a surge in buyer interest and inquiries in the last few months.
In this post, we won’t be discussing the merits of Japan as the world’s third largest economy, its stable political and legal infrastructure, and the high level of public safety, although these are reasons often cited for the advantages of Japan as a place to live and invest in. So why are foreigners, especially now, particularly interested in exploring the idea of buying a home in Japan?
Below, we’ll be taking a look at these points:
- No residency requirement
- No special taxes on foreigners
- No restrictions on ownership
- Very low mortgage rates
- Low inflation
- Weak yen
- Value and affordability
1. No residency requirement, no special purchase process for foreigners
Unlike in many countries, there are no legal restrictions on foreigners buying property in Japan. You can buy a home or investment property in Japan whether you currently live here or abroad and whether or not you are a citizen.
However, buying property in Japan does not entitle the purchaser to receive a Japan residence visa. So purchasing a home is not a pathway to qualifying for a visa that would allow you to live in Japan.
There are also no special procedures or fees required for foreigners to purchase real estate in Japan. In some countries, the purchase process for residents and foreigners is different.
For example, in Australia, foreigners who wish to buy an investment property must apply to and pay an application fee to the Foreign Investment Review Board (FIRB). Foreigners are also prohibited from buying existing dwellings. They may only buy new dwellings and vacant land, with the aim of building on it. These rules were put in place in an effort to ensure that Australian citizens are not missing out on ownership opportunities.
There is also no residency requirement to buy a home in Japan. In China, foreigners are allowed to purchase property, but they have to have studied or worked there for at least one year on residence permit. They are also only allowed to buy one residential property for dwelling purposes and also may not rent out the property or act as a landlord.
2. No special taxes on foreigners
Japan does not impose special taxes on foreigners who purchase residential property.
Some countries and regions, including British Columbia (Canada), Singapore, and Hong Kong impose a special tax on residential real estate transactions carried out by foreigners.
British Columbia, for example, imposes a Foreign-buyers tax of 20% when a purchaser, who is not a Canadian citizen or permanent resident, purchases residential real estate property in certain areas of metro Vancouver. The tax was imposed to significantly raise the cost of buying a home for wealthy foreign buyers and to slow down rapid price appreciation which was essentially making it unaffordable for residents to buy a home.
3. No restrictions on ownership
Japan does not have restrictions on ownership of land. If you buy a freehold property, you also own the land in perpetuity. However, Japan also has leasehold properties, which is something to be aware of when you are looking at a property listing.
In some other countries, when you buy a property, you are only buying the dwelling not the land on which it sits. The government grants you a leasehold to the land for a certain number of years, for example, 70 years in China. If the government decides to revoke the leasehold, they may do so.
4. Very low mortgage rates
Mortgage rates in Japan are very low compared to most other countries in the world and are likely to remain so for the foreseeable future.
In March 2022, the average interest rate for a Flat 35 loan, a popular type of mortgage loan in Japan, which has a fixed rate over the 35-year term, was 1.430%. For comparison, according to Bankrate.com, on, Monday, March 28, 2022, the average 30-year fixed-mortgage rate in the United States was 4.56%, up 1 basis point over the last week.
Variable mortgage loans in Japan also continue to remain at historic lows. For example, auJibun Bank (an online bank, which is a joint venture between KDDI and Mitsubishi UFF Bank), has an advertised rate of as low as 0.310% for a variable rate mortgage, as of March 2.
Can foreigners take advantage of these low mortgage rates?
Foreigners are able to get home loans from Japanese banks, but it is difficult to qualify unless you have permanent residency (PR), are married to a Japanese citizen, and/or are at least resident in Japan with an established work history. For more information on how residency status can affect qualifying for a home loan, we recommend attending one of our free webinars on the benefits of getting permanent residency or a long-term visa in Japan.
Are mortgage rates likely to stay low in Japan?
The U.S. long-term interest rate (10-year Treasury bond) has risen sharply since the beginning of the year as the Federal Reserve has hastened to tighten monetary policy in the face of rapid inflation. The Fed has also indicated that it projects six more increases in 2022, for a total of 150 basis points. As of March 28th, the yield on the 10-year Treasury bond vaulted to above 2.5% to three-year highs.
The 10-year government bond in Japan has also risen since the beginning of the year due to the rise in the U.S. long-term interest rate. As of March 28th, it was 0.260%, which is still within the interest rate guidance target set by the Bank of Japan (BOJ). The BOJ has also stated that it will continue with its easy money policy, despite some signs of rising prices. This suggests that it is unlikely that any rise in interest rates in Japan will be as great as that of U.S. long-term interest rates.
5. Low inflation
Japan has had low inflation for the past 30 years. If you can lock in a low-interest, fixed-rate mortgage, then the cost of your home will stay the same as the value of your property rises.
The average sales price of a newly constructed apartment in Japan reached a record high of ¥51,150,000 ($443,000 USD) in 2021 (up 2.9% compared to 2020) and the fifth consecutive year of year-on-year record increases.
The prices of both newly constructed condominiums and previously owned homes in Tokyo and other major cities have risen to record highs in the last few years. In the lead up to the Tokyo Olympics, this was partially due to speculative buyers who expected an “Olympic effect” based on the idea that increased Olympic-related construction and inbound tourism would push up housing prices past 2020.
When the pandemic struck, developers of new properties and owners of existing properties pulled back on listing properties. This caused a huge drop in supply of residential housing, from which Tokyo and Osaka have not yet fully recovered. Demand has also risen, as mortgage rates remain low and more and more companies are allowing employees to work from home. The result is record high prices, as supply has not yet caught up to increasing demand.
Low inflation is likely to continue
Since 1990, Japan has recorded average annual real growth of about 0.8% and inflation of 0.4%.
In its January quarterly outlook report, the BOJ revised up its inflation forecast for the year beginning this April to 1.1% from the previous estimate of 0.9%. It also slightly raised its inflation forecast for fiscal 2023 to 1.1% from 1.0%. The BOJ started quantitative easing in March 2013, with a target of hitting 2% inflation. Reaching this goal has remained elusive. The BOJ has also indicated that it does not expect to hit this target for at least the next two years.
Japan has not been immune to pandemic supply chain issues and the rise in commodity prices due to the war in Ukraine, but inflation is unlikely to rise as much as in other countries.
6. Weak yen
For foreigners using U.S. dollars, Euros or other currencies that have been appreciating against the yen, a weaker yen means that you can stretch your budget more when you are shopping for a home in Japan.
In the last few months and especially this week, the USD-JPY exchange rate has been a hot topic among policy makers, currency traders…and potential homebuyers who have dollars to buy or invest in Japan.
Throughout 2021, the yen held steadily at about ¥110 to one US dollar, but since the beginning of 2022, the yen has fallen by about 6% versus the greenback and is the worst performer among developed country currencies. The yen’s fall is mostly due to the widening interest-rate differential between Japan and the U.S.
The yen has also lost ground against the Euro, which is increasingly supported by expectations that the European Central Bank will raise rates later this year.
On Monday, March 28th, the dollar rose to a more than six-year high against the yen, briefly rising above 125 yen to the dollar.
The impetus for this was that BOJ tried on the 28th to defend its 0.25% yield cap by offering to buy an unlimited amount of government bonds (JGBs) for the first four days of this week. The BOJ’s announcement did not stop 10-year yields hitting the upper limit of the BOJ’s policy band, but it sent the yen into a spiral.
As of March 31st, the USD-JPY rate is about 122 yen to the dollar.
A weak yen is also not all good for Japan because it increases the cost of gas and electricity, which Japan needs dollars to buy.
However, for those shopping for real estate in Japan with dollars to exchange to yen, thus far in 2022, currency movements have effectively discounted the yen list price by about 6% compared to 2021.
What is the USD-JPY rate outlook? In the current environment, with the war in Ukraine and sanctions on Russia, it seems difficult for the U.S. to push down the dollar because the world is turning to the U.S. to substitute for Russian energy. At the same time, BOJ Governor Haruhiko Kuroda also said this week that a weak yen is positive for the economy and that commodity inflation will not prompt the BOJ to change its monetary policy. Read More...
