Tokyo’s Olympic-sized Investment Potential

Strong rental demand, stable rents and a weakened yen have investors racing to snap up Japanese real estate

2 Aug, 2017

Tokyo’s Olympic-sized Investment Potential

2020 will be here before we know it—and with it, Tokyo will welcome the Olympic Games. As the city looks forward to hosting the event, with all the tourism benefits it will bring, Japan’s housing market remains upbeat.

Strong capital appreciation, stable rental yields, a weakening yen, and buoyant demand continue to attract international investors to buy Japanese homes.

Japan’s overall residential property price index rose by 4.7% in January 2017 from the same period last year, according to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT).

In Tokyo, existing condominium units’ average prices rose by 3.1% during the year to end-Q1 2017, according to the Land Institute of Japan (LIJ).

That’s why Mandy Wong, Head of International Residential Property Services at JLL Hong Kong, believes international buyers should consider what investing in Tokyo could mean for them.

“The Bank of Japan’s negative interest rate policy, coupled with the relatively weak yen, means that overseas investors can make substantial returns," she says.

The current appeal lies in the positive yield spread between real estate assets and the cost of capital. Banks are left with few investment alternatives than to lend to real estate at “ridiculously cheap” rates, according to research from Price Waterhouse Cooper Asia Pacific.

High housing occupancy levels and stable rents offer investors a steady income stream, with returns looking especially promising on properties in areas such as Shibuya, the wealthiest of Tokyo’s five central wards.

Shibuya is being heralded as Japan’s Silicon Valley, attracting demand from the country’s fast-evolving tech industry. Designated a “national strategic special zone”, it is now is undergoing rapid change. Large office and retail redevelopments are re-establishing it as a major business and retail centre.

Shibuya enjoyed the highest nominal wage growth from 2010 to 2016, according to data from Ministry of Internal Affairs Japan. In turn, this increase in earnings is expected to drive demand for purchasing and renting higher quality housing in central Tokyo.

To meet that demand, several new residential developments are already under construction in Shibuya, with some expected to launch to the market as soon as 2020.

For JLL International Residential Property listings, please click here.

For more information on investing in overseas homes, visit our dedicated webpage, or contact Mandy Wong