As Tokyo prepares to showcase itself to the world during the Olympic Games next year, the government is capitalising on the global spotlight to boost foreign investments in the economy. “International investors often invest in the cities that they like and are familiar with, so this global event is a great opportunity to attract more people who may eventually invest in Tokyo’s property market,” says Kentaro Sato, director of international residential business (Japan) at JLL.
Regina Lim, head of research for Southeast Asia at JLL Singapore, adds that new legislation has been drawn up to attract more foreign investments and skilled foreign workers into the country. Other incentives include lowering corporate taxes, easing visa requirements, and providing foreign employees with more language support while they are in Japan.
For the last six years, residential properties in Tokyo have recorded capital appreciation of 5-6% per year
This complements urban rejuvenation plans for the metropolis. Lim says: “The urban populations in Tokyo and Osaka are increasing every year, and the government has come up with initiatives to rejuvenate these two cities. Close to US$28 billion ($37.89 billion) has been invested to achieve this.”
Tokyo is considered to be a relatively safe investment haven, and one of the most stable investment destinations due to its relatively stable political situation and attractive currency exchange rates.
While the metropolis cannot compare to emerging property markets in Southeast Asia – which have seen properties enjoy 10% to 20% capital appreciation per annum over the last few years – properties in Central Tokyo have recorded capital appreciation of about 5% to 6% per annum for the last six years, says Sato.
“As the population is still increasing in Central Tokyo, so too will property prices continue to climb, as long as the overall economy grows,” he adds.
This year, the total real estate investments for the whole of Japan are forecast to reach JPY3.2 trillion ($38.9 billion) compared to about JPY3.1 trillion last year, according to a CBRE report in January. Japan’s property market remains attractive for foreign investors amid the continued low interest rate environment, the report says.
The Bank of Japan – the country’s central bank – has set itself the open-ended target to increase the inflation rate to 2%, but it has not yet achieved it. Until then, the current financial easing is expected to last and low interest rates for mortgages are likely to continue, says Sato. “Given that the mortgage rates for condominium units are as low as 1.3% for investments, and 0.5% for own stay, the property market in Japan continues to benefit from the current financial environment.”
Key neighbourhoods in Central Tokyo are identified by the government as the rejuvenation centres for the city, and these include the Shinagawa, Shibuya and Shinjuku neighbourhoods. “We see more foreigners living in these areas, as well as land price appreciation and a stronger rental demand there,” says Lim.
The property market is seeing more developments in central locations near the Central Business District or key stations in suburban Tokyo neighbourhoods like Mitaka and Tachikawa. New residential developments with easy accessibility to offices and amenities will be key draws for local homebuyers, says Sato. “Many Japanese households in cities are becoming double-income families, and both adults prefer to live near their office in a convenient location in the suburbs,” he says.
Large-scale projects are already in the works, including the redevelopment of the Shinagawa Price Hotel into a mixed-use development featuring offices and retail outlets. Meanwhile, Shibuya will see seven new high-rise buildings over the next eight years, comprising six office towers and one residential tower, injecting close to nine million sq ft of new floor area.
But for the past three years, property developers have had a difficult time winning private land bids for new residential developments due to the increasing demand for hotels. More sites developed into hotels mean fewer sites for residential developments.
“Except in the Tokyo Bay area, the supply [of new residential projects] in prime residential areas in Central Tokyo is expected to be limited,” says Sato.
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