Foreign Investment Surges 45% in Japan’s Property Sector

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Foreign investments in Japan’s real estate sector have flourished over the past year, supported by a weak Japanese yen as the country’s central bank maintains its ultra-loose monetary policy.

According to Henry Chin, head of Asia-Pacific research at CBRE, Japan is currently experiencing a “golden period of Japanese real estate.” Chin attributes this to the country’s transparent market and strong fundamentals in the retail and multifamily sector. He also points out that favorable lending terms, with a loan-to-value ratio at 70% and borrowing costs around 1%, have bolstered the demand for Japan’s property sector.

The Bank of Japan’s unique monetary position, holding benchmark interest rates at -0.1%, has set it apart from other major central banks that have increased rates to curb inflation. Consequently, the yen has depreciated more than 11% against the U.S. dollar this year.

JLL’s Research Director of Capital Markets in Japan, Koji Nato, reported a 100% increase in foreign investor volume in the first quarter of 2023 compared to the same period last year.

Real estate deal activity in Japan has been robust, with foreign investors nearly doubling their investments from a year ago to $2 billion in the first quarter of this year, as per JLL. CBRE’s data also shows a 45% rise in total foreign investments in Japan’s real estate market in the first half of 2023 compared to the same period in the previous year.

The solid rebound in Japan’s tourism sector has driven increased hotel occupancies and hospitality investments, according to Knight Frank. The approval of the construction of Japan’s integrated resorts in Osaka has further boosted hospitality investments, with the project aimed at attracting international tourists and domestic spending.

The logistics sector in Japan has experienced significant growth, fueled by the thriving e-commerce industry. CBRE’s Chin highlights the retail sector’s strong rental growth and the resurgence of demand for leases in prime and secondary markets in Tokyo and Osaka.

Singapore leads the cross-border investments into Japanese commercial real estate in 2023, followed by the United States and Canada, as per data from Knight Frank.

While uncertainties remain, experts anticipate continued investment inflows into Japan’s real estate sector, although any interest rate hikes or changes in pricing could impact the market. Despite these potential challenges, investors are expected to remain active in Japan’s real estate market for the foreseeable future.