Surge in Foreign Investments Drives Japan’s Real Estate Boom
Japan’s real estate boom continues with a 45% surge in foreign investments, primarily from Singapore and the United States. Japan has maintained a cheap yen and an ultra-loose monetary policy, which have buoyed the real estate market.
Foreign companies invest in Japanese real estate while the rest of the world raises monetary interest rates and tightens their economies. Japan has done the opposite, making investing advantageous while the yen is weak and their monetary policy remains loose.
Key Factors Fueling Japan’s Real Estate Market
Other factors include transparency and strong fundamentals surrounding retail spaces and multifamily properties. Apartment buildings and hotels are being bought up remarkably quickly. The tourism industry in Japan returned to normal levels this year after being down because of the COVID-19 pandemic. July 2023 saw the highest tourism levels since 2020, sparking a rise in hotel occupancy, according to Christine Li of Knight Frank.
“Given the limited availability of new hotel rooms in the foreseeable future, the upward trend in occupancy rates is anticipated to continue,” Li’s article read.
Japan’s first casino is currently being constructed in Osaka to raise higher tourism levels. This drew hospitality investments from international and domestic companies.
Henry Chin of CBRE noted that demand for leases in Osaka and Tokyo is also up. The rental sector is seeing strong growth, pointing investors towards apartment buildings.
Singapore has been the leading source of cross-border commercial real estate investments in Japan in 2023, with $3 billion in acquisitions to date, according to Li. The United States comes in just behind Singapore at $2.5 billion, with Canada trailing at $1 billion.
The Bank of Japan has upheld a -0.1% interest rate on the yen over the past two years, contrary to other global currencies that have raised interest rates to curb inflation. The yen has weakened over 11% against the US dollar this year alone. However, this has been positive for the real estate market in Japan. The Japanese interest rate policy is mainly responsible for keeping the global real estate market strong, according to JLL’s Research Director of Capital Markets in Japan, Koji Nato. “Foreign investor volume saw a 100% increase in Q1 2023 on a year-on-year basis,” Nato commented. Foreign investors nearly doubled their investments from one year ago in the first quarter of 2023 from $1 billion to $2 billion. Total foreign investments in Japan’s real estate market rose 45% in the first half of 2023 compared to the first half of 2022.
Chin and Li acknowledged that the real estate market is susceptible and may tighten soon, but they remained optimistic that the boom will continue. Chin said, “We expect investors to continue to deploy capital into Japan, and it is unlikely to change in the coming few quarters.” I wrote that if a tightening policy were introduced, it would likely reduce investor interest in the short term. However, she predicted that if the policy change reflected evidence of broadening inflation, it could help continue the real estate boom.
