🧭 Executive Summary and Overall Conclusions

Question

Q: In 2025, is the Japanese real estate market still attractive to foreign investors? ?

AIAIGAnswer

Yes. The persistently weak yen and stable macroeconomic environment provide a unique entry window for foreign investors. However, the complexity and rising trend of holding costs are becoming new challenges.
Successful investment no longer depends on the purchase price, but on the meticulous management of ongoing liabilities (taxes, interest rates, management, etc.).

Question

Q: What is the approximate average annual holding cost for a Japanese property? ?

AIAIGAnswer

For typical income-generating long-term rental apartments, the annual holding costs (including taxes, management fees, insurance, etc.) typically account for 20% to 35% of the total rental income.
For vacant or self-used properties, all costs are borne by the owner, with no offsetting income.

Question

Q: What are the main risks of investing in Japanese real estate? ?

AIAIGAnswer

1. Net Yield Squeeze:
• Fixed asset taxes increase with land valuation;
• Rising interest rates push up financing costs;
• Rigid expenses such as management fees and repair reserves grow.
2. Regulatory Traps:
• Vacant properties classified as 'poorly managed' can see fixed asset taxes surge up to six times.
3. Currency Volatility:
• A weak yen benefits entry prices, but if it appreciates, it erodes returns and capital gains denominated in foreign currencies.

Question

Q: Which cities offer strategic opportunities? ?

AIAIGAnswer

• Tokyo: Focuses on long-term capital appreciation.
• Osaka / Fukuoka: High rental yields, suitable for cash flow-oriented investors.
• Minpaku (private lodging) model: Can achieve high returns in special zones, but comes with higher regulatory and operational complexity.

🏦 Macroeconomic and Policy Environment (2025)

Question

Q: How does the Bank of Japan's interest rate policy affect real estate investment? ?

AIAIGAnswer

The Bank of Japan has raised its policy rate to 0.5% in 2025 and expects long-term interest rates to approach 2% by the end of the year.
This means:
• Higher costs for leveraged financing;
• Increased real estate loan rates, compressing cash flow;
• Limited local homebuying demand, with slower price growth in non-core areas.

In short: The era of zero-cost funds is over, and holding costs are rising.

Question

Q: How does the fluctuation of the yen exchange rate affect investment returns? ?

AIAIGAnswer

Exchange rate is a core variable throughout the investment cycle:
• If the yen is weak: Entry prices are low, but rental income and profits shrink when converted back to the home currency;
• If the yen strengthens: Entry is expensive, but profits are more valuable when converted back.
Therefore, investors need to clarify their strategy—bet on the 'advantage of weak yen entry' or 'strong yen repatriation returns'.

Question

Q: Does Japan's political stability mean there are no risks? ?

AIAIGAnswer

Not necessarily.
Although Japan is still globally recognized as a 'capital safe haven', with the surge in foreign investment, political discussions on tightening foreign ownership are heating up.
Potential future risks include:
• New taxes (targeting foreign buyers)
• Stricter purchase reviews
• Purchase restrictions in specific areas

⚖️ Foreign Ownership and Legal Framework

Question

Q: Can foreigners purchase land and property in Japan? ?

AIAIGAnswer

Yes.
Japanese law does not restrict foreigners from owning land or buildings, nor does it require residency status or a visa.
However, note that property ownership ≠ residency rights. Owning property does not automatically grant the right to reside.

Question

Q: What is the 'Domestic Contact System' after the 2024 reform? ?

AIAIGAnswer

Starting in 2024, if the property owner does not have a registered address in Japan, they must designate a 'Domestic Contact' (国内連絡先).
• This can be an individual or a legal entity (such as a property management company or tax accountant).
• Their information will be registered in the official property records.
The significance is that this contact will receive all government notifications, tax bills, and legal documents.
Therefore, choosing a professional management company is much safer than relying on an ordinary acquaintance.

💰 Holding Cost Structure Explained

Question

Q: What are the core tax items for Japanese real estate? ?

AIAIGAnswer

1. Fixed Asset Tax (Kotei Shisanzei):
• Tax rate: 1.4% of the assessed value (approximately 70% of the market price)
• Assessed every 3 years.
2. City Planning Tax (Toshi Keikakuzei):
• Maximum tax rate of 0.3%, applicable in urbanized areas.
3. Tax reductions:
• For residential land up to 200㎡, the assessed value can be reduced to 1/6;
• For portions exceeding that, reduced to 1/3.

Question

Q: Why can vacant houses lead to a sixfold tax burden? ?

AIAIGAnswer

If a house is designated as a "Poorly Managed Vacant House (Kanri Fuzen Akiya)", it loses the residential land tax reduction, and the fixed asset tax on the land portion can increase to six times the original amount.
Possible triggers include:
• Broken windows, unlocked doors;
• Long-term lack of maintenance.
Therefore, hiring a property management company (around 5% of rent) becomes an "insurance premium" to prevent this risk.

Question

Q: What are the common expenses besides taxes? ?

AIAIGAnswer

• Condominium management fee + repair reserve fund: approximately ¥30,000/month (Tokyo average).
• Insurance premiums: fire insurance + recommended earthquake insurance.
• Property management fee: about 5% of rent for rental properties.
• Utility and miscellaneous fees: borne by the owner when vacant, by the tenant when rented.

🏙 City Comparison: Tokyo vs Osaka vs Kyoto vs Fukuoka

Question

Q: Which type of investor should choose which city? ?

AIAIGAnswer

• Tokyo type → Pursuing capital appreciation; accepting low yields.
• Osaka/Fukuoka type → Pursuing stable cash flow; high yields buffer holding costs.
• Kyoto type → Mixed strategy; balancing brand and short-term rental income potential.

🏠 Investment Model Comparison

Question

Q: How are non-residents taxed under a long-term lease model? ?

AIAIGAnswer

• If the tenant is a corporation, the company must withhold 20.42% tax when paying rent and remit it to the tax authority.
• At the end of the year, a Japanese income tax return must be filed, calculating the final tax amount after deducting allowable expenses.
• Common deductible items: property tax + management fees + insurance premiums + depreciation expenses, etc.
• If the actual tax paid is less than the withheld tax, a refund can be obtained.

Actual net yield is generally around 3–4%.

Question

Q: What are the returns and risks of investing in Minpaku (private lodging)? ?

AIAIGAnswer

The Minpaku model is divided into two types:
1. Standard Minpaku (under the Private Lodging Business Act)
• Annual operation limit of 180 days.
2. Special Zone Minpaku (under the National Strategic Special Zone Act)
• Can operate 365 days a year, but with restrictions such as minimum stay requirements.

Summary:
Minpaku is closer to operating a "hotel business" rather than passive investment. High returns come with high management and regulatory risks.

Question

Q: What should be noted if the property is only for personal use or left vacant? ?

AIAIGAnswer

• All fixed costs must be borne by the owner.
• The main risk is being classified as a "poorly managed vacant property."
• Even if not rented out, it is advisable to entrust a property management company to conduct regular inspections to avoid triggering tax penalties.

🔮 Future Outlook and Investment Advice

Question

Q: What is the overall trend of the Japanese real estate market in 2025 and beyond? ?

AIAIGAnswer

The market is in a phase of 'attraction and risk coexisting':
• The weak yen continues to attract foreign capital;
• Holding costs and regulatory costs are rising;
• The gap between different cities and models is widening.
The key to future investment success lies not in 'entry', but in 'management'.

Question

Q: What specific actions should investors take? ?

AIAIGAnswer

1. Assemble a professional team:
Including intermediaries with international experience, judicial scriveners, tax accountants, and management companies.
2. Plan the investment structure:
• Small scale → Hold in personal name;
• Large scale → Consider establishing a Japanese company (Godo Kaisha GK).
3. Emphasize total holding cost budgeting:
Not only look at the purchase price, but also calculate the long-term impact of taxes, interest rates, and management.
4. Clarify investment strategy matching the city:
• Capital appreciation type → Tokyo;
• Cash flow type → Osaka/Fukuoka.
5. Actively manage, rather than passively neglect:
In Japan, the era of 'lazy landlords' has ended. Professional management is the core of the risk defense line.

Question

Q: Is Japanese real estate still worth investing in? ?

AIAIGAnswer

Yes, but it requires professionalism and caution.
The Japanese real estate market in 2025 remains stable and transparent, but holding costs and regulatory risks are rising.
For investors who can actively manage assets and understand the impact of taxes and exchange rates, Japan remains one of Asia's real estate markets with the most institutional advantages.