Should a Hong Kong landlord choose to invest in Japan’s property market?

Hong Kong property investors are being torn between the lure of Japan’s property market and the UK’s. As prices in Hong Kong skyrocket, investors are considering markets further afield based on which location can offer them the best deal. We have already looked at whether Vietnam is the next property hotspot, now it’s Japan’s turn. What has the Land of the Rising Sun to offer?

To start, it offers the chance to own freehold land unlike China and Vietnam where the land is leased from the government, or Thailand and the Philippines where the land is leased from private owners. In general, Japan welcomes foreign buyers and does not impose limiting regulations or higher taxes and fees. In addition, the rental yields can be high and buy-to-let investments profitable. It is also a stable market; Japan’s trade and manufacturing continues to be strong against its global competitors so there is unlikely to be a shortage of professional tenants looking to live and work in the major cities. The capital will also be hosting the Olympic Games in 2020 which means a huge boost for tourism.

So what are the downsides to investing in Japan’s property market? For a start, property is in high demand especially in cities which means that it is still an expensive investment, though the weakened yen may help a property investor’s HK dollars go further. Unless you are looking to live and work in one of Japan’s major cities, buying property will make a significant dent in your finances and consequently take time to get to the point where your investment is profitable. Moreover, many Japanese do not tend to rent so tenants are foreign workers who are only posted to international offices for short periods (or only wanting to stay for the Olympic Games for example); this means as a landlord you could experience shorter tenancies, longer void periods and low yields.

While the tourism  market may be booming, this doesn’t bring reliable, long-term tenancies. Japan’s property market also doesn’t have the international student appeal that other prime locations such as London enjoy, with overseas families continuing to choose to educate their children in the UK. The student market is a strong source of potential tenants and London’s educational institutions are renowned for excellence the world over. We see a large amount of parents based overseas looking for high-quality apartments for their children to live in during their studies, which means tenancies of three years or more. Once their studies have finished, they may choose to stay and work in London and it is likely they will want to continue to keep the apartment if they have been happy there. Of course, once the child’s studies have been completed, the property could also be sold to reap the capital growth benefits or leased. Why not check current yields or get a free property valuation using our handy tool?  

London is also a tourist hotspot but it’s the creative, trade and investment businesses that continue to draw more and more professional tenants to seek out high-quality apartments for rent every year.

It’s a trend noted by Yoshi Tsuji, manager of our dedicated Japan desk, who helps Japanese companies, Japanese HR departments and their employees with their accommodation needs in London and who is already seeing more enquiries than last year.

Despite only being four hours away for Chinese investors (compared with 12 hours for London) London still has a stronger pull. As buy-to-let property investments go, the London market continues to be strong against its global competitors offering great value for money in light of sterling’s depreciation. And while Japan is a fairly easy and relatively safe place for a Hong Kong property investor to consider, the downside is that it might prove more labour-intensive to fulfil long-term tenancies than elsewhere in the world. London on the other hand, offers attractive, lucrative and tried and tested investment opportunities that are equally, if not more, appealing for the overseas property investor.

To find out more, or for a personal consultation, please do contact a member of our Hong Kong team at Hong Kong or download our informative resources for landlords.