Investing in Japanese real estate can be rewarding, but selecting the wrong property is a serious risk that all buyers should seek to reduceโif not eliminateโin the search process. For first-time overseas investors looking to access Japanโs property market, especially in the Tokyo area, it is absolutely essential to choose properties that not only meet but exceed security and long-term value.
It shouldnโt be necessary, but think about it: if you enter this market and clumsily secure your foothold, what does that make you? Not the smartest investor. So, in the interest of helping you put your best foot forward in Japanโs fabulous apartment ecosystem, here are five red flags to avoid.
Structural Issues
Properties with structural issuesโsuch as compromised foundations, water leaks, or tiltingโcan lead to costly repairs if you choose to address them and will also reduce both livability and resale value if left unaddressed.
Apartments with slab-down pipingโwhere pipes run underneath floor slabs and drain below groundโhave a high water-leakage risk and require extensive repairs. Similarly, direct-flooring apartmentsโfloors installed directly on concreteโand carpet-only properties can lead to noise issues and limit renovation options, making them less attractive for long-term investment.
So unless you plan on running an eyebrow-raising operation or invest heavily in repairsโboth financially and time-wiseโdo your best to steer clear of buildings with structural issues.
Old Earthquake Standard
Japanโs earthquake standards were overhauled in June 1981, making properties built before that date fall under the โOld Earthquake Standardโ (kyลซtaishin). Now, people chasing fantastical returns often opine, โif itโs been standing for the past 70 years, itโs probably pretty solid, right?โ And you know what? That might be true in some cases. But thatโs not the kind of investor you are, is it? No, youโre the kind of investor that likes doing things right, and the truth of the matter is that it is exceedingly likely these kyลซshintai buildings often donโt meet current safety requirements, making them a hassle to bring up to speed, more difficult to finance or sell and in reality more dangerous in the event of a disaster.
Japan is an absurdly seismically-active country, so invest as if you understand that: stick to properties built to the New Earthquake Standard (1981 or later). These properties are safer, easier to bring to market and generally have higher resale value.
Low Reserve Funds
In addition to structural issues that we mentioned at the top of this list, when choosing a property in Japan, youโll want to focus on complexes that are not just solidly built, but also have robust maintenance plans and schedules. An apartment buildingโs monthly reserve funds are the name of the game here, in particular the ยฅ200 per square meter mark. If reserve funds fall under this threshold, the building may easily fall into disrepair, as it simply wonโt have the reserves for future upkeep. And with poor upkeep, youโre looking at steadily increasing deterioration which will hurt both yield and resale value. This is especially true for high-end properties, where a buildingโs appearance and upkeep directly impact investment value. Before putting in an offer, do yourself a favor and confirm that the buildingโs maintenance plan is adequately funded.
Hazard-Prone Areas
Depending on the area, this red flag can be trickier than you might expect, given Japanโs disaster-prone nature and rugged, coastal geography. However, within Tokyoโand with a keen eyeโyouโll generally face fewer issues than in other regions.
Properties in areas prone to natural disasters, such as floods or earthquakes, will come with higher insurance costs and maintenance needs. What do these areas look like? Overly steep land, reclaimed land, seaside, forestry projects, solar farms and much more are all aspects to consider when shopping around for property.
This doesnโt mean that any property ticking one of these boxes should be immediately removed from your list, but rather, knowing these factors in addition to the many others will give you a clearer picture of what to expect from your investment.
Poor Management
Our last red flag to watch out for is the third sibling of Structural Soundness and Sufficient Reserve Funds: Property Management. While itโs difficult to say that this is more important than the others, property management is often the most visible, and almost certainly will be the first to negatively impact your bottom line.
Your tenants will live on your property, and if itโs in bad condition or just downright eerie, itโll be nearly impossible to attract anything but the bottom of the barrel. Poorly managed buildings with insufficient maintenance are off-putting for one, but they are also more prone to quick deterioration. Without proper management, youโll run the risk of ruining your reputation, increasing overhead and reducing resale potential.
Be sure to check the propertyโs current management company, and do some research on alternative optionsโjust in case whatโs up needs to come down.
Taken All Together
Successful property investment in Japan isnโt easy. It requires understanding to avoid potential risks, and there are quite a number of risks. Some of those are listed above (structural problems, outdated earthquake standards, inadequate reserve funds, high hazard exposure and poor management), but there are others. Rest assured, though, that you have recourse: Working with trusted real estate professionals can help ensure that you select properties which meet or exceed your investment goals for secure, long-term value.
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About the Authors
Matt Ketchum is the founder of Akiyaz, specializing in rural exploration, alternative lifestyles, and akiya, or โempty houseโ solutions. He also advises The Delphi Network, Centrum and Hello xLab on creative strategy and business development.
Toshihiko Yamamoto is the founder and lead broker at โYamamoto Property Advisoryโ, a real estate brokerage firm based in Tokyo. With extensive experience in high-end properties, he specializes in serving foreign investors and offers in-depth knowledge of both urban luxury markets and rural revitalization projects in Japan.
