Foreign Buyers and a Tourism Boom Are Fueling Japan’s Luxury Real Estate Market

Those seeking second homes in the country should look at these cities before prices rise even further and inventory gets tighter

If the array of climates, landscapes, world-class culture, food and history aren’t tempting enough, Japan offers second-home buyers strong value compared to other Asian markets. 

As of Oct. 25, 1 yen was worth US$0.0067, reaching only a high of US$0.10 in the past three years. This helps money stretch further, even on luxury properties. In its 2023 annual wealth report, London-based real estate consultancy Knight Frank reported buyers with US$1 million to spend can purchase 60 square meters, or 636 square feet, of prime property in Tokyo, almost double of what they can get in New York or Singapore and nearly triple that of Hong Kong.

Right now luxury is on the mind of buyers in Japan as the sector grows in a manner not seen before. Traditionally, Japanese buyers have lived in modest dwellings, said Michael Chen, CEO of Hokkaido-based real estate company H2 Group.

It’s only in the past several years, Savills reports, that “ultra-luxury” residences have grown in popularity. In March, the London-based real estate firm reported such homes were sustainably priced, “only around two to three more times expensive than mid-market units on a per tsubo [per 35.58 square feet] basis.”
Wealthy foreign residents, primarily making their second homes in Tokyo are leading this shift, and prices are on the upswing. The average price of a new central Tokyo apartment increased to a record 129.6 million yen (about US$863,000) between January and June, according to Japan’s Real Estate Economic Institute. Yet this figure was stretched by a few expensive units going on the market.

What remains to be seen is how luxury real estate prices in tourist areas will perform, but there’s good reason to expect growth. Even though Japan’s population is expected to decline in the coming decades, tourism is a potential economic ballast. In July, 2.3 million tourists visited Japan, the most in a single month since 2019.

Outsized potential may exist in tourism hotspots, where increased visitors, tight luxury inventory and commercial and infrastructure upgrades offer potential for properties to appreciate even more. 

For instance, new bullet train developments, like the Linear Chuo and 2030 Sapporo lines will better connect large metropolitan areas in Japan and, according to Savills, potentially “improve overall business productivity, as well as open up new areas for real estate and tourism development, and should provide a major windfall for the Japanese economy.”
As opposed to existing homes, luxury buyers in Japan will choose from mostly new builds, much of it in the development pipeline, Chen said. While comparatively modest properties sometimes get listed at luxury prices, those languish on the market compared to the real deal. 

“If it’s a true luxury product, it can go quickly,” he said, adding that few people sell existing luxury properties.

For luxury buyers looking for a second-home with strong upside potential in Japan, these three markets offer potential for benefiting from a tremendous amount of growth projects that will reshape the luxury real estate and tourism markets.

Fukuoka

Located on the northern shore of Japan’s Kyushu Island, Fukuoka is the country’s fifth-largest city. Once a critical port for the Silk Road trade routes, it’s currently a tourist hotspot because of its blend of urban life and natural beauty and world-class dining, though it also harbors Silicon Valley aspirations. Chen said Fukuoka is an up-and-coming city with ambitions of being a Japanese tech center. “There’s a view that luxury real estate will follow the tech investment that’s happening in Fukuoka,” he said. Unlike other Japanese areas, Fukuoka’s population is expected to remain stable in the coming years.

While Kenta Makishi of List Sotheby’s International Realty Japan said there are fewer luxury areas in Fukuoka than in other high-end hotspots Niseko and Kyoto, a Ritz-Carlton hotel and residences opened this summer, instantly elevating the scene. According to the Japanese land ministry Land Value LOOK Report, which tracks “intensively used land,” like urban high-rise districts, Fukuoka residential land value increased by 6% or more in 2023’s second quarter, outpacing numerous markets, an increase over the prior quarter when it hovered between 3% but below 6%.

Several redevelopment projects, including a revamp of Hakata Station and a slate of mixed-use towers in the Tenjin Station area are planned to be completed throughout the decade which will make the city more attractive to and functional for tourists.

Kyoto

Vacationers know Kyoto, on the island of Honshu, for its traditional architecture, historical temples and shrines. A further part of Kyoto’s attraction is its proximity to Tokyo, offering residents easy access (only three hours by bullet train) to one of the world’s great metropolises.

“Kyoto is known for its narrow streets and limited land availability,” Makishi said. “This limited supply of accommodation options in the face of increasing demand leads to higher prices.” He added Kyoto has strict bylaws, which can make it difficult to push new developments forward.

Makishi said Kyoto’s luxury buyers are split between foreign and domestic. Because of the recent tourism boom, both are increasingly buying investment properties. Kyoto’s residential land value change, according to the Land Value LOOK Report in the second quarter was between 0% and 3%, unchanged from the prior quarter.

Kyoto may also see an uptick in real estate values from an integrated resort currently being developed in the neighboring Osaka area. A consortium led by MGM Resorts is creating a new destination for gaming and entertainment in Japan. Estimated to cost around US$10 billion, developers expect the integrated resort to attract 20 million annual visits once it opens in 2030.

Earlier this year, Kyoto became the first city in Japan to move ahead with a vacant home tax. Proposed for 2026, unoccupied vacation homes are among buildings which may be taxed at least 0.7% annually of their dwelling value, with additional taxes owed based on the land value. The newspaper Asahi Shimbun reports the tax will apply to urban real estate valued at 1 million yen (about US$6,700) or more, though some traditional and historic buildings will be exempt.
 
Niseko/Hokkaido

With its light powder snow, ski resorts and lengthy season for hitting the slopes, on the island of Hokkaido in Northern Japan, is known as one of the world’s great alpine areas. “Most of Southeast Asia is quite hot, and people want to get out of that,” Chen said. 

Niseko’s popularity among international tourists, particularly those from Australia and other Asian countries, has been on the rise, Makishi said. “The availability of high-quality lodging options and amenities further enhances Niseko’s appeal, attracting affluent tourists who are willing to pay a premium for a premium experience.”

Though the broader Hokkaido’s Q2 2023 Land Value LOOK Report posted price appreciation  between 0% and 3%, similar to the prior quarter, Makishi said of these three areas, Niseko has the highest upside potential. “Interest from foreigners is only increasing,” he said. “There are many development projects by well-known hotel brands, and land prices are rising.” 

In Knight Frank’s 2023 ski property report it says typical dwellings “include two to three bedroom condominiums between 100 and 150 square meters in size with average prices between US$500,000 and US$1.5 million.” A 2022 Report from Phuket, Thailand-based consultancy C9 Hotelworks identifies 18 projects with residential components, including luxury hotels, under development in the Niseko region.

Chen said there’s a prevailing view among the local industry that the next real estate cycle is starting in Niseko “and this cycle can be the best one of all them yet.”

(MANSION GLOBAL)