Exploring Tokyo’s Real Estate Phenomenon: A Magnet for Investors Worldwide
In a world where the dynamics of the real estate market are constantly shifting due to various global economic factors, Tokyo stands out as a notable exception.
3 minutes to read
While many global markets have seen a divergence in the performance of rents and prices, primarily influenced by construction delays and interest rate hikes, Japan's capital has charted its own unique course. Japan's sustained loose monetary policies have played a pivotal role in widening the gap between prices and rents, making Tokyo an attractive destination for both local and international investors.
The surge in property prices: a closer look
Since the Federal Reserve began its interest rate hike cycle in Q1 2022, Tokyo's property prices have surged by over 20%, reaching an average transacted price of JPY 2.3 million per square meter (approximately US$15,410 per square meter). The skyrocketing prices are largely attributed to the burgeoning demand for high-end condominiums, a sector where buyers are eagerly seeking opportunities to invest.
A significant factor contributing to the allure of Tokyo's real estate market is the depreciation of the yen. This currency trend has rendered properties in Tokyo relatively inexpensive compared to other major global cities. According to Knight Frank's Wealth Report 2024, US$1 million can purchase 64 square meters of prime property in Tokyo—double what buyers can acquire in Singapore and nearly triple that in Hong Kong (see Figure 12).
The role of foreign investment and demographic shifts
The influx of foreign buyers has played a crucial role in shaping Tokyo's real estate landscape. Approximately 20% of high-priced condominiums transacted in central Tokyo are purchased by foreign investors, many of whom come from the Asia-Pacific region. This trend is complemented by a growing population in Tokyo, which is the only prefecture in Japan to witness population growth, bolstered by an increase in foreign residents that surpassed 3 million nationwide for the first time in 2023. Projections indicate that Tokyo's population will continue to grow until at least 2030.
Knight Frank’s Wealth Sizing model anticipates that the number of ultra-high-net-worth individuals (UHNWIs) in Japan will rise by over 10% through 2028, further supporting demand for prime residential properties.
Navigating through inflation
Despite inflationary pressures leading the Bank of Japan to reverse years of exceptional easing policies—culminating in a recent rate hike that set the policy rate at “around 0.25%”, its highest since 2008—fundamentals are expected to prevail over increased funding costs. While interest rate hikes typically exert downward pressure on prices, the strong fundamentals of Tokyo's market and the ongoing demand for prime properties will likely sustain price increases.
The resilience of Tokyo's real estate market is also evident in the continuous rise in land values within the capital, marking eight consecutive quarters of growth. This sustained demand, particularly for condominiums in prime districts, is occurring amidst soaring construction and labour costs, necessitating strategic pricing for new launches. New units priced over JPY 100 million (approximately US$662,000) rose by 72% from the previous year, according to the Real Estate Economic Institute.
What lies ahead: an optimistic outlook
The outlook for Tokyo's real estate market remains optimistic, with expectations of sustained price increases for both new and existing condominiums. The market is characterized by a polarization effect; while some areas experience significant price surges, others may see stagnation or slight declines. Properties in coveted locations such as Roppongi are anticipated to attract keen buying interest. Additionally, the preference among Asia-Pacific buyers for prime condominium towers with stunning views—particularly in districts such as Chuo and Minato—highlights the lasting allure of Tokyo's real estate landscape.
Tokyo's market is well-positioned for ongoing expansion, driven by robust demand from both domestic and international investors. The combination of favourable economic conditions, demographic trends, and limited supply creates a compelling environment for investment. As buyers navigate this dynamic landscape, strategic considerations regarding location and property type will be essential for capitalising on the opportunities that lie ahead in one of the world's most vibrant cities.
For more insights, please download the latest edition of Knight Frank’s Asia-Pacific Horizon series, Quality Life-ing: Mapping Prime Residential Hotspots, report below.