5 Red Flags When Buying Property in Japan
Investing in Japanese real estate can be rewarding, but selecting the wrong property is a serious risk that all buyers should seek to reduce—if not eliminate—in the search process. For first-time overseas investors looking to access Japan’s 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 shouldn’t 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 Japan’s fabulous apartment ecosystem, here are five red flags to avoid.
Structural Issues
Properties with structural issues—such as compromised foundations, water leaks, or tilting—can 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 piping—where pipes run underneath floor slabs and drain below ground—have a high water-leakage risk and require extensive repairs. Similarly, direct-flooring apartments—floors installed directly on concrete—and 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 repairs—both financially and time-wise—do your best to steer clear of buildings with structural issues.
Old Earthquake Standard
Japan’s earthquake standards were overhauled in June 1981, making properties built before that date fall under the “Old Earthquake Standard” (kyūtaishin). Now, people chasing fantastical returns often opine, “if it’s been standing for the past 70 years, it’s probably pretty solid, right?” And you know what? That might be true in some cases. But that’s not the kind of investor you are, is it? No, you’re the kind of investor that likes doing things right, and the truth of the matter is that it is exceedingly likely these kyūshintai buildings often don’t 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, you’ll want to focus on complexes that are not just solidly built, but also have robust maintenance plans and schedules. An apartment building’s monthly reserve funds are the name of the game here, in particular the ¥200 per square meter mark.
If reserve funds fall under this threshold, the building may easily fall into disrepair, as it simply won’t have the reserves for future upkeep. And with poor upkeep, you’re looking at steadily increasing deterioration which will hurt both yield and resale value. This is especially true for high-end properties, where a building’s appearance and upkeep directly impact investment value. Before putting in an offer, do yourself a favor and confirm that the building’s maintenance plan is adequately funded.
Hazard-Prone Areas
Depending on the area, this red flag can be trickier than you might expect, given Japan’s disaster-prone nature and rugged, coastal geography. However, within Tokyo—and with a keen eye—you’ll 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 doesn’t 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 it’s 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 it’s in bad condition or just downright eerie, it’ll 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, you’ll run the risk of ruining your reputation, increasing overhead and reducing resale potential. Be sure to check the property’s current management company, and do some research on alternative options—just in case what’s up needs to come down.
Taken All Together
Successful property investment in Japan isn’t 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.
About the Authors
Matt Ketchum is the founder of Akiyaz, specializing in rural exploration, alternative lifestyles, and akiya, or “empty house” 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 ’Yamamoto Property Advisory’, 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.