40% of New Apartments in Tokyo Bought by Foreigners... Will Japan Play the Regulation Card? [Kim Yongnam's Real Estate Asset Management]

The Japanese real estate market is now at a major turning point. With apartment prices in central Tokyo soaring by 64% over four years to 2025, the active movements of foreign investors and the response of the Japanese government are changing the market landscape.

A report from Mitsubishi UFJ Trust and Banking Corporation, stating that 20-40% of new apartment units in Tokyo's Chiyoda, Shibuya, and Minato wards are sold to foreigners, holds a significance beyond mere statistics. This is evidence of a structural change created by macroeconomic factors such as the weak yen and the relative undervaluation of Japanese assets. It is particularly noteworthy that wealthy individuals from Asia, especially China, have begun to recognize Japan as a new safe haven for their assets.

However, this phenomenon is a double-edged sword. While foreign investment supplies liquidity to the Tokyo real estate market and promotes its sophistication, it also has the clear side effect of raising the barrier for the Japanese middle class to own a home. In fact, the 9% rise in the median price of new apartments in Tokyo's 23 wards to 89.4 million yen (approximately 840 million won) signifies a serious increase in burden when considering the average income level of the Japanese.

The political response is also accelerating. According to a CNBC report, the Democratic Party for the People (DPFP) has diagnosed that speculative real estate purchases by non-residents have caused a sharp rise in housing prices. To prevent this, they announced the preparation of a bill to regulate foreign real estate, including the introduction of a vacancy tax. This suggests that the Japanese political world is beginning to accept the new concept of real estate security. The proposal by Representative Yuichiro Tamaki to introduce a vacancy tax is a compromise approach that suppresses speculative holding without completely denying market principles. In fact, Tokyo's Chiyoda Ward has requested the industry to restrict the resale of new condos for five years to curb speculation.

But Japan's dilemma lies here. While regulating foreign investment may help the housing stability of the Japanese in the short term, in the long term, it could mean giving up the benefits of attracting international capital that Japan has enjoyed so far. Especially for Japan, which is facing population decline and slowing economic growth, the role of foreign capital is bound to become even more important.

These discussions in Japan are also in line with the recent case of South Korea, which has strengthened regulations on foreign housing purchases. On the 21st, the government designated the entire metropolitan area as a land transaction permit zone for foreigners, imposing prior approval and a two-year real residency obligation. This means that if Japan, following Canada and Australia which have already implemented strong foreign real estate regulations, also moves to regulate, the direction of global real estate investment funds could change significantly.

This, paradoxically, could increase interest in regions or assets where regulations are still relatively relaxed. In addition to traditional Asian hubs like Singapore and Hong Kong, emerging markets in Southeast Asia such as Malaysia, or small and medium-sized buildings and single-building residential properties, are likely to emerge as new investment destinations.

From an investor's perspective, this uncertainty can be used as an opportunity. A strategy of preemptively securing prime assets before regulations are fully implemented, or diversifying the portfolio into commercial real estate or assets in provincial areas that are likely to be excluded from the scope of regulation, will be effective.

Most importantly, the Japanese real estate market remains one of the most mature and transparent markets in the Asia-Pacific region. Despite short-term regulatory changes, in the long run, Japan's urbanization progress, infrastructure improvement, and the government's goal of achieving a foreign direct investment balance of 100 trillion yen (approximately 943 trillion won) by 2030 are expected to support the market's fundamentals.

Ultimately, the changes in the Japanese real estate market are providing global investors with an opportunity to learn the new rules of the game. A balanced strategy that takes advantage of the weak yen and policy incentives as opportunities, while managing the risks of strengthened regulations and social backlash, will be the key to success.

<Korea Economic The Moneyist> Kim Yongnam, CEO and President of GlobalPMC Co., Ltd.