Resilient Property Values in TokyoTokyo is many things: Enigmatic, frustrating, progressive, backwards, baffling, ugly, super-cool. Blade Runner’s Tokyo-inspired neon futurescape remains the benchmark for science fiction film full stop. Often inscrutable but not nearly as unwelcoming as is often perceived, it is the sleek ideal of what you’d expect in a sprawling modern megalopolis of 30 million — Mexico City’s barely contained chaos being the opposite.

The Quiet Capital
But Tokyo still flies beneath the property investment radar despite being home to 50 percent of the country’s listed companies and its political and cultural capital. The low-key tide, however, may be turning. Japan and Tokyo’s economies are looking up on the heels of Prime Minister Shinzo Abe’s so-called Abenomics, which are underpinned by a host of measures designed to keep the long-stagnant country on an upward trajectory. Employment reform, medical industries, agricultural reform among others will go along with the country’s traditional drivers in electronics, automotive and what Time once dubbed “gross national cool” — cultural exports. The July 21 elections to the Upper House are widely expected to be a lock for Abe’s Liberal Democratic Party giving him the kind of stability that will allow him to move forward with his policies. And there’s more. In September the IOC decides whether or not Japan will host the 2020 Olympic Summer Games (last held in 1964). All signs point to a bright future, and capital gains over rental yields

And Akihiko Mizuno, head of Japan capital markets for Jones Lang LaSalle in Tokyo, admits to rising foreign investment interest. Though not a traditional investment hotspot like Hong Kong, Singapore and increasingly Kuala Lumpur, Japanese REITs saw a 500 percent bump in investments in 2012, and Asian investors are leading the charge. Only 10 percent of Tokyo’s real estate is held as investment property (compare that with other financial hubs such as London and New York where rates average 50 percent) but Asian investors currently represent the biggest foreign investor group in Japan at a whopping 90 percent.

It hasn’t been easy, and Japan is still living in the shadow of the 1980s’ bubble, a significant language barrier and a lack of transparency, but Mizuno is confident things are shifting for the better. One other problem? Japan’s track record of strained relations with its neighbours, chiefly China and South Korea. “Taiwan is okay though!” enthuses Mizuno while admitting, “But of the 90 percent, not many are Chinese investors. I don’t know if it’s so much the political issues as the Chinese government not really allowing the remittance of capital outside China. We’re expecting some to try and buy through Hong Kong.” China is often regarded as the holy land for developers but “I don’t think Japanese developers are thinking about Chinese capital yet. CIC, the big sovereign wealth fund, they invested in Japan. But individuals … not yet,” adds Mizuno.

Jumping the Hurdles
Most investment activity is concentrated in the CBD, comprised of Tokyo’s five powerhouse “ku”: Chiyoda, Chuo, Minato, Shibuya and Shinjuku. Where elite Hong Kong flats are priced in the range of $20,000 to $30,000 per square foot, Tokyo’s finest central apartments — the city’s dominant property type — can be picked up for half that, sometimes as little as $10,000 per square foot. One and two-bedroom units are most popular for investors, as those are the best renters for professional locals and expatriates alike. Larger units (three- and four-bedroom apartments) are largely the domain of Tokyo families. And then there’s sizing. Japan, like Korea with its pyong, uses tsubo (about 36 square feet) and jo, a standard tatami and the way bedrooms are still measured, which is roughly 17 square feet. Odd, but not insurmountable.

“The biggest hurdle is mortgages,” points out Mizuno. “If we had more banks that would [finance] non-residents this market would explode. The big funds have no problem but individuals are still kind of limited.” Ironically the Bank of China is one of the few that will finance non-resident buyers in Japan.

Typical projects for sale now slot alongside developments like the new Branz Azabu Mamiana-cho development by Tokyu Land Corporation, the first Japanese property to be marketed overseas (a Hong Kong launch was held at the end of June). Set for completion in January 2014, Branz Azabu is located in a prestigious district, steps from Tokyo Tower, Roppongi Hills and a raft of embassies. The 10-storey tower, a few minutes’ walk from four different subway stations, offers 140 freehold units from approximately HK$4.9 million. The development is an exemplar of the kind of long-term investments Mizuno talks about, and rewards the patient (holding the property for five years or more) with a capital gains tax half of short-term turnover (15 versus 30 percent). Rental income tax swings wildly — anywhere from 5 to 40 percent — depending on income after expenses and the owner’s status (individual or corporation). A newly expanded Haneda Airport (about four years back) has made getting into the city infinitely easier than from Narita for the 168 flights arriving at Tokyo from Hong Kong each week and will likely be a boon to investment. Bubble or no bubble, Japan remains a crucial — and massive — economy, and it appears its property market is finally starting to reflect that.