Are Luxury Properties in Japan Worth It?
Investing in real estate is a daunting task in itself, but investing in luxury real estate can be even more daunting. When it comes to these types of investments, it is important to understand the nuances of the luxury market and the prime locations to target. This can be a strategic move that offers prestige and high potential returns when done decisively.
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Investment Considerations
There is great appreciation potential.
The average price of newer apartments in major cities like Tokyo has gone beyond ¥100 million. This is a significant increase over the past 5 years, with the anticipation for this trend to continue for the coming years. Premium properties will increase their value over time, especially in prime locations.
Rental yields are favorable.
Luxury real estate provides steady, long-term growth and good rental income, especially in good tourist locations such as Tokyo. For reference, Central Tokyo offers gross yields of up to 4%. A contributing factor to this is access to premium amenities that only luxury properties offer in Japan.
Challenges
There is a high entry cost.
Luxury real estate involves a big initial investment, which may not be accessible to newer investors. Loan requirements for bigger amounts are more challenging and require a significant financial commitment for maintenance.
There are market risks.
Like any other investment, the luxury market also comes with its own set of risks. While demand can be strong, the pace of property appreciation can be slower. This can potentially affect short-term investment returns.
Top Areas for Luxury Properties in Tokyo:
1. Minato Ward
Roppongi, Azabu, and Akasaka are prime areas within Minato Ward that house embassies and international corporations, making it an attractive location for affluent tenants. Luxury apartments and condominiums here have premium rent ranging from ¥300,000 to ¥500,000 per month. Rental yields in Minato are generally from 3% to 4%.
2. Shibuya Ward
Daikanyama and Hiroo are trendy neighborhoods within the Shibuya ward that offer premium condo units. These areas are popular among young professionals and creatives. The average price per square meter is around ¥2.5 million.
3. Chiyoda Ward
As one of Tokyo’s central wards, Chiyoda Ward is considered the heart of politics in Japan. Although a big portion of the area is dedicated to government offices and buildings, there are pockets of high-end residential properties located near the Imperial Palace. Average rent in this area can go from ¥200,000 and above.
