Korean money is flowing rapidly into Japanese real estate as the yen weakens. Once dominated by institutional investors, Japan's property market is now drawing individual buyers as well, and the forms of investment are growing more varied. Some are buying tower mansions — high-rise apartment units in Tokyo — for rental income or capital gains, while others acquire second homes for their visits to Japan or purchase small rental buildings to collect monthly rent. But with local home prices climbing steeply and mortgage rates rising, analysts say betting on the weak yen alone has become riskier. Experts stress that buyers must calculate carefully what they can actually earn after taxes, financing and management costs, not just the purchase price.
According to financial industry and overseas real estate investment sources on the 23rd, higher home prices in major Tokyo districts and the burden of loan interest have emerged as key variables for investors weighing Japanese housing. Some are broadening their search to other large cities such as Osaka, while others are cutting back on borrowing and putting more weight on diversifying assets.
Investment Money Pours Into Japanese Property as Individual Strategies Diversify
Data the Bank of Korea submitted to the office of Rep. Kim Eun-hye of the People Power Party shows that remittances by Korean residents to buy Japanese real estate rose about sixfold, from $13 million (about 17.2 billion won) in 2023 to $77.7 million (about 102.8 billion won) last year. The number of transfers over the same period rose to 169 from 74. Through April of this year, 95 transfers totaling $36 million were recorded.
Japan's share of total remittances for overseas property purchases is also expanding. That share climbed to 13.2% last year from 3.5% in 2023, and reached 17.1% in the January-April period this year. The figures cover transfers by both individuals and corporations, and exclude funds raised through loans in Japan, suggesting actual investment is larger.
A shift in how Japanese housing is viewed is also cited as a reason demand is rising. Kim Hyung-yoon, an adviser at law firm Yulchon and a specialist in alternative investments who previously headed KB's alternative investment division, said Japan has emerged from a long stretch of deflation and has seen prices and wages rise over the past three or four years. "During the long deflation, housing was seen as an asset that loses value over time, and that mood is changing as people experience rising home prices and rents," he said.
Cho In-jung, head of Yonsei Kyoto Tax Accounting and a specialist in international taxation, said a considerable number of investors are using Japanese property to diversify their assets. Demand from those who value ease of management is also substantial. "We look at investing in Japanese real estate as investing to avoid large losses rather than to make big money," Cho said. Some buyers want a home to live in themselves, Cho added, because they travel to Japan often for a child's studies or for work.
Individual investors broadly follow two strategies. One aims at capital gains from a later sale; the other collects rent to cover loan principal and interest along with upkeep, while betting on price appreciation over the long run. A common incentive in both is that the weak yen lowers the won-converted purchase cost. In the past, using low-interest loans in Japan to lift returns on equity also drew attention. Interest focused in particular on Japan's housing market, where even foreign buyers can seek loans if they have steady cash flow such as monthly rent, at a time when lending rules in Korea had made financing harder.
In Japan, loan amounts can be assessed based on the cash flow left from a rental property's expected rent after management fees and other costs. Rent alone does not determine the limit, however. A borrower's creditworthiness, the value of the collateral and each lender's own underwriting standards all apply.
Systematic rental management is another advantage for overseas investors. By hiring local management firms, including affiliates of large companies such as Mitsui Fudosan, to find tenants, collect rent and handle complaints, owners can run a property while living in Korea. "There is a system in place for receiving rent through a management company and getting reports on the condition of the home," Kim said. "It is convenient, but the fees have to be factored in as well."
New Tokyo Condo Prices Surge, Pushing Investors to Osaka and Fukuoka
Even with a weaker yen, the advantage of buying shrinks if Japanese home prices rise faster. According to the Real Estate Economic Institute of Japan, the average price of newly built condominiums sold in Tokyo's 23 wards jumped to 142.49 million yen in the first half of this year from 114.83 million yen in 2023. The average price per square meter over the same period rose to 2.226 million yen from 1.727 million yen.
Prices in central Tokyo are an even heavier burden. According to Cho, newly built condominiums in the three central wards typically cost more than 300 million yen. Some tower mansions that have already risen sharply in price yield rental returns of around 2%.
As a result, demand among Korean investors is growing for existing homes, classified in Japan as "used housing," rather than new condominiums. An official at a firm that advises on real estate investment between Korea and Japan said that with equity of 1 billion won or more, used housing in Tokyo becomes an option, while equity of around 500 million won points toward large cities such as Osaka.
The type of home to buy should also change with the purpose of the investment, specialists say. Kim Yong-nam, chief executive of Global PMC, advised drawing a distinction between holding a tower mansion for personal use and diversification and investing in housing that generates continuous rental income.
Rising interest rates must be reflected in any calculation of returns. Kim stressed looking at net operating income, which excludes operating costs, rather than the gross yield obtained by dividing annual rent by the purchase price. If the borrowing rate exceeds the rental yield, negative leverage can set in, in which the more an investor borrows, the worse the outcome.
Yang Jong-wook, a team leader at Shinhan Bank's Real Estate Investment Advisory Center, also understands local loan rates to be approaching 3% recently. That means it has become harder than in the past to raise returns on equity by borrowing more. Yang said some investors are widening their search to outlying areas near train stations or to cities such as Osaka and Fukuoka instead of central Tokyo, while demand for diversification — using one's own capital to secure a second home or a high-end property — remains steady.
Outside Tokyo, prime locations in Osaka's Umeda district and in Fukuoka are drawing attention. Umeda is a well-known affluent area packed with expensive tower mansions. Unlike Tokyo, these areas still have no restrictions on short-term lodging for foreign visitors through services such as Airbnb, and as Chinese investors pull back amid a drop in Chinese tourism, interest from Taiwanese and Korean investors is rising.
An actual case shows how changes in loan rates affect cash flow. One investor advised by Cho bought a tower mansion in Osaka's Umeda for 120 million yen — 70 million yen in equity plus a 50 million yen loan taken out in June at an annual rate of 1.95%. Acquisition and registration costs and brokerage fees were paid separately.
The unit rents for 270,000 yen a month, or 3.24 million yen a year. That is a gross yield of 2.7% against the purchase price. But after management company fees, loan interest, fixed property tax and tax filing costs, the annual remainder shrinks to 803,000 yen. Even that figure comes before repayment of loan principal and additional taxes.
If the rate rises to 3% a year, the annual remainder under the same conditions falls to 278,000 yen. Conversely, keeping the loan rate at 1.95% while raising the monthly rent by 5% lifts the remainder to 956,900 yen. When and by how much rent can be raised, however, depends on the terms of the contract and on negotiations with the tenant. Rising market rents in the area do not immediately translate into higher rental income.
Small Rental Units Over Pricey Condominiums? Actual Cash Flow Is the Test
For those whose goal is securing steady monthly rent, small rental units in areas with strong demand from office workers can be an alternative to expensive tower mansions. "There is a need to lower expectations for further capital gains on tower mansions and pay attention to the cash flow generated by small rental units in areas with an easy commute," Kim said. The point, he said, is to examine whether there is room to renovate after a tenant moves out and reflect prevailing market rents in a new lease.
There are also plenty of documents to check before deciding to buy. Buyers should obtain existing lease contracts and records of actual rent payments, along with tax notices, building management fee and repair reserve statements, and long-term repair plans. Whether the expected rent shown in a listing matches what the current tenant is paying is another item to verify.
Avoiding double-counting or omitting cost items also matters. Fees paid to a firm managing tenants, the building's own management charges and repair reserves are incurred separately. Failing to account for these properly can create a gap between the projected yield and the actual outcome.
"Returns on real estate vary depending on which property you buy in which area and how, so it is dangerous to approach Japanese investment as something that is good no matter what," Kim said. "With loans too, rather than assuming you can borrow a set percentage of the purchase price, you should start by looking at how much principal and interest you can repay out of rental income after costs."
Currency swings and the timing of a sale must also be weighed to gauge performance accurately. Incidental costs at acquisition, taxes and repair expenses during the holding period, and future selling costs all affect returns. Even a gain in yen terms can shrink in won if the yen weakens further by the time the proceeds are converted.
The burden of vacancies or a delayed sale cannot be ignored either. Loan interest and building management fees keep accruing even when a tenant cannot be found or the property cannot be sold at the desired price. What matters, specialists say, is therefore not only the expected capital gain but whether an investor can secure cash flow sufficient to cover costs through the holding period.
"You have to separate investing on expectations of price gains in tower mansions from investing to secure steady cash flow from rental housing," Kim said. "Rather than short-term capital gains, it is worth approaching this from the standpoint of diversifying assets and earning rental income over the long term."