The appeal of Tokyo real estate for one Singapore family office
Asset owners looking to diversify globally have been drawn to Japan’s real estate market as a result of its depth, maturity, and predictability.
While comparable assets in other regions may promise higher yields or faster returns, Japanese property offers a stable and structured investment environment, albeit with a caveat: patience.
"Japan is a deep, mature market where processes are systematic. The predictability of outcomes is one of its biggest strengths," said Ken Chew, deputy CEO of the Singapore-based single family office of the Xin family, speaking to AsianInvestor.
Xin Family
The asset owner has been exploring investments in Japanese real estate since the beginning of this year.
Chew observed that Japan’s recent economic recovery further bolsters the attractiveness of its real estate sector.
“The recovery seems sustainable this time with corporates now willing to give real salary increases, which provides a solid footing for growth that may translate into a virtuous cycle for this huge economy,” he explained, linking the improved economic outlook to potential inflation and rising capital values.
Unlike many other Asian markets, Japan has no restrictions on foreigners buying property. Assets are often freehold and, while taxation isn’t especially low, proper structuring can help optimise tax liabilities, Chew highlighted.
For family offices accustomed to navigating complex global investments, this adds to Japan’s appeal.
A recent report by Knight Frank on real estate trends in Japan supported the increasing interest from investors. International investors are gradually re-entering the Japanese market, capitalising on favourable long-term prospects, according to the property consultancy.
The trend was most evident in established players seeking opportunities in prime locations and high-quality assets where they offer a stable yield spread.
For instance, BentallGreenOak acquired Honmachi Garden City in Osaka, a mixed-use building, for $422.9 million in May 2024, representing a 3% cap rate for the hotel component and a 3.4% cap rate for the office component.
Knight Frank expects 23% of total APAC cross-border flows to target Japan in 2024.
STARTING POINT
For family offices entering Japan, residential real estate often serves as the ideal entry point.
“Residential is usually the easiest one to start with, especially for foreigners. There’s no ABSD (Additional Buyer’s Stamp Duty), and it’s relatively safe,” Chew said.
Residential investments allow newcomers to the market to gain experience while ensuring stability.
"Think about it: What’s the worst that could happen if you buy a prime property in a key gateway city like Tokyo? You’re relatively safe, and you’ll potentially still get some capital appreciation over time," he said.
Even if returns weren’t astronomical, they could provide a secure foothold, Chew added, citing examples of 10-20% gains over five years during previous market cycles.
On potential risks, Chew observed that, while risks exist in any investments including real estate in Japan, the family office also sees them as opportunities.
"If something scares off most investors, that’s where we can capture upside profits if we can identify the risks comprehensively, and mitigate or minimize the risks through proper structuring or other solutions," Chew explained.
Tokyo, unsurprisingly, is the primary destination for the Xin family and the deputy CEO noted it to be a good starting point for any family office entering the space.
“My advice for newcomers interested in Japan is always to start with Tokyo. It’s more international and easier to understand the market there, and once you do, it becomes simpler to develop your frameworks for the other regions,” Chew said.
The advice aligns with broader industry trends.
According to a 2024 PwC survey, the Tokyo market continues to rank as a top destination for real estate investment in Asia due to its liquidity, transparency, and institutional support.
Residential properties, in particular, benefit from stable occupancy rates and modest but steady rental growth, making them a favoured choice for conservative investors, said the survey.
While opportunities exist in many areas within real estate, some require deeper market knowledge and active involvement, underscoring the importance of careful evaluation, the deputy CEO added.
"Some family offices I know are moving beyond residential to look at hotels for example,” he said.
KNOWING THE NUANCES
Chew stressed the important of cultural competence, and not just financial readiness, in navigating Japan’s markets.
“The Japanese way of doing business isn’t the Western way,” he observed, emphasising the need for family offices to adapt their approach.
Establishing trust and relationships are crucial, a process that often takes longer in Japan than elsewhere.
"They are slow, but it’s for a reason. They take the time to do your work properly, and you must respect that process," said Chew.
He added that this applies even when working with international teams who speak English.
To accelerate market entry, many family offices partner with brokers or trusted local sponsors. Chew noted that brokers, in particular, play a pivotal role in bridging gaps for foreign investors.
"Good brokers can simplify things, especially for newcomers. They know who can be trusted and who are the best providers," he said.
Nonetheless, the executive warned against underestimating the effort required.
“It can take one to three years to go from deciding to enter the market to acquiring an asset,” he observed, adding that family offices must be prepared for the long haul.
Even with the right introductions, meetings can often extend beyond formalities.
"You’ll have to meet with principals, probably have a few drinks, and build relationships beyond work over time before they trust you,” Chew said.