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Demographic Shifts and the Rise of Multi-Family Investments in Japan's Housing Market

Written and contributed by QIP's Marketing Team

For the past two decades, investment opportunities in the Japanese housing market have increased. Japan has the biggest established real estate investment market in attracting a significant portion of investments in the region. Remarkably, Japan’s multi-family property market has become a prominent asset class and is now the biggest in the Asia Pacific regarding transaction volumes. In a nutshell, the expectations for Japan’s multi-family market this year are encouraging. 

Urbanisation and Positive Net Migration of Major Cities

Generally Osaka and Tokyo have obtained the higest slice of the huge-scale companies per capita. This distribution has resulted in a stream into these leading cities, with residents looking to reap the benefits of fitting labour market conditions. Osaka, Nagoya, and Fukuoka had a net migration that made up 33% of overall Japanese cities’ net migration in 2020. The influx of young adults aged between 20 and 29 (40%) also drove rental demand. 81% of these who are under the age of 29 resort to renting, lowering the home ownership demographic. Yet, increase in the rental market can be credited to both steady wage growth and soaring house prices. Since 2015, house prices have increased by 17.7%, while wages only increased by 1.2% over the same time span. These lifestyle and demographic changes have been prompting demand for multi-family investments. 

Japan multi-family housing as an outperformning asset class

Steady high occupancy rates (>95%) and low (1-2%) but steady rent increases have been backed by the persistent arrival of young people to these locations. However, the pandemic altered such a situation in Tokyo, and in 2020 and 2021, Tokyo faced a surprising decrease in population emigration. Notably, the occupancy rate and rent level of rental homes for singles dropped, as students started attending classes remotely, tourists returned to their countries, and hotel and food service businesses cancelled their lease contracts. Occupants of studio-type homes in cities have also relocated to the suburbs due to the extended timespan of work-from-home arrangements.

Nonetheless, Japan’s multi-family has generated greater risk-adjusted returns compared to other subsectors. Historically, multi-family has been less affected by recurrent downturns and was the first subsector to recover from the worldwide economic emergency and the pandemic. With its defensive attributes, institutional capital heavily favours multi-family during such critical times. In the country’s multi-family sector, cap rate compression of 50-80bps is evident in the latest portfolio transactions.

As of 2022’s third quarter, year-to-date residential investments were 8% higher than the same period in 2021, the sole sector that achieved growth across all sectors in real estate. The adverse effects of the pandemic on rental residentials for singles would be wiped out and higher activity levels would continue this 2023, with rent and occupancy growth going back to the pre-pandemic situation in leading cities (Greater Tokyo, Osaka, Fukuoka, and Nagoya).

Since 2015, house prices have climbed to 17.7%, while wages only grew by 1.2% over the same duration. Condominium units also have steep prices nowadays. Besides the rising number of small families, these prices would drive the demand for multi-family units. This event would urge families to rent than buy an asset, further reinforcing the multi-family rental demand.

Enhance your portfolio with Japan residential investments, guided by world-class Singapore headquartered private equity

The Japanese market’s stability and predictability are just two of the many reasons why you should invest here. We are QIP, a a Singapore private equity real estate investment firm with an outstanding track record in the residential living market. With our deep expertise in Japan multi-family investment property market, we can definitely be of great service to you.

If you also have alternative investments in mind, please do not hesitate to reach out to us.



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