Why are Asian Investors Buying Real Estate in Hokkaido?

  • 11 months ago
  • Uncategorized
  • 1

Japan’s real estate market is attracting many foreign buyers from Asian countries for a variety of compelling reasons.  These factors are creating more demand from China, but also other Asian countries including Singapore, Taiwan, Hong Kong, Thailand, and Malaysia.

While the large size and rich histories of major Japanese cities like Tokyo and Osaka continue to attract substantial investment, recent investment trends show outsized interest in Hokkaido, and in particular for real estate in the Sapporo and Niseko areas.

There are both external and internal reasons why buyers from nearby Asian countries want property in Hokkaido.

Increasing Influence of China and Asian Economies

Asian economies have increasing global significance.  Economic development and modernization, as well as geo-political trends, have created both new capital for investment, and a desire for stable and safe investment opportunities.  Foreign investment from China (and other Asian countries) is increasingly common world-wide, including additional funding coming into Hokkaido for property and real estate development.

Increasing Value of Asian Currencies

In addition, some of the readiness from Asian buyers in recent years is due to changes in the value of the local currencies of those Asian countries versus the Japanese yen.

A review of the recent trading values shows the currencies of China, Singapore, Hong Kong, Taiwan, and Thailand are up an average of 3.7% in the last year (ending July 2023), and up an average of 26% compared to the same time five years ago (source: Find Hokkaido Agents).  For that group of neighboring countries, the Singapore dollar had the greatest gains versus the Japanese yen (a 32% increase), while the Chinese yuan has had the smallest gains (19% since 2018).  Nearly all the major local Asian countries have more buying power recently versus the yen, but the smaller gains in the yuan helps illustrate another pattern; countries like Singapore and Thailand are becoming more notable compared to the previous dominance of Chinese investments.

Restrictions in Land Ownership in China

Chinese government policies around long-term land ownership are one factor driving some Chinese investors to look for opportunities outside of China.
In China, there is no “freehold” ownership of land. China grants long-term leases for property, but no indefinite guarantees of ownership; that means all land ultimately can be assumed by the Chinese government.
In stark contrast, Japan is friendly to foreign ownership of property.  When the Chinese buy property in Niseko and other Hokkaido destinations, those investors often have more security with Japanese real estate than they would in their home country.

Investments and Low-risk Rental Income

While experienced investors in Japan might insist on a rate of return above 10% for rental property investments, in China that would be unusually high ROI. Due to a relatively poor population, Chinese cities often have rental units that yield as low as 2% (Reuters: 2022).

While many buyers from other Asian countries buy for personal use, a large segment of Chinese real estate investors purchase with the goal of actively increasing their wealth.  As Japanese rental properties in Sapporo can offer a greater rate of return than in cities like Shanghai (particularly when combined with a favorable exchange rate), the decision to investment in multi-family property in Sapporo and other cities can be attractive to Chinese investors.

In addition to gains from real estate, the stable real estate market in Japan offers a strong incentive to buyers that want to diversify against more risky investments, and/or to use Japanese real estate holdings as a way to preserve wealth.

Buying property in Hokkaido can have lower geo-political risk than some neighboring Asian countries.

Higher Returns and Speculation

In addition to all the conservative reasons to purchase real estate in Japan, Hokkaido has some of the highest real estate appreciation in the country.  That includes residential and commercial property in central Sapporo, many suburbs of Sapporo (including Kitahiroshima, Chitose, and other neighborhoods between Sapporo and the New Chitose airport), and certainly the increasingly coveted luxury resort property in Niseko, Rusutsu, Furano, and other winter resort communities.

While the first bubble of foreign real estate purchases were led by countries like Australia, much of the recent demand has shifted to Asian countries.  In many cases, the earlier Australian and European investors are able to sell their property to incoming Asian buyers for large profits.  According to Japan’s Ministry of Land, Infrastructure, Transport and Tourism, Niseko town (as perhaps the brightest example) has shown year over year increases for land prices. Each new success story about gains from real estate in Hokkaido encourages additional interest from buyers and real estate speculators.

Both Sapporo and Niseko show real and consistent gains in resale values, making Hokkaido an attractive opportunity for buyers looking for growth.

Proximity to Asian Countries

As we begin to shift focus toward some of the local qualities of Hokkaido that drive both sensible and often passionate decisions to buy or invest in Hokkaido real estate, one of the main influences is the accessibility and proximity of Asian countries to Hokkaido.

Compared to alternate investment locations like the United States, Europe, or Australia, Japan is typically much closer; which means it’s easier to visit and view Hokkaido property for in person, as well as to return and enjoy a second home in Niseko, or to personally oversee rental property investments in Sapporo.  In fact, Hokkaido’s New Chitose airport offers direct flights to some Asian countries like Hong Kong and China.

It is partly because Japan is relatively close to its Asian neighbors that tourism also brings visitors (many of which are affluent) to Hokkaido.  What often begins as vacation, can develop into a longing to spend more time in Hokkaido and offers more exposure to investment opportunities.

Vacation and Tourism

High-wealth individuals that have the money for international vacation often also have the income or existing wealth to support real estate acquisition.  The unique beauty of Hokkaido draws visitors year round, including the “Sakura” season in the spring, access to hot springs throughout the year, and deep powder snow in the winter months.

For many Asian countries, warm climates and low latitudes mean snow is much less common. For an experience of snow in Asia, Hokkaido is not only convenient, but is specifically world famous for perfect powder snow and terrain that supports the full range of recreation.

The combination of the winter Olympics in Beijing and increasing disposable income for wealthy Chinese created more interest in skiing and snowboarding in that country.  Proximity to Hokkaido’s world class snow makes Sapporo and Niseko a popular destination for Chinese individuals and families that want time in the snow.  Many of these visitors enjoy the local experience, which can lead to a desire to buy a ski-in/ski-out condominium in Niseko or to purchase a vacation home in Sapporo.

Hokkaido Offers Relatively Cool Summers

While the snow is not a perfect fit for everyone, outside of snowy winter months, Hokkaido has a mild climate and Sapporo has cooler summers than almost any major city in Asia.  While Sapporo offers a different experience than Tokyo or Osaka, it is also more comfortable for more months of the year than those cities.  And compared to Asian cities like Singapore or Shanghai, Sapporo can offer even greater relief from oppressively hot summer months.

Education

Hokkaido also draws interest from Asian countries for its higher education.  Hokkaido University in Sapporo is consistently ranked in the top 10 for Japan (source: US News and World Report).  Hokkaido University attracts Asian students, bringing increased attention to Sapporo and Hokkaido from students and their families.

Deemphasizing China

While China remains the largest source of foreign investment dollars, recent weakness in the Chinese economy and contractions in the value of the Chinese yuan have slowed the influence of the Chinese in Hokkaido.  Meanwhile, neighboring Asian countries like Singapore and Malaysia are showing stronger interest in Hokkaido real estate, and transactions with these buyers are increasingly common.

The impact and interest of real estate investors from Asian countries have been impossible to miss.  China remains a major player, but investments from other Asian countries are increasing as well.  And while the disparities in the exchange rate fuel continued financial incentives, Hokkaido offers fantastic opportunities to Asian buyers that want to spend time in this very beautiful part of Japan.

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