Japan's property market is making a comeback

For the longest time, Japan's property market has been frozen. Only those investors who had the nerve to sit out plummeting prices, economic crises and catastrophic natural disasters, such as the 2011 earthquake and tsunami, can look forward to better times. There's a sense of some optimism now, fuelled by "Abenomics" - Prime Minister Shinzo Abe's plans to create a positive economic cycle - and the return of foreign buyers.

The housing market has "been robust, with housing starts growing for the fourth consecutive year", NLI Research Institute says in its report for the fourth quarter of last year. "The number of condominium units sold in the Tokyo metropolitan area hit 50,000 for the first time in six years, and the transaction volume in the secondary condominium market posted a record high for the second consecutive year. Land prices have been rising in major cities."

"The boom in new housing continues in Tokyo," Deutsche Asset and Wealth Management says in a recent market report. "The average sales price per unit for newly-built condos in greater Tokyo rose to 49.4 million yen [HK$3.6 million] in the fourth quarter of 2013, the highest price range of the past two decades. The number of units sold rose 37.4 per cent over the same period a year ago, the second-fastest growth rate in six years."

Zoe Ward, an Australian who opened Japan Property Central in May this year and has worked in the Tokyo property scene for several years, says sales have been "really picking up" since early last year. A number of new apartments have been selling out prior to completion - sometimes up to a year in advance, she says.

"Last year, foreigners came back to the market. After the earthquake, people were a bit cautious, and the economy didn't look so good with all the reconstruction. When Prime Minister Abe came into power and got things going again, it brought back a confidence in the market which had been lacking for some time."

Most of the foreign inquiries that Ward is fielding are coming from people in Hong Kong

and Singapore. "Their home markets are overheating and, comparatively, some properties in Tokyo look to be better value for money, and the rental returns are appealing."

Luxury apartments in the top-end development Roppongi Hills hover around 2 million yen per square metre, Ward says. Apartments that don't have the luxury and prestige but are still in the areas that expatriates prefer would have cost around 1 million yen per square metre a year or two ago. However, it's "tough now to find anything under 1.3 million yen, unless it's really old, or far from the station, or doesn't have as much appeal," Ward says. "The most you would pay for a luxurious penthouse - with a big roof terrace, two kitchens and maid's room - is about 3 million yen per square metre. People tell me that's cheap."

Rental yields run at around

4 to 5 per cent gross for a relatively new two-bedroom apartment in a nice area, down from between 5 and 6 per cent in 2010, Ward says. There are higher returns on much older properties, but these are 30- or 40-year-old apartments which might not be up to the present earthquake codes; have very high body corporate fees, which reduces the net return (or there's not enough money in the sinking fund for future repairs); or are in an area of low land value, which makes it harder to find a tenant. "There are places offering 8 per cent returns or more, but there is usually quite an element of risk in those properties, and they are not the ones foreigners are targeting. There is always something behind the high returns."

Of course, stepping away from the capital, one's money goes even further. Yokohama, Japan's second-largest city and located across the Tama River from Tokyo, is fast becoming a popular area for foreign companies and residents. According to Housing Japan, it "offers all the amenities of an international city with very convenient access to all the major business districts in central Tokyo, including Marunouchi, Shinagawa, Roppongi and Shinjuku", at a more reasonable cost of living.

James Yamaguchi, branch manager for Housing Japan in Yokohama, says there are three areas popular with expatriates - Honmoku, Minato Mirai and Yamate. The market for all three has been very active this year, to the extent that supply is struggling to keep up with demand from companies bringing in more expatriates, Yamaguchi says. "We are especially seeing more activity from oil-related companies."

He says rental returns in Tokyo have dropped to as low as 2 to 3 per cent net of late, due to rising land and construction prices, whereas in Yokohama, owners can expect a 3.5 to 4.5 per cent net yield for an apartment costing between 40 and 80 million yen.

Most non-resident investors think of Tokyo because they know it better than other areas, but looking behind the numbers, Yokohama "also has huge potential", Yamaguchi says.

"A 60 million yen, 65-square-metre apartment in Minato Mirai could rent for 250,000 yen, which would give you a gross yield of

5 per cent," he says. "Prime Yokohama rents do not differ that much compared to Tokyo's rentals, but condo prices will differ - that is why you get a higher yield in Yokohama, with a chance for good capital gains."

According to Wayne Zee, of Zee Brothers Homes in Yokohama, demand this year is driven by manufacturing companies such as car giants Nissan and Continental, and oil companies with long-term projects. Since most of the newly arriving expat families have children, rental houses or apartments close to international schools or the Yokohama Country and Athletic Club are proving to be popular.

Zee agrees that rents in Japan are affected by location, size, quality and convenient access to schools, transport stations and shopping centres. "Investors should definitely consider

prime areas, especially close to a station, so it will be easy to sell in the future."

Buying guide:

What you can buy for 380 million yen (US$3.74 million)
A 155-square-metre two-bedroom penthouse with a private roof terrace in Proud Minami Aoyama. It's located just minutes from Omotesando, Japan's fashion capital, and down the road from the Prada and Cartier boutiques, making it perfect for shopaholics and trendsetters.

What you can buy for 5.4 million yen (US$54,000)
A one-bedroom apartment in Kanagawa-ku, Yokohama, built in 1988. An online ad quotes a gross rental yield of 11 per cent for the 18.6-square-metre apartment, which is within a five-minute walk of a rail station.