Most apartments in Japan will eventually be owned by Chinese people.

According to an article in Shueisha Online, last year, the number of visitors to Japan surpassed the pre-pandemic record set in 2019. With inbound tourism increasing year by year, real estate prices, including apartments, have seen significant rises. Shueisha Online's opinion piece examines why there's growing interest in Japanese real estate among foreigners and the potential problems this trend poses.

"In the not-too-distant future, most high-rise apartments in central Tokyo may belong to Chinese people," suggests a tax accountant who works with wealthy foreign clients. In 2024, the average price of a new apartment in Tokyo's 23 wards exceeded 110 million yen—marking the second consecutive year that prices have surpassed 100 million yen. According to one real estate industry insider, "For now, there is no reason for prices to fall in desirable locations."

This demand is undoubtedly supported by vigorous investment from foreigners, fueled by the weak yen. For example, approximately 30% of units in Harumi Flag in Tokyo's Chuo Ward cannot be confirmed as occupied, with many reportedly owned by Chinese investors.

Journalist Yukio Kitakami, who specializes in Chinese affairs, explains: "About 60% of Chinese real estate owners in Japan are Chinese residents here, while the remaining 40% are investors from mainland China and Hong Kong. While investment returns are certainly a factor, their main purpose is asset protection—they want to keep their wealth safe overseas. Japan is geographically close, and the rental yield is better than mainland China, making it an ideal choice."

However, there's another significant reason for the increasing foreign ownership of Japanese real estate: differences in inheritance and gift tax policies. Several countries, including China, India, Malaysia, Singapore, and Australia, don't have inheritance taxes. While the United States does have an inheritance tax, the basic deduction exceeds 1.5 billion yen, making it practically non-existent for most people.

Wealthy individuals from countries without inheritance taxes can maintain and grow their assets across generations through compound interest. If Japan were to welcome wealthy overseas investors without restriction, Japanese citizens—who face inheritance taxes so high that most assets are typically depleted within three generations—would be unable to compete. Eventually, high-value real estate could end up predominantly owned by wealthy foreigners, particularly Chinese nationals seeking overseas assets.

"However, foreign nationals who are residents in Japan are subject to inheritance tax," notes the tax accountant. "Even non-residents inheriting Japanese real estate will pay inheritance tax on that specific property. But if the property is owned by an overseas corporation, inheritance tax can be avoided. Alternatively, individual non-resident owners can simply sell the property when they become elderly."

The situation is dramatically different from that of Japanese citizens who are often forced to sell real estate to pay inheritance taxes. Countries without inheritance taxes typically don't have gift taxes either, allowing overseas investors to sell Japanese properties as parents age, with their children using the proceeds to purchase new properties in Japan.

The tax accountant adds, "While the new apartment might technically be subject to gift tax, it's difficult for tax authorities to prove that a child's purchase was funded by the proceeds from the parent's property sale, especially for foreigners living overseas."

Beyond inheritance tax concerns, there are additional issues with capital gains avoidance. Kitakami explains how some foreign owners circumvent Japan's real estate transfer income tax: "For example, a Chinese person living in Japan might buy an apartment for 100 million yen that appreciates to 150 million yen in three years. They could enter into a sales contract at the original purchase price of 100 million yen—the lowest price that wouldn't raise red flags with tax authorities—and settle the 50 million yen difference in Chinese yuan. This allows them to avoid the roughly 20 million yen in transfer income tax they would normally owe in Japan."

This situation could lead to Japan's most desirable properties increasingly owned by foreigners, with Japanese citizens relegated to being tenants. The resulting rent payments flowing overseas would constitute capital outflow—a far cry from economic stimulation through inbound tourism.

Former Finance Ministry official Fumihiro Sakurauchi criticizes the current policy: "It's political negligence that non-resident foreigners can buy Japanese real estate under the same terms as Japanese citizens. By contrast, Singapore recently raised its additional stamp duty for foreign buyers without permanent residency from 30% to 60%, and to 65% when purchases are made through corporations or trusts."

Sakurauchi suggests applying principles of reciprocity under international law: "People from countries like China, where foreigners cannot acquire land and buildings, should face similar restrictions in Japan. Additionally, establishing rules that prevent corporate registration for residential high-rise apartments at the development approval stage could help address this issue."

Real estate professionals point to another concerning trend: "One major factor behind soaring urban apartment prices is the escalating cost of potential development sites. Prime locations near stations that are suitable for apartment buildings overlap significantly with hotel demand. Hotels offer higher profit margins, outbidding apartment developers and driving up prices as supply decreases."

There have also been reports of foreigners purchasing entire rental apartment buildings in urban areas to convert them into vacation rentals, significantly raising rents and displacing residents—effectively threatening the housing environment for local citizens through inbound tourism policies.

Critics argue that politicians and government officials continue promoting these policies without acknowledging their negative aspects, possibly due to strong ties between government and industry interests. A 2020 report in Shukan Bunshun magazine revealed that following the approval of the Go To Travel Campaign budget, 14 tourism-related organizations donated approximately 42 million yen to 37 LDP lawmakers.

The question remains whether Japanese politics will continue prioritizing corporate interests even as Japanese citizens face increasing economic challenges. This political attitude, some fear, will be exploited as more Japanese real estate transfers to foreign ownership.