Kyoto was the imperial capital of Japan for more than a thousand years. Founded in the eighth century as Heian-kyō, “the capital of tranquillity and peace”, the city enjoyed a heyday as the epicentre of Japanese culture for the next 300 years. Many of the city’s oldest landmarks date from this period, such the Tō-ji and the Daigo-ji, the Buddhist temples, and the Ujigami Shinto shrine. In 1994, Unesco recognised 17 such historic sites in and around Kyoto as a collective world heritage site.
But to think of Kyoto as a museum is to do it a disservice. Agents in Japan report an active property market that has been boosted by the economic policies of Prime Minister Shinzo Abe, so-called Abenomics.
“Since the positive economic influence of Abenomics in 2013, there has been a strong demand for high-end residential properties,” says Sonny Saito, chief executive of Japan Capital Realty, an affiliate of Christie’s International Real Estate.
Prices have risen due to a lack of supply. “Due to strict Kyoto city development restrictions protecting views of temples and shrines, only a limited number of low-rise apartment buildings of up to 10 storeys can be built,” says Saito.
The key areas are in the central Tanoji area (the local term for a grid created by the most upmarket streets) and the Higashiyama area on the eastern side of the city, which is home to high-end property developments and many of the ancient temples and shrines.
The average property price in Kyoto is about $400,000 for a home of 70 square metres, according to Saito. In Tanoji, homes are a little more expensive, about $530,000.
“We are seeing more European customers coming into the market due to a weak yen with respect to the euro,” says Saito. Of his domestic buyers, Saito says, most are second-home buyers. “Also, many corporate owners are buying as a corporate asset, including chief executives of international companies from Asia and Europe,” he says.
According to figures from Knight Frank, the estate agents, condo prices across Japan have increased 35 per cent since 2010. Over the next five years, Oxford Economics forecasts Kyoto’s gross domestic product to grow at a rate of about 2 per cent per year.
With a lot of investment coming from China, some agents have expressed concern that new capital control laws brought in at the beginning of 2017 will have put a break on the Kyoto property market. Not Saito, though. He says buyers with the means to buy high-end properties have already expatriated funds outside of the mainland, typically through Hong Kong.
Investors can expect only relatively modest yields of between 3-4 per cent, agents say, and are typically in it for the potential to flip homes for a profit. However, in recent years, the machiya — historic wooden homes once owned by merchants — have been providing an interesting investment opportunity for overseas buyers. They turn them into hotels or rent them out on Airbnb, the accommodation-sharing website, to cater for the 55m people who visit the city each year. Estate agencies that specialise in selling machiya, such as Hachise, launched an English-language service in 2014 to accommodate growing foreign demand.
“In the next five years, values of mid-priced [homes] may settle, since it’s a spotty market, but luxury property prices may be on the up, as international buyers are seeking luxury properties to invest in or use as a trophy vacation home,” says Saito.
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