Axross Asset Advisors Blog

Kyoto's Four Attractive Reasons for Real Estate Investment

Kyoto Real Estate Investment

With 1200 years of history, the ancient city of Kyoto is not only rich in historical value but also boasts a beautiful natural environment, high education levels, and numerous employment opportunities. Recently, Kyoto has also been gaining attention as a prime location for real estate investment. Let's explore the reasons why Kyoto's real estate investment is attractive from the following points.

1. Many Students

Kyoto is home to many universities such as Kyoto University, Ritsumeikan University, and Doshisha University. As of May 1, 2017, the population of Kyoto City was 1,473,110, with approximately 147,034 university and junior college students. This means that the student population ratio is about 10%, significantly higher than the national average of about 3.3% in designated cities. This high student population leads to a strong demand for rental properties such as apartments and studio apartments for single occupants, ensuring rental stability and low vacancy risk.

2. Many Major Companies

Kyoto City is home to the headquarters of many major companies, such as Nintendo, Wacoal, Omron, Sagawa Express, Kyocera, Nidec, and Shimadzu Corporation. The employees of these companies increase the rental demand, especially single employees who support the demand for single-occupant rental properties. Additionally, there is high demand for family-oriented rental properties for employees who are transferred.

Furthermore, Kyoto City ranks 3rd in the "Potential Growth Cities Ranking". This ranking evaluates the growth potential of 100 cities nationwide conducted by Nomura Research Institute. Kyoto City received high evaluations for the following reasons:

  1. Creative City: It actively combines cultural assets, history, and arts, fostering the development of creative industries.
  3. University-led Ventures: With many renowned universities, there is strong academia-industry collaboration. Especially, Kyoto University Innovation Capital (Kyoto iCAP) operates a startup support fund of 16 billion yen, investing in university-led startups. This environment promotes the birth and growth of new businesses in Kyoto.
  5. Global City: It has established its status as an international city with numerous international conferences and a large number of foreign tourists.
  7. High Citizen Satisfaction: Compact urban design and excellent public transportation contribute to a high quality of life.

3. The inbound tourism market in Kyoto is thriving

Kyoto tourism

The recent increase in foreign tourists has exacerbated the property shortage in Kyoto. Kyoto Prefecture ranks 4th in visitation rates by international visitors after Tokyo, Osaka Prefecture, and Chiba Prefecture, and 3rd in the number of overnight stays (12.12 million), following Tokyo (42.73 million) and Osaka Prefecture (18.48 million). Kyoto benefits from inbound tourism profits. The influx of foreign visitors has increased the demand for service industry workers, supporting rental needs. Particularly, there is high demand in industries such as hotels, ryokans, food services, and shopping facilities.
Source: Prefecture Visitation Rate Ranking

Furthermore, foreigners enchanted by Kyoto's traditional crafts and culture are increasingly considering starting businesses in Kyoto. This has increased the demand for office properties, showcasing Kyoto's attractiveness as a business hub. With its unique charm distinct from Tokyo and Osaka, Kyoto is expected to see a further increase in demand for office space from overseas.

4. Rarity Value of Kyoto Real Estate

In Kyoto, there are many historical buildings, and strict building regulations are established under landscape ordinances. To protect cultural properties and cityscapes, Kyoto has stricter regulations on floor area ratios, height limits (up to 31 meters at most), and rules concerning scenic views. As a result, despite high demand for residential, accommodation, and commercial spaces, the supply of new properties is restricted, leading to a situation where demand outstrips supply. Consequently, there is a tendency for the rarity value of real estate, including apartments and other property types, to be higher.

In fact, the rarity value of new apartments in Kyoto Prefecture is overwhelming compared to Tokyo. Below is a comparison of the number of new apartment units released in both cities from 2021 to 2023.
The total number of units released over three years is 6,185 in Kyoto and 43,559 in Tokyo. The number of new apartment units released in Kyoto City is about one-seventh of Tokyo's. Due to the scarcity of real estate in Kyoto, it is said that people from around the world are waiting for vacancies, making purchasing a apartment in Kyoto highly advantageous.

Comparison of Apartment Sales Numbers between Kyoto and Tokyo

2021 2022 2023
Kyoto 2,109 units 2,304 units 1,772 units
Tokyo 16,211 units 13,157 units 14,191 units

Source: Real Estate Economic Research Institute Co., Ltd.
2021 Market Trends for New Apartment Sales in Japan
2022 Market Trends for New Apartment Sales in Japan
2023 Market Trends for New Apartment Sales in Japan

Kyoto is Well-Suited for Investors Looking to Build a Stable Asset

The scarcity value of rental properties in Kyoto ensures stable rental income with low risk of oversupply, which also benefits during resale. However, due to its high scarcity value, purchasing prices tend to be higher, potentially resulting in lower yields. Therefore, Kyoto is considered a highly compatible investment destination for investors seeking stable asset formation.

Understanding the local characteristics is crucial for successful real estate investment in Kyoto. Areas around Kyoto Station are undergoing redevelopment, including the construction of office buildings, commercial facilities, and hotels, making them complex investment targets. For business professionals and university students living alone, areas like Sakyo Ward, Shimogyo Ward, and Minami Ward, where universities and businesses are concentrated, have high rental demand and property values.

Recommended Areas for Buying a House in Kyoto

Buying real estate in popular areas can lead to maintaining and increasing future asset value. High demand often creates favorable conditions for selling, making price fluctuations less pronounced. Especially in areas with good transportation access or close to city centers, these effects are more noticeable.

When considering real estate investment in Japan, it's crucial to select areas with excellent train access and anticipated demand. Factors such as geographical location and transportation convenience are key considerations for future asset value preservation and growth.

1. Tanoji Area

Kyoto Tanoji area

The Tanoji Area is located in central Kyoto spanning the Shimogyo and Nakagyo wards. Surrounded by major streets such as Kawaramachi-dori, Karasuma-dori, Horikawa-dori, Oike-dori, Shijo-dori, and Gojo-dori, this area is named after the kanji character "田" (ta) due to its resemblance to the character. It has developed as a hub for business and commerce with numerous tourist attractions. The area also features a variety of shops, entertainment facilities, and vibrant nightlife.

For purchasing residential or investment properties, areas along the Hankyu Kyoto Line near Kyoto Kawaramachi Station, Karasuma Station, and Omiya Station are highly popular due to their excellent transportation access. Consequently, property prices in this area tend to be higher.

If you're looking to buy a house in Kyoto and want to save on budget while being relatively close to the city center, areas around Saiin Station and Nishikyogoku Station on the Hankyu Kyoto Line are also promising. These areas are within walking distance from JR Nishioji Station on the Tokaido Line, providing convenient access for commuting or studying in Osaka-bound directions.

2. Gion and Higashiyama

The Gion and Higashiyama area is located east of the T-shaped area across the Kamo River. This area is a historic region representing Kyoto, with numerous cultural heritage sites scattered throughout. It is a mecca for Kyoto tourism, attracting many visitors from both domestic and international locations. Particularly famous as Kyoto's traditional entertainment district, Gion offers beautiful streetscapes and the culture of maiko and geiko.

The entire area exudes luxury and offers a high-quality living environment. It features many upscale restaurants, stylish cafes, traditional inns, and modern hotels, making it popular not only among tourists but also with businessmen and the affluent. Consequently, it is highly attractive for real estate investment.

Additionally, the Higashiyama area, like the T-shaped area, is also popular as an upscale residential area. For those looking to purchase a home in a prestigious area of Kyoto, Higashiyama is ideal. In real estate investment, various strategies such as hotel operation, short-term leasing, and long-term leasing can be considered. Properties near famous tourist attractions like Kiyomizu Temple and Yasaka Shrine are particularly in high demand.

3. Minami Ward

Minami Ward is located in the southern part of Kyoto City, where industrial areas and residential neighborhoods are mixed. It is popular for its convenient transportation and proximity to Kyoto Station, making it a desirable living environment. Many major corporations such as Nintendo and Kyocera are clustered here, leading to a high demand for rental properties targeted at business professionals. Additionally, the area around Toji Temple, famous for its five-story pagoda, boasts historical temples and sees many short-term rentals catering to tourists.

4. Sakyo Ward

Sakyo Ward is located in the northeastern part of Kyoto City, known for its lush greenery and being a hub of academic institutions such as Kyoto University and Kyoto Institute of Technology. It is rich in cultural facilities and natural surroundings, renowned for its livability. Consequently, there is a very high demand for rental properties targeting students and researchers, such as apartments and share houses.

5. Fushimi Ward

Fushimi Ward has excellent transportation access. It is served by Kyoto Municipal Subway Karasuma Line, Keihan Electric Railway, and Kintetsu Kyoto Line, providing easy access to Kyoto city center and Osaka. Particularly, areas along the Keihan Electric Railway are popular among tourists, making it a high-demand rental area. Taking the Keihan Main Line, you can reach Yodoyabashi Station in Osaka with a single ride, and from there, it's convenient to transfer to the subway for access to Umeda, Shinsaibashi, and Namba.

Among the stations along the Keihan Main Line, residential areas around the next station after Fushimi Inari Station, Ryukoku-daigaku-mae Fukakusa Station, and the following Fujinomori Station, are still relatively affordable compared to the central areas of Kyoto, making them worthwhile targets.

Summary on Kyoto Real Estate

Kyoto offers multifaceted charm combining history, tradition, modern convenience, and cultural richness. It presents diverse investment opportunities spanning tourism, education, and technological innovation. The city is home to leading Japanese manufacturing companies, vibrant business districts, and holds the distinction of having one of the largest student populations nationwide. These elements make Kyoto an ideal market for investors with prospects for long-term growth and returns. When considering investment in Kyoto's real estate market, consulting with local experts to understand market nuances is crucial. Don't miss out on the chance to capitalize on Kyoto's charm through real estate investments, achieving both cultural satisfaction and economic returns.

Jun 3, 2024