Is the 'Asset Value' of Japanese Real Estate More Reflected in the Land or the Building?

Hey there! Regarding this question, I can give you a very clear answer.

In one sentence: The vast majority of the time, it's the land.

To help you understand, let me use an analogy.

Think of a Japanese house (specifically the building itself) as a "consumable item," even somewhat like a car. Just as a new car starts depreciating the moment it's driven off the lot, the same principle applies to Japanese houses. The land underneath the house, however, is more like the "parking space" – the part that holds or even increases in value.

Let me break this down for you.

Why is the building a "consumable item"?

In Japan, the building itself undergoes constant "depreciation" over time, with its value decreasing year by year. There are several main reasons:

Statutory Useful Life (法定耐用年数 - Hōtei Taiyō Nensū) This is a concept from tax law, but it profoundly influences market perception. The Japanese tax authorities assign a "useful life" to buildings based on their structure:
- Wooden structures (e.g., common detached houses): 22 years
- Reinforced concrete structures (e.g., high-end condos): 47 years
After this period, from a tax perspective, the building's value approaches zero. While the house might still be habitable, its market value is significantly reduced.
Preference for "New" There's a widespread "new construction preference" among Japanese people; they generally prefer buying new houses. Combined with rapid advancements in construction technology, seismic standards, and home design, this makes older second-hand homes, especially very old ones, less attractive.
Maintenance and Repair Costs The older a house gets, the more repairs it needs – things like the exterior walls, roof, internal fixtures, etc. These represent ongoing expenses.

Therefore, the value curve for the "building" part of what you buy is essentially on a continuous downward trend.

Why is the land the "core asset"?

Contrary to the building, land value is relatively stable and can even appreciate over time in good locations.

Scarcity Japan is a mountainous country with limited plains. Land suitable for living and commercial development is finite. Especially in major cities like Tokyo, Osaka, and Fukuoka, land is incredibly valuable. Scarcity drives value – that's an eternal truth.
Permanence Buildings age, become outdated, and can even be destroyed by events like earthquakes. But land is permanent. Even if the house is gone, the land remains, and you can build a new house on it. Therefore, land ownership (所有権 - Shoyūken) is the most fundamental part of this asset.
Location, Location, Location The value of land is intrinsically tied to its location. Land near major train stations, commercial districts, or good school districts has high demand, commands a premium value, and is very resilient to downturns. It leads gains in good economic times and holds its value best during downturns.

What does this mean for us when buying property?

Once you grasp this core logic of "land is expensive, the building is cheap," your approach to viewing and investing in Japanese property becomes much clearer:

When buying a Detached House (一戸建て - Ikkodate): You are buying full ownership of the land and the building on it. So, while the age, size, and condition of the house matter, the location, shape, size, and value of the land itself are far more critical. An old, run-down house on an excellent plot is still a "golden house" because the real value lies in the land.
When buying an Apartment/Condo (マンション - Manshon): You are buying the exclusive rights to that specific unit and a small fractional ownership share of the land the entire building sits on. Therefore, the value of a condo depends not only on the unit itself (floor, orientation, interior) but also significantly on its location. This is why older, high-end condos in city centers, even those 30-40 years old, can still command high prices – they occupy scarce land resources.
From an investment perspective: Investing in Japanese real estate is essentially more like investing in "land." A brand-new, large villa with a pool in a remote countryside area might have far less asset value than a small, old, and run-down place (老破小 - Lǎo pò xiǎo) in a prime location inside Tokyo's Yamanote Line. Why? Because the land under the former is worth little, and the building is depreciating rapidly. In contrast, while the building value of the latter might approach zero, the value of the land underneath it is steadily increasing.

To summarize

Remember this fundamental formula for buying property in Japan:

Total Property Price ≈ Land Value + Building Value

Here, "Building Value" is a variable that decreases over time, while "Land Value" is the core and ballast that determines the long-term worth of your asset.

Therefore, when evaluating a Japanese property, be sure to focus much more attention on the land.

Hope this explanation helps!