Global Real Estate Trends – Part Two: Japan and France

By Ken DeLeon

I have always found that many of life’s greatest lessons are learned through traveling. Since discord is a greater teacher than concord, it is by challenging yourself and seeing new and distant lands where most growth and knowledge occur. By traveling to many countries and learning about their real estate models, I have gained novel insights into our innovative business model. And by understanding real estate in the countries where my clients have grown up, I can better understand and implement their real estate goals.

While my next and final installment on this series will focus on the real estate markets in the world’s most populated countries of China and India, this article focuses on Japanese and French real estate models. I have always viewed these countries, halfway around the world from each other, as very similar in many ways. Both the Japanese and French appreciate fine dining, with their capital cities enjoying more Michelin stars of any two cities in the world. Tokyo has 12 three-star restaurants and Paris has 10, much more than San Francisco with 7 and New York with 5. Both nations have great national pride and have made cultural contributions to the world. Yet, besides both real estate markets sharing very low mortgage rates, these country’s models have distinctly different characteristics that provide interesting and valuable insights into Silicon Valley real estate.


The Japanese are known for respecting tradition and limiting immigration to preserve their culture. This stability of the Japanese culture is in direct contrast to the boom and bust cycles that have dominated its real estate market for the last 40 years. In the 1980s, Japan saw stunning appreciation, with real estate prices rising six to seven times during that period’s asset bubble. Confidence was too high in “Japan Inc.” with Japanese companies’ rapid rise. With these companies awash in cash at that time, they made undue speculative purchases of real estate such as The Rockefeller Center and Pebble Beach. During this period of excessive valuations, some calculated that the value of the Imperial Palace in Japan exceeded the entire value of all the homes in California. This period saw land
trading in prime areas of Tokyo for $75,000 per square foot!

The 1990s, otherwise known as Japan’s Lost Decade, saw a steep decline in the prices of both real estate and the stock market. The stock market dropped by over half in 1990 and the government put restrictions on mortgage loans. Both the demand and prices for real estate dropped by a staggering 80% by 2002. Since then, prices have nearly doubled, but did so in sporadic bursts of appreciation and then stagnation. Demographics determine demand, and with the population of Japan declining rapidly I am not bullish on the future appreciation of Japanese real estate.


My research has found that no country in the world has a more open and utilized online system as does our Multiple
Listing Service (“MLS”). The closest real estate search tool comparative to the MLS in Japan is called REINS which stands for “Real Estate Information Network System.” Access is limited to licensed real estate brokers who pay an annual fee for its use. The purpose of the database is to distribute and collect information about properties for sale. For a broker to conduct a custom search for a buyer, most will require some form of signed representation agreement and a consultation. Unlike the U.S. MLS, REINS’ feature set is limited and little information is conveyed, generally including only one interior and exterior photo. The lack of photos is likely related to the value being
solely in the land, as almost all properties in Japan become teardowns, which is discussed below. Commissions in Japan are generally 6%, with 3% going to each brokerage.


Surprisingly, Japanese homes are not built to last and have very low-quality construction. The average lifespan of a Japanese home is 20 to 30 years. Japanese homes tend to depreciate, becoming completely valueless by the 20 year mark. The process of tearing down homes started after WWII, when soldiers returned and immediately needed housing. Most of the single-family homes after the war and even now are built by prefabricated housing manufacturers. After learning that 85% of Japanese citizens opt to buy new homes, I now understand why my Japanese clients strongly prefer new homes. While Japan’s small towns are shrinking, Tokyo is currently experiencing a construction boom due to hosting the 2020 Summer Olympics. Major redevelopment projects are underway in several parts of Tokyo. Some of this construction is driven by the inbound tourism boom led by hotels and retail, while other construction is for developing high-rise apartments. The prices for new construction in Tokyo are rising. In general, Japan is investing in tourism versus other sectors to help boost the economy and attract foreign workers.


Mortgage rates in Japan are amongst the lowest in the world. This is not too surprising given that Japanese consumers are excellent savers and need an incentive to take out loans. The most popular mortgage option is fixed for an initial period such as 5, 7 or 10 years, which later becomes a variable rate for the remaining term of 20-25 years. Rates are exceptionally attractive, with rates for a 10-year fixed mortgage being between 0.75% to 0.95%.3

Capital Gains on Primary Home

In Japan, you can exclude up to 30 million Yen (approximately $268,000) per spouse on the sale of a primary residence. There is no time requirement for ownership to be eligible for this exemption.

Ghost Houses

Several years ago, when many international buyers were purchasing in Silicon Valley, local residents had concerns over unoccupied “ghost homes.” In Japan, “ghost homes” also cause concern, however, they are not the result of speculators, but instead caused by a declining population. In 2013, there were 8.2 million vacant homes across Japan, representing 13.5% of the total housing stock, compared to the U.S. housing stock, which is 8% unoccupied. By 2033, it is predicted that this percentage in Japan will surpass 20%.

The aging of Japan’s citizens outweighs all other nations. Japan’s population will decline from 127 million to 88 million by 2065, per the National Institute of Population and Social Security. With this declining population throughout Japan, except for Tokyo, Japan’s countryside has become littered with deserted homes, known as “akiya.”

Many countryside towns now have an “akiya bank,” which gives money to buyers who refurbish homes they received for free in these emptying areas. Japan has long been insular in their approach to immigration, but the declining population has coerced Japan to explore accepting hundreds of thousands of immigrants from China and Korea to fill labor shortages and to repopulate the countryside.

How Expensive is it to Live in Tokyo?

Even with the volatility and declines from the peaks of the 1980s, Tokyo is still an expensive city to live in. Prices in Tokyo on a dollar per square foot basis are around $1,525.6 These prices are much like those in Silicon Valley, and are very similar to Los Altos, just above Menlo Park and Mountain View, and just below Atherton and Palo Alto. Tokyo, with the upcoming 2020 Olympics, will likely see some continued appreciation. However, the low birthrate and declining population will likely result in declining prices elsewhere.



As you read in the previous issue of The DeLeon Insight, real estate markets like the Russian market have been functioning for only the decades after the fall of Communism. However, the French real estate market has been operating effectively unchanged for centuries. There is no MLS, or equivalent, in France. To find a house, buyers must go to individual agencies to see their listings. Not all agencies post their listings online; some only share select properties online. Buyers need to visit numerous agencies to find a home that meets their requirements. On the listing side, because there is no MLS-like database, sellers can list their homes with multiple agencies. This increases their chances for a sale since real estate agents can only show listings from their agency. There are websites that function as mini-MLS services, where some agencies post their listings. However, none offers a complete market view. In general, these websites are not public and you need agent approval for access.

Business Model & Commissions

In 2002, the French real estate market was split between agents selling half of the homes and the rest being sold directly by the sellers. Now, two-thirds of sellers use an agent and sellers pay 4-6% commissions, typically 5%, to their agents.


Mortgage rates in France are also among the lowest in the world and have been a driver in the appreciation of properties in Paris and surrounding areas. A 20-year fixed mortgage (20 years, not 30, is a typical duration for a French mortgage) is currently at 1.80% mortgage rate with borrowing 80% of the purchase price being the norm. France is more conservative than the U.S., in that banks will lend only if the total property expenses are below 30% of the buyer’s income, whereas this percentage is generally 35%-40% in other countries. In France, where ageism is still alive and well, if prospective buyers are over 65, banks will only consider their passive income or retirement benefits, with any earned income excluded. To ensure payment even in the event of death, France requires that anyone who gets a mortgage must purchase a life insurance policy for 120% of the mortgage amount. Mortgage interest is deductible for both the buyer’s primary and investment properties with no limits.

Capital Gains on Primary Home

By far the most important exemption from capital gains tax in France, which is 19%, is the family home. Those who own a home for 22 years or more do not pay any capital gains whatsoever. Those who sell before 22 years receive a prorated exemption on their gain.

Life Estates

In France, selling a life estate, or Viager, is a very common arrangement. A Viager allows a buyer to purchase a property from a seller, usually over 70-years-old, who receives a sum of money up front and then an annual annuity payment and the seller lives in the house until he or she passes away. This is an efficient way for sellers to get money without paying a lot of taxes, since payments are received in smaller increments spread out over time.

For DeLeon Realty’s listings, CEO and listing agent Michael Repka will sometimes create seller financing arrangements or installment sales to effectively lessen capital gains. If there were a more common system to sell homes with life estates for sellers, then elderly owners would have another option short of selling their home to provide for their health and well-being for the future.

How Expensive is it to Live in or Near Paris?

The epicenter of French society and culture will always be Paris, and this is reflected in its home prices. Prices in The City of Lights are, on average, three times more expensive than they are in the rest of France. Paris is among the most expensive cities on the continent. It has a price per square foot of $1,108, very comparable to San Francisco. Paris is generally the most expensive city in Europe after London.

Market Snapshot

Property prices in France fared relatively well during the global meltdown and France avoided the large drops that
occurred elsewhere such as Spain and the Netherlands where property prices dropped more than 20% and 40%
respectively. France has enjoyed stable year over year appreciation as it attracts international attention. In 2018,
prices in Paris climbed 5.3%, placing it in the upper quartile of appreciation in a ranking of global cities.

France’s appreciation over the last two years has been fueled by its ultra-low mortgage rates and speculation that businesses will flee London after Brexit and set up their headquarters in Paris as the best alternative. With the Euro declining relative to some other currencies, international investors have expressed strong interest in purchasing in Paris, which has the upside of London without the risks that Brexit brings.

Coming Up

The final article in this series exploring international real estate will focus upon the twin titans of China and India– the countries whose residents have had the greatest impact on Silicon Valley.


  12. (Paris had an appreciation rate of 5.3% in 2018, 8th amongst the world’s major cities. As an FYI San Francisco area was the #1 city in North America with appreciation of 7.8%)