High-end Realty Specialist

In 2026, Investors Will Be Forced to Decide: “Move Now or Wait?”

“Will real estate prices actually fall?”
“Is it still safe to buy when interest rates are rising?”
“What criteria should investors use to make decisions heading into 2026?”

With these questions in mind, many investors are watching the current Japan’s real estate market.

Looking at the latest Real Estate Price Index (September 2025 / Q3 2025), the national composite index for residential property stands at 145.4, unchanged month-on-month, indicating a continued “high plateau.”
Breaking this down: residential land rose 0.3% to 120.7, detached houses fell 0.7% to 118.6, while condominiums (strata ownership) increased 0.1% to 222.2. Overall, the market has not collapsed, but clear differences are emerging by property type.

Transaction volumes also remain resilient. The Existing Home Sales Volume Index (September 2025) shows a seasonally adjusted national total of 128.7, up 4.9% month-on-month. Condominiums rose 6.4% to 132.3, showing a rebound.
The Corporate Transaction Volume Index (September 2025) also increased, with the total up 1.3% to 277.2, and residential transactions up 2.7% to 308.3. Capital has not suddenly disappeared from the market.

That said, there is a growing sense across the market that traditional investment strategies may no longer work as they once did. Stable prices and rising transaction volumes do not automatically signal strength. A closer look at the data reveals a more nuanced reality.

In one of our blog posts at the end of December 2025, we outlined the market’s structural foundations:

• Increased caution among end-users due to inflation and rising interest rates
• More selective behavior by domestic investors
• Certain asset classes being supported by foreign capital

Subsequent data on prices, transaction volumes, and corporate activity has not contradicted this view. On the contrary, the national index remaining flat at high levels while detached houses decline and condominiums remain resilient suggests the market is entering a phase of “quiet highs” and structural polarization.

So where is the real estate market heading in 2026?
And how should investors position themselves?

Let’s examine this step by step.

2026 Is Not “A Year You Can’t Buy,” but “A Year You Can’t Afford to Be Wrong”

If we were to summarize the 2026 investment environment in one sentence, it would be:
“Opportunities exist, but poor choices will lead to sharply different outcomes.”

Inflation and rising interest rates are not temporary. End-user caution is likely to persist into 2026. As awareness of mortgage repayment burdens continues to rise, a “wait-and-see” stance—acting only when there is a clear and immediate reason to buy—has already become common among first-time buyers.

Domestic investors face similar conditions. Financial institutions remain strict, reassessing yields and loan conditions. As a result, investors are reducing scale and focusing on high-certainty deals. When market indicators appear flat, buyer scrutiny is often at its harshest, and outcomes vary greatly depending on asset quality.

This is not market cooling, but a clear shift from “volume-driven expansion” to “quality-based selection.”

End-Users and Domestic Investors Enter a Defensive Phase

For end-users, inflation and interest rates are having a direct impact. Many are choosing to wait rather than buy immediately.

While transaction data shows activity—national existing home sales rose 4.9% month-on-month—this should not be mistaken for broad-based demand. Condominiums rose 6.4%, but performance varies widely by area and scale. This is less a recovery than a market where only selective buyers are active.

Domestic individual and corporate investors are also becoming more defensive. Banks place greater emphasis on equity ratios and repayment capacity, while rising prices compress surface yields. Investors are shifting from buying quantity to avoiding mistakes.

This reflects normalization rather than capital flight. Corporate transaction indices remain positive, indicating funds are still circulating. In practice, capital continues to flow: the corporate transaction volume index rose 1.3% month-on-month overall, while total residential transactions increased by 2.7%.

Foreign Investors Continue to Engage with Japan

Foreign investors continue to show interest in Japanese real estate. A weak yen makes assets attractive in foreign currency terms, while Japan’s political stability and transparent legal system remain appealing.

However, foreign capital is not uniform. Mainland Chinese investment may slow due to domestic regulations and capital controls. In contrast, Western and other Asian institutional investors increasingly view Japan as a long-term capital destination rather than a short-term trading market.

Tokyo: “Prices Won’t Fall Easily, but They Won’t Rise Easily Either”

Limited development capacity and rising construction costs constrain supply in Tokyo, making sharp price declines unlikely.

However, “Tokyo is strong” is no longer universally true. The Price Index for September 2025 data shows Tokyo’s residential composite index down 2.5%, residential land down 8.1%, and detached houses down 2.4%, while condominiums remained flat. Internal divergence is already evident. In other words, Tokyo is no longer a market where prices rise uniformly across the board. Instead, it is already beginning to diverge internally, with condominiums showing resilience while residential land and single-family homes remain under pressure.

Transaction volumes are active, but this reflects selective liquidity rather than broad price strength. Buyers wait, sellers hold—classic high-price stagnation. Sharp movements in either direction are unlikely in 2026.

Regional Polarization Will Become the Norm

Regional disparities in price growth are also becoming increasingly pronounced. While price increases are concentrated in central urban areas and redevelopment zones, surrounding cities continue to undergo gradual adjustments.

In fact, the overall residential index for the Kanto region stood at 153.4, down 0.7% month-on-month, effectively marking a pause, while the Kansai residential index edged up only slightly, rising 0.2% to 144.5—highlighting a lack of unified direction across regions.

Looking at the prefectural level, Tokyo saw its overall residential index fall 2.5%, while Osaka recorded a 2.5% increase to 156.4. Condominium prices in Osaka also rose 1.3% to 218.8, underscoring how market movements are clearly diverging by region.

The current market structure can be summarized as a three-tier polarization:

• Central urban areas: prices holding at elevated levels
• Surrounding cities: flat to gradual declines
• Regional markets: stagnation

The era in which prices rose everywhere is clearly coming to an end.

Rent Growth Is Localized—Excessive Optimism Is Dangerous

Rents in Tokyo’s 23 wards have risen about 10% year-on-year, but this is highly localized. Suburban and regional areas continue to face population decline.

The gap between areas where rents are rising and those where they are not has grown significantly. Localized strength in select markets should not be mistaken for nationwide support—a point that beginner investors, in particular, need to keep firmly in mind.

Hotels Remain Supported by Foreign Capital

The hotel sector stands out as the market where overseas capital has the strongest presence. Inbound tourism demand, which staged a full recovery in 2025, is expected to remain robust in 2026, with yen depreciation continuing to provide a structural tailwind.

Turning to non-residential assets, sectoral divergence is becoming increasingly pronounced. According to the Commercial Real Estate Price Index (Q3 2025), the nationwide commercial property composite rose 0.9% quarter-on-quarter to 147.0, while retail assets increased 2.9% to 168.8, demonstrating relative resilience. Offices, however, declined 5.4% to 168.9, underscoring the growing performance gap by asset class.

This divergence is even clearer within the three major metropolitan areas, where office assets fell 9.5% to 172.5, while logistics warehouses rose 11.6% to 144.8 and factory assets increased 3.9% to 150.9—clearly signaling where capital is being selectively allocated.

As a result, capital is likely to continue gravitating toward asset classes with more predictable and visible income streams, particularly hotels. Beyond core markets such as Tokyo and Osaka, investor interest is expected to intensify in locations with strong airport connectivity and in areas proximate to major tourist destinations.

Conclusion: 2026 Is a Year of Discernment, Not Inaction

The real estate market in 2026 will be neither a year where inaction is rewarded nor one where returns can be generated indiscriminately.

Capital remains active—national residential prices are holding at elevated levels, and transaction volumes continue to rise—but the market is now defined by clear divergence.

Regional and asset-level differentiation is no longer forming; it is already entrenched.

As a result, the market is shifting away from a simple up-or-down narrative toward a phase where only select opportunities are viable.

Opportunities have not disappeared in 2026.

But the margin for error has narrowed, and misjudgments will be costly.

Three Key Perspectives for Anyone Evaluating Real Estate Going Forward

Even for beginners, simply keeping the following three points in mind can help move beyond a vague sense of anxiety or uncertainty about how to judge the market.

1. Is there a clear reason why people are gathering and will continue to gather in that area?
2. Is there clearly identifiable end-user demand (people who actually live in or use the property)?
3. Does the property have a structure that overseas investors value—namely in terms of location, use, and income potential?

Viewing the market through these lenses makes it clear how risky overly simplistic judgments can be—such as assuming a property is “dangerous because prices are high” or “safe because yields look attractive.”

“Doing Nothing” Is Also a Valid Choice

Another important point is that choosing not to act immediately should never be seen as avoidance or failure.

When the market is trading at elevated levels and directional clarity is limited,

• building knowledge,
• learning how to properly interpret data, and
• understanding not only success stories but also past failures

can be a critical preparation phase. This period of groundwork can have a significant impact on long-term investment outcomes.

The real estate market in 2026 will be one in which those who rely on intuition or momentum are likely to struggle, while those who understand structure and numbers will be able to make more stable, disciplined decisions.

Opportunities do exist.
However, they are not available to everyone, nor are they found everywhere.

That is precisely why it is essential to remain patient, resist hype, and assess each situation calmly.
For anyone engaging with real estate going forward, this represents the most prudent—and most repeatable—approach to investment decision-making.

 

 

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