Disclaimer
I am not a tax, investment, or real estate advisor. The following content is for educational purposes only. Please consult with a qualified professional before making financial or investment decisions. Information has been simplified for clarity and can be shared freely for knowledge-sharing purposes.
Introduction: A Strong Market in 2025
Japan’s real estate market continues to perform impressively in 2025. With a weak yen, strong inbound tourism, and steady inflows of foreign capital, property demand remains high across major cities like Tokyo, Osaka, and Fukuoka.
Owning physical real estate in Japan offers potential rental income and long-term land value appreciation. However, high purchase prices, maintenance costs, and ongoing payments (loans, taxes, insurance, etc.) make direct ownership challenging for many investors.
That’s why Real Estate Investment Trusts (REITs) and real estate crowdfunding have become attractive alternatives. They allow investors to participate in Japan’s real estate growth without directly owning property.
This article explains what REITs and real estate crowdfunding are, their benefits and risks, how to invest, and how they are taxed.
What is a Real Estate Investment Trust (REIT)?
A REIT is a fund that invests 100% of its assets in real estate. It functions like a mutual fund (priced once a day) or an exchange-traded fund (ETF) (traded in real time).
The concept is simple:
- A REIT collects money from investors.
- It uses that money to purchase and manage real estate properties.
- Rental income or profits from property sales are distributed back to investors.
REITs can specialize in one property type or diversify across several sectors such as:
- Office spaces
- Residences
- Logistics facilities (warehouses, distribution centers)
- Hotels and healthcare facilities
- Retail spaces (shopping malls, etc.)
Where to Find REIT Information
REITs typically offer an average dividend yield of around 4%, making them a popular income-generating investment.
Here are reliable sources for researching Japan’s REITs:
Example:
The Nomura Real Estate Master Fund (Ticker: 3462), listed on the Tokyo Stock Exchange, invests in 285 diverse properties and offers a 4.45% annual return.
How to Buy REITs in Japan
You can purchase REITs just like you buy stocks — through securities companies such as Rakuten Securities, SBI Securities, or others.
Key points:
- REITs can be held in a NISA account (成長投資枠), making capital gains tax-free.
- Dividends can also be tax-free, if you select the “pro rata distribution method based on the number of shares” (株式数比例配分方式) at your securities company.
- When buying or selling REITs, investors must pay a stock trading fee, which may vary by broker.
Merits and Demerits of REITs
✔ Advantages:
- Lower risk and more affordable than owning physical property
- Small investment amounts possible
- Easy diversification across property types
- High liquidity and quick exit options
- Tax savings under NISA
❌ Disadvantages:
- Subject to market volatility and property performance
- Sensitive to interest rate changes
- Possibility of capital loss or REIT bankruptcy
In short, REITs offer accessibility and stability but still carry market-related risks.
What is Real Estate Crowdfunding?
Crowdfunding in real estate works on a similar principle as REITs but gives investors direct control over which project to support.
You can:
- Select a specific real estate project yourself.
- Commit to a lock-in period until the project is completed or sold.
Typically, returns are higher than REITs, often realized as capital gains after the lock-in period. Some platforms also offer regular income distributions.
A Crowded Crowdfunding Market
Japan currently has over 78 crowdfunding platforms, according to the Real Estate Crowdfunding Association’s industry map.
This makes it a crowded and competitive market — and choosing a trustworthy platform can be challenging.
How to Choose a Crowdfunding Platform
Before focusing on the expected returns, consider these key factors:
- Number of funds managed
- Types of real estate and information transparency
- Investment period
- Reliability (must be licensed as a real estate specified joint venture)
- Quality of investor support
Most importantly, check whether the platform follows a Priority and Subordination System (優先劣後構造).
This system reduces investor risk by giving priority investors (regular investors) first rights to profits, while subordinated investors (the crowdfunding company) absorb initial losses.
Understanding the Priority and Subordination System
Here’s an example:
- A crowdfunding project raises ¥100 million.
- ¥70 million comes from regular investors (preferred portion).
- ¥30 million comes from the crowdfunding company (subordinated portion).
- ¥70 million comes from regular investors (preferred portion).
If the property sells for a profit, regular investors are paid first.
If the property loses value — say it sells for ¥90 million — the ¥10 million loss is absorbed by the company’s subordinated portion.
Thus, general investors still recover their full ¥70 million, making their investment safer.
Taxation: REIT vs Crowdfunding
| Type | Tax Method | Tax Rate | Notes |
| REIT | Separate taxation (分離課税) | 20.315% flat | Profits and dividends are tax-free if held in NISA. Losses can offset other stock/fund gains. |
| Crowdfunding | Withholding (源泉徴収) or Combined taxation (総合課税) | 20.42% (withholding) or 15–55% (combined) | Taxed as miscellaneous income. Filing may bring refunds if total income is below ¥6,950,000. If annual miscellaneous income exceeds ¥200,000, a tax return is mandatory. |
REIT vs Crowdfunding: Quick Comparison
| Feature | REIT | Crowdfunding |
| How to Invest | Buy fund shares | Invest in specific project |
| Liquidity | High — easy to buy/sell | Locked until project completion |
| Minimum Investment | A few thousand yen | Varies by platform |
| Risk Level | Relatively low | Higher |
| Average Return | ~4% (dividend + capital gain) | Often higher (rent/sale profit) |
| Management | Professional fund managers | Crowdfunding operators |
| Transparency | High | Varies by project |
| Taxation | Treated as stock dividends | Treated as real estate/miscellaneous income |
Final Thoughts
Whether you choose REITs or real estate crowdfunding, remember:
- No investment is risk-free.
- Returns are not guaranteed.
- Always review costs, risk levels, and taxation before investing.
Both REITs and crowdfunding offer exciting alternatives to traditional property ownership, allowing you to participate in Japan’s vibrant real estate market with greater flexibility.
Invest wisely — and only what you can afford to lose.
Author: Matheswaran Narayanasamy
