The average new condominium price in the Tokyo metropolitan area reached ¥92.5 million in fiscal year 2024, up approximately 10 percent year-on-year, driven by construction cost inflation and persistent demand from domestic and foreign high-net-worth buyers. For foreigners considering property acquisition in Japan, 2026 marks a critical inflection point: a landmark tax reform takes effect on 1 January 2027 that fundamentally reshapes how inherited real estate is valued for tax purposes. Understanding these changes, alongside current fixed asset tax rates, non-resident withholding obligations, and valuation mechanics, is essential before committing capital to Tokyo property.

Can Foreigners Buy Property in Japan? Legal Framework and Restrictions

Japan imposes no nationality-based restrictions on foreign real estate ownership. Foreigners and non-residents may purchase freehold (所有権, shoyu-ken) property without special approval, regardless of visa status or permanent residency. This legal clarity distinguishes Japan from many developed markets and has attracted sustained international capital to Tokyo’s luxury residential sector.

However, legal freedom to purchase does not mean tax simplicity. Non-residents face distinct obligations at the point of sale and on an ongoing basis. When a non-resident sells Japanese real estate, the buyer must withhold 10.21 percent of the purchase price and remit it to the National Tax Agency (国税庁, Kokuzei-cho). Failure to withhold makes the buyer liable for the shortfall, not the seller. Similarly, if a non-resident owns rental property, the tenant must withhold 20.42 percent of gross rent monthly. These withholding obligations apply regardless of whether the non-resident has filed a tax return or reported the transaction.

Confirming the residency status (居住者 versus 非居住者) of any counterparty at the contract stage is therefore essential. A licensed 宅建士 (takken-shi, Japan’s licensed real-estate transaction specialist) will verify this documentation as part of the due-diligence process, ensuring the buyer does not inadvertently assume the seller’s tax liability.

Japan Property Tax Changes 2026: The New 5-Year Inheritance Valuation Rule

The most consequential regulatory shift for high-net-worth buyers in years takes effect on 1 January 2027. The 令和8年度税制改正大綱 (FY2026 Tax Reform Outline), published on 19 December 2025 by the ruling coalition’s tax commission, introduces a new valuation methodology for inherited rental properties acquired within five years of death or gift.

Under the current system, inherited real estate is valued using 路線価 (road-side land price, set annually by the National Tax Agency) for land and 固定資産税評価額 (fixed-asset tax assessed value, typically 60 percent of construction cost) for buildings. This methodology typically compresses the assessed value 20 to 40 percent below market price, making real estate a traditional tool for inheritance tax mitigation.

Beginning 1 January 2027, this advantage evaporates for rental properties (貸付用不動産) acquired or newly built within five years prior to inheritance or gift. The new rule mandates valuation as follows:

Assessed value = Acquisition price × Land price change index × 80 percent

This formula approximates market value (時価, jika), eliminating the compression benefit. A Tokyo central-ward property purchased for ¥300 million and held fewer than five years at the time of death will now be assessed at approximately ¥240 million for inheritance tax purposes, versus a former assessment path of perhaps ¥100 to ¥120 million under 路線価. At a 50 percent marginal inheritance tax rate, that represents a ¥60 million additional liability.

Properties held more than five years retain the conventional 路線価 and 固定資産税評価額 methodology, plus the 貸家建付地 (rental-land) discount and 小規模宅地等の特例 (small-scale residential land special deduction). This creates a sharp incentive to extend holding periods beyond the five-year threshold.

Fractional real estate products (不動産小口化商品) face even steeper consequences. The reform indicates that time-of-acquisition is irrelevant for these instruments; they will be assessed at near-market value regardless of holding period. For foreign buyers considering fractional products as an estate-planning vehicle, this change effectively eliminates the inheritance tax benefit.

The Supreme Court (最高裁判所) upheld the NTA’s right to override 路線価 valuations with appraisal-based 時価 where the gap is “markedly unreasonable” in its 19 April 2022 ruling. The 2026 reform codifies this principle into statute rather than leaving it to case-by-case legal challenge.

Inheritance Tax and Gift Tax Valuation for Real Estate in Japan

For properties held beyond the five-year threshold, the existing valuation framework remains in place. Understanding these mechanics is essential for long-term estate planning.

Urban land is valued using the 路線価方式 (road-price method): the NTA publishes a 路線価 (per square meter) for every street in Japan on 1 July each year. Multiply this figure by the property’s area in square meters to obtain the land value for tax purposes. Non-urban land uses the 倍率方式 (multiplier method): 固定資産税評価額 multiplied by an NTA-published multiplier, typically ranging from 1.0 to 3.0 depending on location and zoning.

Buildings are valued at 固定資産税評価額, which is approximately 60 percent of the construction cost. This is a fixed figure, updated every three years by municipal assessors.

For rental buildings, the valuation is reduced by the 借家権割合 (leasehold ratio), which the NTA publishes for each neighborhood. In central Tokyo, this ratio is typically 60 to 70 percent. A rental building’s assessed value is calculated as follows:

Building value = 固定資産税評価額 × (1 minus leasehold ratio × 30% × occupancy ratio)

For rental land (貸家建付地), the discount is applied to the land value:

Land value = 自用地評価額 (unencumbered land value) × (1 minus leasehold ratio × 30% × occupancy ratio)

At a 70 percent leasehold ratio and full occupancy, the 貸家建付地 discount is 21 percent off land value.

The 小規模宅地等の特例 (small-scale residential land special deduction) provides further relief. Up to 200 square meters of rental land qualifies for a 50 percent assessment reduction; up to 330 square meters of primary-residence land qualifies for an 80 percent reduction. These deductions apply only to inherited property used for residential or rental purposes and are subject to holding-period and family-relationship conditions.

For how to calculate property valuation for tax purposes in Japan, consultation with a Japanese tax accountant (税理士, zeirishi) is strongly recommended, particularly for complex structures or cross-border ownership.

Fixed Asset Tax and City Planning Tax: 2026 Rates and Payment Schedule

Once a property is registered (登記, touki, the transfer of legal title recorded at the Legal Affairs Bureau), the owner becomes liable for two annual taxes: 固定資産税 (fixed asset tax) and 都市計画税 (city planning tax).

Fixed asset tax is assessed at 1.4 percent of the 固定資産税評価額 (assessed value). City planning tax applies at up to 0.3 percent and is levied only in urbanization promotion zones, which include all 23 Tokyo wards. For a ¥300 million property with an assessed value of ¥180 million (approximately 60 percent of purchase price), the combined annual tax burden is approximately ¥2.7 to ¥2.97 million.

Tokyo’s FY2026 payment schedule (納税通知書, tax notices dispatched in June 2026) follows four quarterly installments:

• Q1: Due by 30 June 2026
• Q2: Due by 30 September 2026
• Q3: Due by 5 January 2027
• Q4: Due by 2 March 2027

Property owners may elect to pay the full annual amount in a single lump sum by the Q1 deadline.

The 住宅用地特例 (residential land special measure) reduces the tax burden for owner-occupied homes. The first 200 square meters of residential land is assessed at 1/6 of its value for 固定資産税 and 1/3 for 都市計画税; above 200 square meters, the assessment is 1/3 and 2/3 respectively. This deduction does not apply to rental property or commercial land.

Beginning FY2027 (令和9年度), new thresholds take effect: the 固定資産税 exemption for buildings rises from ¥200,000 to ¥300,000; the 不動産取得税 (real estate acquisition tax) exemption for new buildings rises from ¥230,000 to ¥660,000. These changes marginally reduce the acquisition-phase tax burden on new construction.

Public inspection of assessed values (縦覧, tatsuran) is available from April 2026 at municipal tax offices. Property owners may challenge their assessed value during this period if they believe it is incorrect.

Tokyo Property Prices and Market Conditions 2025 to 2026

The 国土交通省 (MLIT, Ministry of Land, Infrastructure, Transport and Tourism) publishes the 地価公示 (Official Land Price Survey) each January, with results released in March. The January 2025 survey showed Tokyo’s commercial zones rising 7.3 percent year-on-year and residential zones up 5.4 percent year-on-year, marking the fourth consecutive year of increases. Minato-ku (港区), Shibuya-ku (渋谷区), and Chiyoda-ku (千代田区) led gains across all categories.

The 2026 survey (reference date January 2026) results are expected to be published in March 2026. Early indicators suggest continued price appreciation in central wards, driven by limited new supply and persistent foreign capital inflows.

According to the 不動産経済研究所 (Real Estate Economic Institute of Japan), new condominium supply in the Tokyo metropolitan area contracted approximately 18 percent in FY2024 compared to the prior year, while prices reached a record high. This supply-demand imbalance supports continued price appreciation, particularly in trophy neighborhoods such as Azabu (麻布), Hiroo (広尾), and Shirokane (白金).

A CBRE survey reported by Reuters indicated that Asia-Pacific net buying intentions reached 17 percent for 2026, up from 13 percent in 2025. Tokyo remains the primary destination for this capital, reflecting the city’s political stability, currency dynamics, and limited supply of trophy residential assets.

Non-Resident and Foreign Buyer Tax Obligations: Withholding and Consumption Tax

Foreign buyers face two additional tax obligations that domestic purchasers do not.

First, effective 1 October 2026, brokerage and agency fees paid by non-residents for Japanese real estate transactions will be subject to 消費税 (consumption tax) at 10 percent. Previously, these fees were treated as export-exempt services. For a ¥300 million transaction with a standard brokerage fee of ¥9.36 million (3 percent plus ¥60,000), the consumption tax bill will be approximately ¥936,000. This represents a material cost increase for non-resident buyers and should be factored into acquisition budgets.

Second, the withholding obligations described earlier apply at the point of sale and on an ongoing basis. When purchasing from a non-resident, the buyer must remit 10.21 percent of the purchase price to the NTA within one month of closing. When paying rent to a non-resident landlord, the tenant must withhold 20.42 percent monthly. These obligations are statutory and non-negotiable; failure to comply exposes the payer to penalties and interest.

At acquisition, a foreign buyer must also pay 登録免許税 (registration license tax) at 2.0 percent of assessed value for ownership transfer, plus 不動産取得税 (real estate acquisition tax) at 4 percent of assessed value (reduced to 3 percent for land and residential buildings under current special measures). For a ¥300 million purchase with an assessed value of ¥180 million, these taxes total approximately ¥10.8 million.

How to buy homes in Japan as a foreign national requires careful sequencing of these obligations. A qualified 宅建士 will ensure all withholding, registration, and acquisition taxes are properly calculated and remitted on schedule.

Tokyo Luxury Residential Market: Pricing, Supply, and Foreign Buyer Activity

The Tokyo luxury residential market (defined as properties above ¥300 million) has experienced sustained appreciation since 2022. The average transaction price in Minato-ku rose to ¥187 million in 2024, up 12 percent from 2023. Shibuya-ku averaged ¥156 million, and Chiyoda-ku averaged ¥142 million.

Supply remains constrained. The Real Estate Economic Institute reported that new luxury condominiums (above ¥200 million) launched in the Tokyo metropolitan area declined 22 percent in FY2024 compared to FY2023, while demand from foreign buyers increased. This supply-demand imbalance has supported price appreciation and reduced negotiation leverage for buyers.

Foreign buyers now account for approximately 8 to 12 percent of transactions above ¥300 million in central Tokyo wards, up from 4 to 6 percent in 2020. This cohort is predominantly comprised of expatriate executives, multinational business owners, and international investors seeking stable, liquid assets in a developed market.

For foreign buyers, the decision to purchase for personal use versus rental yield carries significant tax implications, particularly given the 5-year inheritance valuation rule. A property held for personal use and transferred to heirs at death retains the conventional 路線価 valuation methodology, regardless of holding period. A rental property held fewer than five years at death will be assessed at approximately market value, triggering substantially higher inheritance tax liability.

This distinction should inform the acquisition strategy. Buyers planning to hold property for fewer than five years should consider personal use rather than rental arrangements, or structure the transaction through a corporate entity to defer the inheritance tax question entirely.

Koukyuu represents buyers seeking distinguished Tokyo residences in Azabu (麻布), Shirokane (白金), and Omotesando, focused exclusively on transactions of ¥300 million and above. A licensed 宅建士 (takken-shi) personally handles every stage of the engagement, from the first consultation to the signing, ensuring compliance with all withholding, registration, and tax obligations. Book a private consultation) to discuss your acquisition strategy.