In Japan, most Japanese individuals purchase their homes using a mortgage. Common motivations include: “Why pay rent when I could own my home?” or “I want peace of mind in retirement through homeownership.” While these are valid reasons, looking at home buying through the lens of investment and portfolio strategy reveals deeper implications.
This article explores what it really means for Japanese individuals to take out a mortgage and buy a home — not just as a lifestyle choice, but as a financial and strategic decision.
Why Do Japanese People Take Out Mortgages to Buy Homes?
The most straightforward reason is this: if I am paying rent anyway, why not put that money toward something I’ll eventually own? Especially in Japan’s low interest rate environment — with mortgage rates around 0.595% as of June 2025 (e.g., MUFG Bank, variable rate) — borrowing money to buy a home is unusually affordable.
Many people also choose to buy a home when they get married, have children, or want to settle down. Securing a stable living environment that matches one’s life stage is a natural step for many families and individuals.
A Portfolio View: The Risks of Concentration
Now let’s zoom out and look at home buying through the lens of portfolio management.
If Japanese individuals qualify for a mortgage, chances are they’re earning income in Japanese Yen and paying taxes in Japan. When they use that income to buy real estate within Japan, their personal portfolio becomes highly concentrated in:
- Currency: Japanese Yen
- Location: Japan
- Asset class: Real estate
In terms of diversification, a foundational principle of investing, this is a red flag. They’re exposed to overlapping risks specific to Japan: economic stagnation, possible falling property / land values in the future, a shrinking and aging population, a weakening yen, regional geopolitical instability, and natural disasters like earthquakes.
They’re tying a large portion of their net worth to one currency, one country, and one illiquid asset class. That creates a vulnerable position if any of those factors turn negative.
But It’s Also a Leveraged Investment
That being said, using a mortgage to buy property is one of the few ways regular individuals can apply leverage safely and affordably.
For example, if they contribute ¥5 million of their own funds and borrow ¥30 million through a mortgage, they’re acquiring a ¥35 million asset with less than 20% of their own capital. That kind of leverage is typically not possible in other asset classes like stocks or bonds without taking on significantly more risk.
In this sense, having access to low-interest yen-based leverage is a powerful advantage. Opting not to use a mortgage could be seen as passing up a rare and favorable financing opportunity.
Note: This advantage assumes a continued low-interest environment. If interest rates rise, the strategic value of mortgage leverage may decrease significantly.
The Benefits: Stability and Asset Building
Homeownership offers several clear advantages, both lifestyle-related and financial:
- Monthly payments may be equal to or even lower than rent — on top of leading to ownership
- Mortgage tax deductions can reduce income and residential taxes for up to 13 years
- Housing security in retirement
- Freedom to renovate, remodel, or personalize the space
- Property can be passed down as an asset to children or family
These benefits make owning a home not just a financial decision, but a foundation for long-term personal and generational stability.
The Drawbacks: Illiquidity and Inflexibility
Of course, homeownership isn’t without downsides:
- Long-term mortgage repayment reduces overall financial flexibility
- If property value drops, the outstanding loan could exceed the home’s market worth
- Ongoing costs like maintenance, property taxes, and repairs
- Major life changes — job transfers, divorce, caregiving — may force relocation
- Exposure to natural disasters and geopolitical instability
- Real estate is difficult to liquidate quickly in emergencies
Put simply, buying a home in Japan means committing a large portion of one’s resources to a single, relatively inflexible asset.
There Is No Exit Strategy For Japanese People
If their reasons for buying are things like “rent is a waste” or “I want to settle down for retirement,” they’re not buying to sell, they’re buying to stay. They likely can’t rent it out while still repaying the mortgage, and turning a profit on resale is far from guaranteed.
Add to that the rising geopolitical risks from regional tensions and natural disaster threats from earthquakes to typhoons, and the possibility of “exiting” their investment gracefully becomes even more remote.
So their ultimate decision boils down to one essential question:
“Do I truly love this house?”
If they don’t absolutely love it, no amount of logic or tax advantage can make up for the fact that this is a one-way path, especially for most Japanese individuals who will live in Japan indefinitely. On the other hand, if the home feels right, aligns with their values, lifestyle, and long-term vision, then that personal connection may be the most honest and valid decision-making axis available. It’s a vote of confidence, not in the market, but in themselves… and/or it may be their only choice.