As overseas interest in regional real estate in Japan continues to grow, one area currently attracting particular attention is Myoko in Niigata Prefecture. It is increasingly being introduced as the next ski resort investment destination after Niseko and Hakuba, and purchases of houses, lodges, pensions, and other properties by individual overseas investors are becoming more noticeable.

​

The reasons Myoko appears attractive as an investment destination are easy to understand. Its recognition as an international ski resort is growing, while property prices remain relatively low compared with places such as Niseko, and there is still room to acquire and make use of existing houses and accommodation facilities. The number of businesses providing property management and other support services in English for foreign owners is also increasing. At the same time, systems are emerging that allow overseas investors to operate without using Japanese or becoming deeply involved in existing local networks, including recruiting seasonal winter staff through social media.

​

An owner can live overseas while outsourcing necessary local management to service providers catering to foreign clients. Seasonal staff can be recruited through social media during the winter, while self-check-in and online support can be combined to reduce the need for permanent staffing. If personnel can be secured only when needed and fixed costs kept low during the rest of the year, this can appear to be a highly efficient and attractive operating model for individual investors.

​

However, when investing in regional real estate, it is important to consider not only figures that can be assessed today, such as acquisition price, renovation costs, room rates, and occupancy, but also whether the same operating model will remain viable under the same conditions in the future.

​

​

Across Japan, regions that have experienced rapid growth in tourism demand and real estate investment are already seeing moves toward stronger local rules. In Hakuba, rising land prices, housing availability, and the impact of tourism development on the local community are increasingly being recognized as issues. Karuizawa has long had strict rules regarding construction, development, and landscape protection, but recent development pressure has prompted moves to strengthen the existing framework further. Kyoto has already introduced relatively extensive requirements regarding local management of accommodation facilities and relations with surrounding residents.

​

The circumstances in these regions are not the same as those in Myoko. However, they share a common structure: rapid growth in outside demand and investment creates new pressures on housing, land prices, the living environment, and local infrastructure, eventually forcing local governments to respond.

​

In Myoko as well, various concerns are already being expressed, including the increase in businesses operating only during the winter, businesses operating with little connection to the local community, and insufficient shared understanding of the rules and responsibilities involved in living and doing business in the region.

​

​

One point investors need to consider is that the arrival of outside capital and tourists does not automatically translate into benefits for the local community. If property owners live elsewhere, management and employment are handled within separate networks, and much of the income generated also flows outside the region, while the local community is left to absorb the impact on the living environment and infrastructure, residents have less reason to welcome that investment.

​

Employment is one of the clearest benefits a region can receive. If tourism demand increases and more accommodation and related businesses are created, but the jobs generated are also filled entirely by short-term workers brought in from outside the area, local residents may have little sense that they are benefiting economically. It is not realistic to source every worker locally, but using local people for work that can reasonably be handled within the region, including cleaning and property management, is also important from the perspective of returning economic benefits to the local economy.

In recent years, some investors and companies have begun to position contributions to the regional economy and local employment as important elements of their business strategies. A business that creates clear benefits for the region is more likely to build a long-term relationship with the local community than a model focused only on returns for the investor.

​

​

For local governments, protecting residents’ daily lives and maintaining the regional economy are important responsibilities. If the balance between the burdens created by outside investment and the benefits received by the community becomes significantly distorted, it is natural for stronger rules to be considered. This is not an issue limited to foreign investors. The same problem can arise with Japanese investors if they operate in a way that is disconnected from the region while extracting profits from it.

​

It cannot be said that the possibility of stronger operating rules being introduced in Myoko is low. In fact, I believe the trend toward stronger regulation is likely to continue. Such regulation would not necessarily prohibit foreign ownership of real estate or accommodation businesses themselves. The greater risk for investors is that they may still own the property, but the operating model assumed at the time of purchase may no longer be financially viable.

 

Even if low fixed costs can currently be maintained through remote operations and seasonal staffing, operating costs will change if businesses are required to provide stronger local accountability and on-site operational capacity. The low-cost structure supporting current profitability may itself need to be reconsidered.

​

If profitability declines, the impact will also extend to the investment value of the property and its future resale price. Regulatory risk in regional real estate investment therefore should not be considered only in terms of whether a property can continue to be owned. It also needs to include the business conditions that determine how the property can be operated and how much income it can generate.

​

​

Another important point is that future regulations in regional Japan may not simply be extensions of regulations that already exist.

​

Many regional communities in Japan are now beginning to face circumstances they have rarely experienced before. For many years, local governments have primarily dealt with population decline, increasing numbers of vacant homes, falling visitor numbers, and the decline of local industries. In some areas, however, a completely different environment is emerging: overseas capital is flowing in within a short period of time, owners with different languages and business practices from local residents are increasing, staff are recruited through social media, and property acquisition and operations can be organized almost entirely through online networks.

​

Owners may live overseas, guests may also come from overseas, and management companies and staff may be secured through independent networks. If this system operates with very little connection to the existing local economy or community, the business may physically operate within the region while economically and socially forming a separate, independent operating system.

​

This is also a new issue for local governments. The fact that there is currently no regulation directly addressing such a business model does not mean that it will remain unregulated in the future. It may simply be that such problems did not previously exist.

​

Looking across Japan, different regions have already developed different regulatory approaches in response to the issues they face. Kyoto requires local management and interaction with surrounding residents for accommodation businesses. Karuizawa uses strong prior coordination in areas such as land use, construction, and landscape protection. In another sector, Iriomote Island has introduced a licensing system for nature tourism guides that, under certain conditions, even requires a relationship with the local community and involvement in the region.

​

These examples show that when regions encounter problems they have not faced before, new systems may be created that require businesses to take responsibility and build relationships with the local community in ways that differ from conventional regulations.

​

Precisely because it is impossible to predict exactly what regulations may be introduced in the future, regional real estate investors increasingly need to focus not on trying to guess the next regulation, but on building an operating structure from the beginning that will not easily collapse when the rules change.

​

This means building a business model based on integration with the local community.

​

Businesses should develop relationships with local service providers, government authorities, nearby residents, and tourism stakeholders, while establishing a structure that allows ongoing communication with the local community in Japanese. Where work can be handled locally, employing local people and incorporating local businesses into operations can also help ensure that part of the economic value created by the business continues to circulate within the region.

 

Using local human resources is not only about returning economic benefits to the community. People who understand the local environment, daily practices, and seasonal conditions can also help businesses respond to issues that may be difficult for staff brought in from outside the area to recognize. Particularly in regional accommodation businesses, local employment can be one way to address staffing needs while simultaneously creating stronger connections with the community.

​

Compared with remote operations, this approach will certainly require more time and money. For overseas investors, it may seem more convenient, simpler, and cheaper to outsource everything to English-speaking service providers or recruit staff only when needed through social media.

​

​

However, given the possibility of stronger regulation in the future, such a model can also be extremely fragile. By contrast, a business that has built its operational foundation within the region from the beginning, while creating benefits that give the local community a reason to support its continuation, is more likely to adapt when the regulatory environment changes.

​

Building relationships with the local community is not simply a matter of manners, goodwill, or CSR. For anyone intending to operate a business in regional Japan over the long term, and also from the perspective of an eventual exit strategy, it is an important part of risk management.

​

Going forward, regional real estate investment in Japan will increasingly require strategic planning and realistic budgeting from this perspective.