The Reality of Japan’s Minpaku Market: Strategy, Culture, and the Limits of Airbnb-Style Thinking
Table of Contents
Introduction
What Is Minpaku in Japan
Japan’s Minpaku Market Is a Niche Market
Why Minpaku Is Less Likely to Be Chosen in Japan: The Culture of Omotenashi
Japanese Food Culture Is an Important Factor
Differentiation, Hybrid Operations, and a Rental Business Perspective
Vacant House Minpaku: Parallels with the Past Landlord Boom
Summary
Introduction
Minpaku (short-term rental) Is Only a Small Part of the Overall Rental Business
In recent years, interest among overseas investors in operating minpaku (short-term rental) in Japan has continued to grow. However, market entry driven primarily by image or expectation remains common, increasing the risk of trouble and eventual withdrawal.
In English speaking countries as well, more realistic articles about Japan’s minpaku market have begun to appear in recent years. These often discuss diversification of demand, hybrid operational models, and differentiation strategies, while also warning against overly easy assumptions about entering the market.
Despite this, in actual practice the overwhelming majority of cases proceed to property purchases without a clear business strategy. In particular, many overseas investors enter the market with the image of the Airbnb market in the United States or other countries, or with expectations based on short term rental markets outside Japan.
Many investors who want to start a minpaku business tend to hold images such as the following.
・Growth in inbound tourism to Japan means strong demand for minpaku
・A market similar to Airbnb in the United States
・Influence from extreme success stories or promotional materials by operators
・Low budget entry using cheap vacant houses and DIY, while aiming for high yields
・If the property is near a tourist area or close to a station, the business will succeed
However, many of these assumptions are either overly optimistic, biased, or influenced by online advertising and videos, and they often differ significantly from the realities of the Japanese market.
Japan’s lodging market is only one part of the broader rental market, and the rental business in Japan is fundamentally divided by intended use, with different legal frameworks applying to each category. (For details, see Rental Business in Japan.)
Within that structure, the minpaku market operated under the Residential Lodging Business Act (AKA: Private Lodging Business Act or Minpaku Law), often referred to as Airbnb or short term rental in Japan, represents a very niche segment of the overall lodging market.
Market data can be found in this article.
Anyone planning to conduct business in Japan must develop a strategy that fits the realities of the Japanese market. To do so, it is necessary not only to understand regulations and procedures, but also to understand the characteristics of the Japanese market and the cultural context in which it operates.
In this article, I examine the Japanese market from a realistic business perspective, considering its cultural background. The aim is to provide insight for overseas readers who are considering purchasing and utilizing real estate in Japan for purposes such as lodging businesses, rental operations, lifestyle investment, or vacation and rental use.
What Is Minpaku in Japan
Minpaku refers to a service in which all or part of a residential property is provided to travelers or other guests in exchange for an accommodation fee.
In Japan, minpaku operations are conducted under one of the following legal frameworks.
・The Ryokan Business Act (Simple Lodging)
・The Residential Lodging Business Act (AKA: Private Lodging Business Act or Minpaku Law)
・The National Strategic Special Zone Act (permitted in only eight designated municipalities nationwide)
Among these, the most popular framework is minpaku operated under the Residential Lodging Business Act.
The Residential Lodging Business Act, which came into effect in 2018, allows lodging operations to be conducted while the property remains classified as a residential use. Although the barrier to entry is relatively low, the number of operating days is limited to a maximum of 180 days per year.
The main purposes of the Residential Lodging Business Act include the following.
・Addressing the rapid increase in illegal minpaku operations
・Promoting lodging businesses that utilize legally registered residential properties
・Securing accommodation supply in response to the growth of inbound tourism
An important principle of this law is that the nature of the property as a residential home must not be fundamentally altered. The 180 day limit exists in order to preserve the essential character of the property as a residence.
If lodging operations are conducted throughout the entire year, the use of the property is no longer considered residential but rather a business use, and a license under the Ryokan Business Act becomes necessary. Entering the lodging business under the Ryokan Business Act involves a higher barrier to entry due to various regulatory and facility requirements. By contrast, the lower barrier to entry under the Residential Lodging Business Act exists precisely because the property must remain classified as residential in nature.
As mentioned earlier, minpaku can also be operated under the Ryokan Business Act or the National Strategic Special Zone Act. However, both within Japan and internationally, minpaku under the Residential Lodging Business Act has become widely recognized as the Japanese equivalent of Airbnb or short term rental.
For this article, the term minpaku refers specifically to minpaku operated under the Residential Lodging Business Act.
Japan’s Minpaku Market Is a Niche Market
Japan’s minpaku market is not comparable to markets such as the United States, where platforms like Airbnb account for a large share of total accommodation demand.
Many investors expect strong demand driven by inbound tourism. However, only about 7 percent of inbound travelers stay in minpaku accommodations. Even when including minpaku operated under the Ryokan Business Act (Simple Lodging) and special zone minpaku, the share is estimated to be only around 20 to 30 percent.
The increase in inbound visitors to Japan is real, but the situation today is different from that of 2018. As demand has grown, not only have minpaku facilities increased, but hotel construction and resort development have also expanded. Influenced in part by the Tokyo Olympics and the Osaka Expo, it is difficult to say that Japan currently faces a shortage of accommodation supply.
Many people focus on the average occupancy rate in a given area, but occupancy is not a starting condition. It is a result.
For example, in host absent operations, often referred to as remote management, it is mandatory to appoint a government registered residential lodging management company. After deducting management fees, cleaning costs, consumables, marketing expenses, and taxes, it is not uncommon for only around 50 percent of revenue to remain.
Conducting realistic financial simulations based on such costs is certainly necessary. However, without a strategy that defines the value being offered, the accommodation price corresponding to that value, and the method of attracting guests, revenue simulations alone have little meaning.
Likewise, setting prices simply by referring to accommodation rates in surrounding properties is not appropriate. In Japan’s minpaku market, each property often has a distinct character and concept, and those differences cannot be understood through price alone.
The Starting Point of the Minpaku Business
The starting point of this business is not the purchase of a property or the procedures for applications and permits. It is the design of a strategy that fits the Japanese market.
To develop a strategy suited to the Japanese market, it is necessary to understand the structure of Japan’s accommodation market. The data also shows that, except in special cases targeting only overseas high net worth travelers, focusing exclusively on inbound demand is not advisable. Responding to domestic Japanese demand should be considered essential.
Why Minpaku Is Less Likely to Be Chosen in Japan: The Culture of Omotenashi
At the foundation of Japan’s accommodation market lies the country’s distinctive ryokan culture. This culture developed on the basis of Japan’s unique concept of omotenashi, often translated as Japanese hospitality.
Although times and the accommodation market have evolved, this cultural foundation has remained largely unchanged.
Understanding Japan’s omotenashi culture provides an important clue to explaining why hotels and ryokan are often preferred, while minpaku is less frequently chosen.
In Japan, where public transportation is highly developed, hotels and ryokan have developed not only around major stations in urban centers but also around key stations in suburban areas. Even in locations away from stations in tourist destinations, efforts are often made to improve convenience for guests, such as providing complimentary shuttle services.
The compact size of many business hotel rooms is also the result of deliberate strategic design. These hotels specialize in serving travelers visiting sightseeing hubs or traveling for business, keeping costs controlled while making full use of surrounding restaurants, convenience stores, and local services.
At the core of the strategy and operation of Japanese hotels and ryokan lies the culture of omotenashi. For many Japanese guests, the experience of staying in a place where hospitality can be felt becomes a special part of the trip itself.
Hotels in Japan are designed to meet the expectations of Japanese guests in areas such as cleanliness, convenience, safety, consistency of quality, and service. Japanese travelers account for more than 70 percent of all accommodation users, and unlike inbound tourism demand, which tends to be seasonal, domestic demand such as weekend trips and business travel continues throughout the year.
Hotels also place strong importance on their relationship with the local community. In Japan, the relationship between accommodation businesses and the surrounding community has a significant influence on operations. Even hotels that actively strengthen services for inbound visitors generally maintain a business model based on meeting the needs of Japanese guests while coexisting with the local community.
At the same time, an increasing number of hotels are strengthening the value of the stay itself. In Hakone, for example, major resort companies have recently been actively developing new properties that feature refined spatial design, English language support, larger guest rooms, private open air baths, flexible policies toward tattoos, and diverse dining options. These efforts are designed to respond not only to Japanese guests but also to global demand.
On the other hand, hotels and ryokan that cannot adapt to changing needs or where owners are aging often face difficulties. The overall closure rate for the lodging industry is approximately 3 percent, but closures are particularly noticeable among properties that have become outdated or cannot keep up with modern facility investment. Hotels that fail to respond to evolving guest expectations are gradually declining.
By contrast, minpaku that simply rents out a residential home often makes it difficult for Japanese guests to feel a sense of omotenashi, and may instead feel impersonal or insufficient. The expectations of Japanese travelers are not limited to physical facilities alone.
In addition, many Japanese people have a relatively high psychological barrier to staying in the private home of someone they do not know. Concerns about the uncertainty of services, hygiene standards, facilities, and security also influence this perception.
Japanese Food Culture Is an Important Factor
In Japan, it is rare for travelers to struggle to find meals. Dining out is deeply integrated into daily life, and supermarkets offer a wide range of prepared foods and takeout options, while convenience stores provide inexpensive and accessible meals almost everywhere.
For many Japanese travelers, enjoying local food is one of the main pleasures of travel. Because eating out is relatively affordable, only a small minority of people wish to cook during their trip. In other words, the kitchen that is often considered a key feature of minpaku is rarely a necessary element for Japanese guests.
Japanese people also tend to enjoy bathing, but they prioritize cleanliness and comfort rather than the size of the bathroom. Even if the space is small, a clean and well maintained hotel bathroom provides a sense of reliability. In addition, demand for bathtubs is high. Even in compact business hotels, bathrooms are generally designed so that guests can soak in a bathtub, and bathrooms that provide only a shower space are not preferred by many Japanese travelers.
In many tourist destinations, hotels and ryokan offer large public baths, hot spring facilities, private open air baths in guest rooms, or meals prepared with local ingredients. These features are highly attractive for Japanese guests.
Because of the combined influence of omotenashi culture, ryokan traditions, food culture, and the expectations of Japanese travelers, there is a clear distinction in Japan between a “home” and an “accommodation facility.” This cultural background makes properties that simply provide a residential house less likely to be chosen as lodging.
For this reason, minpaku that depend only on location or convenient access, or that simply rent out a house without additional value, are more likely to be filtered out of the market.
So how can a property be chosen within Japan’s accommodation market? This question lies at the core of strategic design.
Based on an understanding of Japan’s omotenashi culture and the needs of Japanese travelers, it becomes necessary to offer something that hotels and ryokan cannot provide. This involves identifying potential demand and developing branding and conceptual design from multiple perspectives, including feasibility, methods of attracting guests, operational costs, and facility investment.
Alternatively, it may be necessary to develop a broader business strategy that is not confined to the single framework of minpaku.
Differentiation, Hybrid Operations, and a Rental Business Perspective
Operating a minpaku as a business is a means, not an end. If operating a minpaku itself is the goal, then it is closer to a hobby or a lifestyle choice.
Japan’s minpaku market is no longer a market where “minpaku simply means using a house as accommodation.” Instead, it has evolved into a market where broader business strategy is essential, in other words, a professional market.
In recent years, this perspective has gradually spread within Japan. Among communities of minpaku owners, gatherings are often held for information exchange, advice, and study sessions. As a result, more owners are developing their businesses within the broader framework of the rental industry and introducing various strategic ideas into their operations.
Hybrid Operations
Hybrid operations that combine different types of demand have been receiving increasing attention in recent years. Examples include combining minpaku with monthly rentals, rental spaces with monthly rentals, or lodging businesses with rental space operations.
However, to implement such models both legally and effectively, it is necessary to evaluate the possibilities, including future options, before purchasing the property. This is because in Japan, regulations and legal frameworks are determined not by the length of stay but by the intended use of the property.
For example, hybrid operations combining minpaku and monthly rentals, which have become more common in recent years, are legal. However, combining minpaku with rental spaces that do not include accommodation is illegal. By contrast, combining lodging operations under the Ryokan Business Act with rental spaces or monthly rentals is permitted.
In addition, hybrid operations require a strategic approach that addresses different types of demand. For instance, the needs of travelers staying in a minpaku differ from those of tenants using monthly rental housing.
Differentiation
Differentiation through value and experience has become an area in which many minpaku owners in Japan are placing particular emphasis in recent years. Because minpaku operations are generally more flexible than hotels and allow greater individuality, a wide range of creative approaches has emerged.
Examples include “activity based” accommodations that offer added value through experiences such as cooking with local ingredients, firewood splitting, farming experiences, kimono dressing and photo sessions, and other hands on activities. There are also “stay experience” oriented properties that focus on facilities and services, such as pet friendly accommodations, large gardens for BBQ, irori hearths or wood burning stoves, private theaters, jacuzzis or hot springs, as well as arrangements for transportation services or catering.
Some operators also introduce professional production or hotel company management in order to increase the level of completion and quality as a “professional accommodation facility.”
There are also operations designed to contribute to the local community or society. Examples include accommodations for families visiting hospitalized patients or residents of elderly care facilities, lodging for visitors attending local events, or properties operated in cooperation with municipalities as trial stay programs for people considering relocation.
In the case of kominka accommodations, unique strategies have also increased. Some properties target the high end market with comfortable interiors and high quality facilities, while others offer lower accommodation prices with minimal investment in equipment but emphasize cultural experiences, including the inconveniences of traditional life, often combined with agricultural activities. Because kominka themselves are distinctive buildings and operations often consciously incorporate Japanese culture and omotenashi traditions, kominka accommodations are relatively easy to differentiate even within the minpaku sector and are becoming a specialized market.
In the high end segment, both the properties and renovations tend to be of high quality, and accommodation prices are correspondingly higher. In particular with kominka, demand has increased not only for luxury accommodations but also for vacation and rental properties used as lifestyle investments by affluent buyers.
Within Japan’s real estate industry and among many local governments, initiatives promoting dual location living have also been gaining momentum. These efforts are often connected to broader goals such as regional revitalization and the effective use of vacant houses.
Vacant House Minpaku: Parallels with the Past Landlord Boom
The approach that attracts many overseas investors, purchasing inexpensive vacant houses and operating minpaku after minimal renovation or DIY repairs, has many similarities with the landlord investment boom that occurred in Japan.
In Japan, around 2010 to 2020, a strategy became popular in which investors purchased old and inexpensive detached houses and rented them out as standard residential rentals under the Land Lease and House Lease Act after only minimal renovations.
This approach, which minimized initial investment and aimed to increase apparent yield, attracted many individual investors.
However, because the actual profit from a single property was limited, the model generally required owning and operating multiple properties in order to generate meaningful income.
Over time, various factors began to affect this market, including oversupply and the increasing concentration of rental demand in urban areas. As a result, many landlords eventually began to face rising vacancy rates.
Beyond declining occupancy, however, an even more serious issue emerged: asset value.
Many of these properties were acquired without a clear exit strategy or long term repair planning. As a result, hidden structural deterioration accumulated as a significant risk. Infrastructure systems such as water supply and drainage pipes or electrical distribution panels, as well as structural components like roofs and exterior walls, can require repairs that easily consume several years of profits. For this reason, a large number of properties have been maintained only through minimal repairs that barely keep them functional.
If you were the buyer, how much would you be willing to pay for such a property? Or would you want to buy it at all?
When a business carries high risk and low returns, business succession becomes difficult. If there is no buyer, there is no exit. In reality, this perspective should be considered before purchasing real estate.
Today, rising costs, including construction materials, along with changes in the market and demand, mean that the era in which stable high yields could be achieved simply by minimizing property prices and repair costs has already passed. Market trends suggest that properties with low quality and high uncertainty will become increasingly less attractive to buyers.
The history of Japan’s landlord investment boom contains many lessons that should be considered by those planning to enter the minpaku or rental business today.
Summary
In lodging and rental businesses in Japan, it is essential to accurately understand current market conditions, respect Japanese culture and values, and develop a business strategy that can be accepted by the local community. In particular, coexistence with the local community should not be underestimated. This issue has been a major factor behind the recent tightening of regulations on residential lodging businesses.
Real estate investment is not inexpensive. If a property is used purely for personal residence or as a vacation home, there may be value in personal satisfaction that cannot be measured in financial terms. However, the situation is entirely different when the purpose is business.
Designing a realistic business strategy that aligns with the Japanese market and cultural context is the true starting point for operating a lodging or rental business in Japan.
Through my services, I provide various forms of support for overseas clients who wish to purchase and utilize real estate in Japan. From the stage of strategic planning for a real estate project, I assist with research, analysis, consulting, and advice, supporting areas that cannot be covered by English language assistance alone. For more details, please refer to the Services & Pricing and Liaison pages.