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Okinawa bases gain unwanted attention as no-risk real estate

Outside investors buy military land for stable rent income

Members of the 31st Marine Expeditionary Unit conduct fire hoses drills at the base fire station in Futenma, Okinawa. (Photo courtesy of the U.S. Marines)

NAHA, Japan -- In the days after World War II, the U.S. military seized land on the southern Japanese islands of Okinawa to build American bases. After the occupation ended and Okinawa was officially returned to Japan in 1972, the bases remained, and since then, the Japanese government has been paying rent to the landowners so that the U.S. military can continue to use the property.

This arrangement has begun to attract attention by investors outside of Okinawa who see an opportunity to gain stable income with little risk of the rent going down, due to the political nature of the scheme.

But for local Okinawans, it is unwanted attention. As locals suffer from constant noise pollution and the burden of housing more than 70% of all American bases in Japan, they do not want to see money that is paid as compensation for the land continue to drain out of the islands.

"It's definitely increasing, albeit gradually," Yasuaki Makishi, chairman of the Okinawa Prefectural Military Land Owners Federation said with a sigh, turning over a thick book that records land ownership. Entries of new landowners show addresses in Tokyo, Kanagawa, Chiba, and Aichi, each thousands of kilometers away.

For military land in Okinawa City, non-prefectural ownership has increased to 8% from around 3%. While this number includes land being passed on to relatives living outside the prefecture as part of inheritance, there are also many cases in which landowners not wanting to pay inheritance tax going to the real estate market to sell it off.

According to the Ministry of Defense, there were 44,523 landlords in 2018. Although owners inside the prefecture fluctuates from year to year, the trend is clear when it comes to the increase of owners living outside of Okinawa.

The USS Bonhomme Richard, USS Ashland and the USS Greenbay visit White Beach Naval Facility for the onload of the 31st Marine Expeditionary Unit in Okinawa. (Photo courtesy of the U.S. Navy)

Why are investors attracted to the military land? The government budget proposal for fiscal 2020 shows 102.1 billion yen, or $1.1 billion, readied for military land charges. It has been increasing year by year, even though the square measurement of the military land has been decreasing. This indicates that the unit price of the rent is rising each year.

The engine of that rent growth, is the cold fact that these properties constitute a pillar of the Japan-U.S. alliance and having the landowners on board is an essential element of Japan's security. By rule, the Japanese side is responsible for securing the land for the U.S. military bases. If this wobbles, so does the alliance.

The Ministry of Defense says the rent is calculated based on land price trends around the property and opinions of real estate appraisers. The reality is, though, that it is unrealistic for the government to lower rents against the landowners' wishes. While Japanese real estate prices tumbled after the collapse of the bubble economy, the Okinawa military rent has continued its ascent. For risk-averse investors, nothing could be more attractive than a piece of land that has no risk of price decline.

Moreover, the borrower is the Japanese government. Unlike a condominium, there is no vacancy risk. Unlike the stock market, there is almost no fluctuation risk. A real estate official in the prefecture said the interest was triggered by the Bank of Japan's ultralow interest rate policy. "Investors on the mainland began to have interest in the land here. They jump on an opportunity to buy, even if it is more expensive than regular land in Okinawa."

On their websites, Okinawa real estate agencies offer to pay visits to clients nationwide to arrange the transactions. "Purchase without having to come to Okinawa," says one. Military land deals used to be handled exclusively by real estate agents in central Okinawa, where the bases are concentrated. Today more and more real estate agencies are jumping into the practice, including in the south of the prefecture, where the capital Naha is. There have been inquiries from overseas investors, such as those in China, which have raised security concerns.

Okinawa's postwar history has been dominated by a struggle over land. Under U.S. military occupation, land was confiscated "with bayonets and bulldozers," locals say. When the U.S. side proposed a one-time payment for the semipermanent use of the land, it led to bitter protests.

Unlike on mainland Japan, where most U.S. bases were established on former Japanese military facilities on state-owned land, in Okinawa, three-quarters of the military land is on privately owned land.

"The current military land system was created with the intent of obtaining the consent of many landowners, when Okinawa was returned to Japan," said Atsushi Toriyama, a professor at the Institute for Islands and Sustainability at the University of the Ryukyus. "The generous rent had always been known within the prefecture for that reason. It is only natural that there is now interest in that from outside the prefecture, considering the low-interest environment that continues."

Makishi, the head of the landowners federation, said he feels "uncomfortable" that the fruits of the military land payments are being drained out of the prefecture.

Outside ownership is also feared to become a problem when the bases are eventually returned, and the locals discuss ways to make use of the land. Gaining consent of all landowners will be a daunting task.

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