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Does Japan Need to Control Land Purchases by Foreigners?

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Does Japan Need to Control Land Purchases by Foreigners?

A debate on the national security implications of foreign land ownership is underway in Japan.

Does Japan Need to Control Land Purchases by Foreigners?
Credit: Pixabay

In recent years, the Japanese government has sought to draft and enact new legislation to regulate the acquisition and use of Japanese land with implications for national security. Currently, there are no Japanese laws or regulations that ban or control the purchase of Japanese real estate by foreign nationals, regardless of permanent residency or visa status. It is possible for foreigners to purchase Japanese property while living outside of Japan, although it is necessary to be a resident of Japan to obtain a home loan from a Japanese bank.

Since Japan was awarded the 2020 Tokyo Olympics and Paralympics, more and more non-Japanese people have purchased Japanese real estate for the purpose of private use and investment. At the same time, the acquisition of land in Japan by foreign nationals or entities has been a controversial topic in Japanese politics.

Previously, the Japanese government revised the Foreign Exchange and Foreign Trade Act, which entered into effect in June 2020, with a view to introducing safeguards against foreign investment and protecting core infrastructure and defense industries. This has been one of the central debates in Japan’s national security in the face of Beijing’s predatory geoeconomics, and Tokyo was forced to balance between national security and the economy. Under the revision, foreign investors need approval from the Japanese government if they would like to acquire more than 1 percent of shares in Japanese companies that are closely connected with national security. The previous threshold was 10 percent. Goldman Sachs had warned that such strict restrictions on foreign investment would be detrimental to the market.

In November 2020, the Japanese government established a panel of experts to discuss issues related to the purchase of Japanese land by foreign nationals and its implications for national security. The panel submitted its report on December 24, 2020, which suggested that the Japanese government should enact new legislation to take necessary measures against possible problems stemming from the acquisition and use of real estate in Japan by foreign groups. In particular, remote islands; land adjacent to defense-related facilities, such as bases of the Japanese Self-Defense Forces and those of the U.S Forces; and land near essential infrastructure, such as nuclear power plants, as well as water sources were raised as vital to national security.

Previous cases have caused worry about the purchase and use of Japanese land by foreign nationals. First, it was reported that South Koreans acquired sensitive real estate on Tsushima Island of Nagasaki prefecture in Kyushu. Specifically, a South Korean resort facility was opened in June 2008 adjacent to the base of the Maritime Self-Defense Force in charge of the security of the Tsushima Strait, causing speculation and fear among conservative Japanese politicians that the purchases might be a cover for espionage by Seoul. From a strategic viewpoint, Tsushima is located in a so-called choke point, and its proximity to the Korean Peninsula (approximately 50 kilometers) is a crucial factor for the defense of Japan. Meanwhile, more and more South Korean people live there and Korean tourists frequently visit Tsushima, arousing fears and warnings in the Nagasaki City Assembly in September 2013.

Likewise, Chinese investors have acquired tracts of land on Hokkaido, which has strategic value due to its proximity to the Arctic Ocean. In 2017, Chinese investors purchased more than 2,400 hectares of forestland and some 4,000 hectares of land for solar power generation in Hokkaido. Also, a Japanese trading firm with close ties with China has bought up at least 1,100 hectares of farmland in Hokkaido. Moreover, Chinese investments are active along the Pacific coast of Hokkaido, including the port facilities of Tomakomai and Kushiro. Chinese investors particularly bought up property close to New Chitose Airport, which is adjacent to the Chitose base of the Air Self-Defense Force.

These cases helped motivate the Japanese government to take necessary steps regulating the purchase of Japanese land by foreign nationals. The government has prepared draft legislation in accordance with the aforementioned report by experts.

On the other hand, an editorial of Ryukyu Shimpo, a major newspaper in Okinawa, pointed out that regulations on the purchase of Japanese land by non-Japanese buyers (and, relatedly, its sale by Japanese owners) might violate private rights. The editorial warned that the government would designate “closely monitored districts” related to national security. Most parts of Ginowan City, where the U.S. Marine Corps Air Station Futenma is located, and Kadena Town, where 80 percent of the area is occupied by U.S. Kadena Air Base, might be closely monitored. The editorial argues that, through increased regulation, the government would limit the private rights of residents of the closely monitored areas in Okinawa and elsewhere in Japan. Indeed, Paragraph 1 of Article 29 of the Japanese Constitution guarantees property rights, stipulating “The right to own or to hold property is inviolable.” Similarly, Komeito, a coalition government partner of the Liberal Democratic Party (LDP), expressed its cautious stance on the government-drafted bill, preventing the Suga administration from making a Cabinet decision regarding the submission of the LDP-approved bill on March 9.

At the same time however, Paragraph 2 and 3 of Article 29 of the Japanese Constitution continues “Property rights shall be defined by law, in conformity with the public welfare. Private property may be taken for public use upon just compensation therefor.” This means that the government is entitled to limit property rights and use private property in the name of the “public welfare.” In other words, it is not unconstitutional for the Japanese government to enact and implement such legislation to restrict the buying and selling of Japanese land between Japanese people and foreign entities, just like other countries such as Australia, South Korea, and the United States. Having said that, as a member state of the World Trade Organization (WTO), Japan is not allowed to discriminate against other nationalities with regard to property acquisition.

In the case of the United States, foreign investments related to national security are regulated and controlled by the government based on the Exon-Florio provision of the Omnibus Trade and Competitiveness Act of 1988, the Foreign Investment and National Security Act of 2007, as well as the Foreign Investment Risk Review Modernization Act (FIRRMA) which was enacted in August 2018 and implemented in February 2020. Especially, purchase of property related to national security by foreign entities is regulated under the FIRRMA. Similar discussions and deliberations on the significance of such legislation are taking place in the United Kingdom and France.

Given the implications for the defense of Japan and protection of core infrastructure, the legislative measure against foreign investment, including real estate, in security-sensitive districts is of great significance. Still, the Suga government would do well to take into consideration the domestic opposition, wary opinions, international duty, and possible impact on the market economy before it finalizes the draft legislation.