On March 10, 2026, the Bank of Japan published its "Policy for Conducting Examinations in FY2026" for financial institutions. A particularly noteworthy aspect of this policy is the clear indication of the BOJ's intent to intensively scrutinize real estate lending in major metropolitan areas.
In recent years, real estate prices in major metropolitan areas have continued to surge, and real estate-related lending by financial institutions has also been on an upward trend. In response to this situation, the BOJ has indicated its policy of rigorously examining whether financial institutions' screening systems and risk management are functioning appropriately.
This article unravels the background behind the BOJ's FY2026 examination policy and explains the outlook for real estate lending going forward, as well as the changes in the market environment that real estate investors and businesses will face.
We will also explore how we should prepare for risks such as rising interest rates and fluctuations in real estate prices, and how to pursue sustainable asset formation.
Background to the BOJ's Focus on Real Estate Lending in Its FY2026 Examination Policy
The BOJ's decision to place real estate lending as a priority item in its FY2026 examination policy stems from strong concern over the remarkable surge in real estate prices in major metropolitan areas and the resulting increase in outstanding loan balances.
Looking back at the FY2025 examination results, a pronounced tilt toward real estate-related lending was observed across both major financial institutions and regional financial institutions alike. Particularly in major metropolitan areas, numerous cases were confirmed of increased lending to real estate trading companies tied to short-term buying and selling of financed properties, as well as increased lending to real estate rental businesses premised on eventual property disposition.
When real estate prices are rising, conditions make it easy to profit through short-term resale. However, the expansion of lending that is excessively dependent on such market conditions poses a latent risk to the entire financial system.
This is because if the real estate market deteriorates and prices begin to fall, business plans premised on short-term trading will collapse, and financial institutions' non-performing loans risk increasing.
To prevent such a situation from arising, the BOJ is demanding that financial institutions establish a rigorous risk management framework spanning from initial loan screening through to ongoing monitoring. This can be described as an important measure to curb overheating in the real estate market and maintain the stability of the financial system.
Furthermore, regional financial institutions are confronting structural challenges from regional economic contraction driven by population decline and an aging society. As a result, there is a trend of crossing regional boundaries to seek opportunities in major metropolitan area real estate markets and expanding lending there.
However, lending in unfamiliar areas makes it difficult to accurately assess properties and understand market conditions, and risk management tends to be inadequate. The BOJ is closely monitoring these trends among regional financial institutions and is strongly calling for the development of sustainable business models and appropriate risk management frameworks.
Strengthening of Screening Systems and Risk Management Required of Financial Institutions
In response to the BOJ's examination policy, financial institutions are expected to further strengthen their screening systems and risk management for real estate sector lending going forward. Specifically, for real estate trading businesses and real estate rental businesses respectively, the following points will be subject to rigorous scrutiny.
| Loan Target | Previous Key Screening Points | Verification Points to Be Strengthened Going Forward (Based on BOJ Examination Policy) |
|---|---|---|
| Real Estate Trading Businesses | Collateral valuation of property, borrower's track record | Project viability, thorough progress monitoring, early warning management informed by real estate market monitoring, verification of reasonableness of acquisition and sales prices |
| Real Estate Rental Businesses | Current rental income, gross yield | Forward-looking income and expense plans that meticulously incorporate rent declines, rising vacancy rates, and increasing required expenses; recoverability of property value; portfolio analysis |
For lending to real estate trading businesses, not only the collateral value of the property itself but also the viability of the project and progress management in response to changing market conditions will be required.
For lending to real estate rental businesses, it will be essential to formulate more precise income and expense plans that account not only for current profitability but also for future rent declines, vacancy risks, and increased expenses such as repair costs.
Investors and business operators should expect that when obtaining financing from financial institutions, they will be required to submit more detailed and compelling business plans than ever before. It is important to develop plans that appropriately incorporate risks, with the understanding that financial institutions' scrutiny will become more stringent.
In particular, multifaceted verification will be required — including whether property acquisition prices are reasonable, whether sales plans are realistic, and whether alternative plans (exit strategies) are in place in the event that things do not proceed as planned.
Financial institutions will strengthen their stance of rigorously assessing the feasibility of projects not merely as providers of funds, but as business partners.
Preparing for Rising Interest Rates and Real Estate Price Decline Risks
The BOJ's examination policy also lists as a priority item the verification of resilience under stress conditions such as rising market interest rates and declining real estate prices. This reflects a strong awareness of the current situation in which the Japanese economy is transitioning from the prolonged ultra-low interest rate environment to a "world with interest rates."
When interest rates rise, borrowing costs in real estate investment increase. For those who have obtained variable-rate loans, there is a heightened risk that increased repayment amounts will put pressure on cash flow.
Furthermore, rising interest rates are a factor that pushes up expected yields (cap rates) for real estate, and it cannot be denied that this could result in declining real estate prices.
Investors need to periodically verify the stress resilience of their own portfolios against these environmental changes. Specifically, it is important to simulate whether loan repayments can be made without disruption even if interest rates rise to a certain level or rental income decreases (confirmation of DSCR: Debt Service Coverage Ratio).
Taking concrete measures against interest rate rise risk — such as increasing the proportion of equity to control leverage, or considering refinancing to fixed-rate loans — will be critically important in real estate management going forward.
Furthermore, value-add investments to maintain and improve the competitiveness of properties should also be considered. Rather than simply holding properties, carrying out renovations tailored to tenant needs and updating facilities can prevent rent declines and ensure stable revenue.
In a period of rising interest rates, the earning power of the property itself will be called into question more than ever.
INA&Associates' Vision for a Sustainable Real Estate Investment Strategy
As the BOJ's examination policy indicates, the environment surrounding the real estate market is at a turning point. Investment approaches that pursue short-term profits or rely on excessive leverage are expected to carry increasing risks going forward.
Our company, INA&Associates Co., Ltd., as a "talent investment company," holds sustainable management free from short-term profit fixation as its founding principle. Similarly in real estate investment, rather than aiming for short-term resale gains, we advocate asset formation from a medium- to long-term perspective.
The essence of real estate investment lies in appropriately managing and operating quality properties, providing comfortable living environments for tenants, and thereby earning stable rental income. To achieve this, meticulous strategy and risk management are indispensable across every process — from property selection and financial planning through to post-purchase rental management.
Through precise income and expense simulations and market analysis leveraging technology, we propose optimal portfolios tailored to each individual client's risk tolerance.
We will also provide our full support for maximizing clients' asset value and achieving sustainable growth, based on the "talent" and "trust" that are most essential in real estate management.
Summary
The FY2026 examination policy announced by the Bank of Japan is a strong warning against the overheating of real estate lending in major metropolitan areas, and an important signal toward a healthier real estate market. As financial institutions tighten their lending posture, real estate investors and businesses will be required to produce more precise business plans and more rigorous risk management than ever before.
Preparing for the transition to a "world with interest rates" and the risks of real estate price fluctuations, verifying the stress resilience of one's own portfolio, and reviewing strategy as necessary is an urgent matter. Rather than pursuing short-term profits, aiming for sustainable real estate management from a medium- to long-term perspective will be the key to navigating the times ahead.
Those with concerns about real estate investment or questions about future strategy are encouraged to consult with INA&Associates Co., Ltd. Leveraging abundant specialist knowledge and the latest technology, we will provide powerful support for your asset formation. We look forward to hearing from you.
Frequently Asked Questions
Q1: If the BOJ's examination policy becomes stricter, will it become harder for individuals to obtain real estate investment loans?
A1: Yes, that possibility is certainly worth considering. Financial institutions tend to tighten their loan screening standards in response to BOJ policy. In particular, it is expected that the bar for obtaining loans will be raised for projects with a low proportion of equity, or for projects with insufficient basis for their income and expense plans. More meticulous business plan preparation and adequate equity preparation will be required.
Q2: Will real estate lending outside major metropolitan areas be unaffected?
A2: While this examination policy highlights major metropolitan areas as a priority item, regional financial institutions are also being required to develop sustainable business models and thoroughly implement risk management. Therefore, even in regional areas, financial institutions' scrutiny of real estate lending should be expected to tighten across the board. Regardless of location, meticulous income and expense verification is indispensable.
Q3: What measures can be taken now against rising interest rate risks?
A3: First, it is important to understand your current borrowing situation and simulate the increase in repayment amounts if interest rates rise. Based on that, effective measures include injecting equity to reduce the principal outstanding (early repayment), considering refinancing from variable to fixed interest rates, or selling low-yielding properties to rebalance your portfolio.
Q4: Will real estate investment aimed at short-term trading become more difficult going forward?
A4: The BOJ is closely monitoring increases in lending tied to short-term buying and selling of financed properties as a risk factor. For this reason, loan screening for projects premised on short-term resale is expected to become even more stringent going forward. It can be said that the time has come to consider shifting toward stable rental management premised on medium- to long-term holding — an approach less susceptible to changes in market conditions.
