For ultra-high-net-worth individuals with assets exceeding 1 billion yen, real estate is not merely an investment object but an important part of the portfolio responsible for asset protection and succession to the next generation. However, as the scale grows, tax risks and management complexity increase, and there are limits to individual management.
INA & Associates Co., Ltd. receives daily consultations from many ultra-high-net-worth clients regarding real estate management and asset succession. What we have seen from these consultations is that successful asset holders have built systems not just to "own" real estate, but to "manage and operate" it organizationally and strategically.
In this article, I will explain the specific methods and strategies by which ultra-high-net-worth individuals with assets of 1 billion yen or more actually manage their real estate and protect and grow their assets. I will explain from a specialist perspective in an easy-to-understand manner, including the benefits of corporatization and the use of family offices.
The Role of Real Estate Portfolios Among Ultra-High-Net-Worth Individuals
At the phase where assets exceed 1 billion yen, the defensive strategy of "how to protect assets without letting them decrease" becomes more important than the offensive stance of "how to grow assets." In this context, real estate plays an extremely unique and powerful role.
Unlike paper assets such as stocks and bonds, real estate has solid value as a physical asset. It has high resistance to inflation and serves as a source of stable long-term cash flow. Furthermore, in Japan's tax system, utilizing real estate enables significant tax savings.
Many ultra-high-net-worth individuals hold a balanced mix of financial and physical assets to diversify risk. Real estate in particular becomes the cornerstone for building a resilient portfolio by combining highly profitable urban commercial buildings and residences with overseas real estate.
Limits of Personal Management and Establishment of an "Asset Management Company"
As the scale of assets grows and multiple properties are owned, personal name management becomes inefficient from both tax and practical perspectives. Japan's income tax adopts a progressive taxation system, and when individual real estate income increases, an extremely high tax rate of up to 55% (including resident tax) is imposed.
This is why practically all ultra-high-net-worth individuals practice establishing an asset management company to corporatize their real estate. Corporatization brings a reduction in tax rates, broader expense deductions, and dramatic tax savings.
| Comparison Item | Individual Real Estate Ownership | Asset Management Company (Corporation) Ownership |
|---|---|---|
| Applicable Tax Rate | Income tax + Resident tax (up to 55%) | Corporate tax, etc. (effective rate approx. 30-34%) |
| Scope of Expenses | Limited (direct necessary expenses only) | Broad (director compensation, life insurance, retirement allowances, etc.) |
| Income Splitting | Not possible (attributed only to individual owner) | Possible |
| Loss Carryforward | 3 years | Up to 10 years |
| Response at Inheritance | Requires division per property (risk of inheritance disputes) | Manageable by stock division (smooth succession) |
As shown, utilizing an asset management company can significantly reduce the tax burden on income and maximize the cash remaining in hand. It is also possible to legally transfer assets while splitting income by inviting family members as directors and paying them director compensation.
Utilizing the Ultimate Asset Protection Organization: "Family Office"
When assets reach tens of billions of yen, there is an increasing trend to adopt the form of a family office rather than merely an asset management company. A family office is a dedicated organization for comprehensively managing and operating the assets of a specific wealthy family.
While it is a common system among ultra-high-net-worth individuals in Europe and America, its importance is increasingly being recognized in Japan as well. Family offices provide support across a wide range of areas, including not only real estate management and financial asset investment but also tax matters, legal affairs, business succession, and even family philosophy education and charitable activities.
Professionals including lawyers, tax accountants, private bankers, and real estate specialists form teams to work toward maximizing the interests of the family. This allows people to be freed from the burden of increasingly complex asset management and focus on their core business and realizing a fulfilling life.
Synergy Between Real Estate Utilization for Inheritance Tax Measures and Corporatization
The greatest threat for ultra-high-net-worth individuals is inheritance tax, which reaches a maximum rate of 55%. Without any countermeasures, you may end up paying more than half of the assets you have built to the government. Real estate also exerts tremendous power in this inheritance tax planning.
While cash and marketable securities are valued at market price, real estate is evaluated using road prices and fixed asset tax appraisal values, resulting in a significantly lower appraisal value than market price. Furthermore, if the property is a rental, the evaluation reduction as "rental land" also applies, and it is not unusual for the inheritance tax appraisal value to be compressed to less than half simply by converting cash to real estate.
Combining this with an asset management company creates further synergy. If an individual owns real estate personally when inheritance occurs, the estate distribution agreement can become difficult, and in the worst case, you may be forced to sell prime real estate to raise tax funds. However, if the real estate is owned by a corporation, the subject of inheritance becomes "corporate stock" rather than "real estate." Stocks are easy to subdivide, making it possible to concentrate management rights in a successor while fairly distributing assets to other heirs.
Summary
Real estate management practiced by ultra-high-net-worth individuals with assets of 1 billion yen or more is not merely maintaining properties. It is a sophisticated strategy for permanently protecting family assets by mobilizing expertise in taxation, law, and finance.
By stepping up from personal ownership to an asset management company and building a family office, they minimize the tax burden and realize smooth asset succession to the next generation. Real estate is an extremely important asset class at the center of that strategy.
At INA & Associates Co., Ltd., we support the real estate strategies of ultra-high-net-worth individuals from all aspects of buying, selling, leasing, and management. We place "talent" and "trust" at the core of our management and contribute to our clients' sustainable asset formation. Please feel free to consult our specialist team when considering real estate corporatization or portfolio restructuring.
Frequently Asked Questions
Q1. Is there a guideline for when to establish an asset management company?
When real estate income exceeds approximately 9 million yen annually, this becomes one guideline for considering corporatization, as it becomes the breakeven point where individual income tax rates exceed corporate tax rates. However, if you are also considering future inheritance planning, establishing it at an earlier stage is often advantageous.
Q2. What is the difference between a family office and a private bank?
A private bank is a service provided by a financial institution, primarily focused on managing and advising on financial assets. On the other hand, a family office is the family's own dedicated organization, comprehensively and neutrally addressing not only financial assets but also real estate, business succession, tax, legal, and all other challenges facing the family.
Q3. Are there disadvantages to corporatizing real estate?
There are maintenance costs such as establishment fees for the corporation and the per-capita levy of the corporate resident tax (approximately 70,000 yen) that occurs every year even in deficit. In addition, attention must be paid to the transfer costs such as real estate acquisition tax and registration license tax that arise when transferring real estate from an individual to a corporation.
Q4. Should overseas real estate also be incorporated into the portfolio?
Overseas real estate is very effective from the perspective of currency diversification and country risk mitigation. In particular, real estate in areas with remarkable economic growth or countries with expected population growth can also be expected to generate capital gains. However, specialized knowledge different from domestic real estate is required, including local tax systems, laws and regulations, and building a management system.
