Key Systems and Market Issues You Should Know
In recent years, Specified Real Estate Joint Enterprises have rapidly grown in prominence among general investors. This system involves soliciting investments for specific real estate properties, purchasing those properties, and distributing the operational profits to investors.
In particular, real estate crowdfunding is widely recognized as a representative example of this business model.
Since 2017 (Heisei 29), participation by general investors has surged more than tenfold in just seven years, with approximately 70% of that investment directed toward real estate crowdfunding.
This business model differs from Real Estate Investment Trusts (J-REITs), where investors contribute to an investment corporation and an asset management company makes decisions on the acquisition and management of real estate. Instead, it is characterized by investments made in individual real estate properties.
As a result, because the specific properties acquired and the management policies directly impact investor returns, operators are required to disclose detailed information about the specific real estate involved.
On the other hand, although Specified Real Estate Joint Enterprises have shown remarkable growth, one of the challenges pointed out is the relatively low expected rate of return.
In today’s market, where a yield of around 4% is considered standard for direct real estate investments, the yield tends to be even lower in Specified Real Estate Joint Enterprises due to operational costs and fees.
In some cases, the risk of not receiving the expected dividends has become evident. From the perspective of investor protection, greater transparency and the provision of appropriate information are increasingly required.
Under the Act on Specified Joint Real Estate Ventures (effective June 1, 2025), this business model is divided into several categories.
In addition to the common Type I Business, there are other frameworks designed to meet diverse investor needs—for example, the Small-Scale Specified Real Estate Business, which operates under a registration system with a cap of 1 million yen per investor and a total project limit of 100 million yen, and the Qualified Special Investor-Only Business, which limits participation to qualified special investors and enables bankruptcy remoteness (i.e., separation from the operator’s financial risks).
For real estate professionals, accurate knowledge of this scheme is essential when advising clients on asset management or investment.
By clearly explaining the structure, advantages and disadvantages, and potential risks of these ventures, professionals can support sound investment decisions.
Against this backdrop, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) held the first Review Meeting on the Future of Specified Real Estate Joint Enterprises in Light of Growing Participation by General Investors on April 22, 2025.
The purpose of this review meeting is to identify and organize the issues surrounding Specified Real Estate Joint Enterprises, and to discuss future directions—particularly regarding the scope of information disclosure to general investors and the healthy development of the overall market.
This article will thoroughly examine the fundamental structure of Specified Real Estate Joint Enterprises, provide an overview of the MLIT’s review meeting, and analyze key issues and risk mitigation strategies that should be noted.
Understanding the Basics of Contract Types
Specified Real Estate Joint Enterprises are an investment scheme in which funds collected from investors are used to purchase specific real estate, and profits from the operation of those properties are distributed to the investors.
To legally conduct this business, it is necessary to obtain approval under Article 3, Paragraph 1 of the Act on Specified Joint Real Estate Ventures from either the Minister of Land, Infrastructure, Transport and Tourism or the governor of the prefecture where the business is located.
This approval is required not only for businesses that directly operate the real estate, but also for those that act as agents or intermediaries in concluding these contracts.
For real estate professionals to provide investment advice, it is essential to have an accurate understanding of both the basic structure of Specified Real Estate Joint Enterprises and the various business types defined by law.
While Article 2, Paragraph 3 of the Act outlines several types of contractual structures, the following are the most commonly used in practice.
- Voluntary Partnership Agreement Type (Nin’i Kumiai Keiyaku-gata):
In this structure, the operator and each investor jointly contribute capital to form a partnership for the purpose of jointly managing the target real estate. The operator acts as the managing partner and operates the property, distributing profits to the investor partners. - Silent Partnership Agreement Type (Tokumei Kumiai Keiyaku-gata):
In this contract format, the operator becomes the “business operator,” and the investors participate as “silent partners” by contributing funds to the business. The operator manages the target real estate and distributes profits to each silent partner (investor). - Lease and Entrustment Agreement Type (Chintai Inin Keiyaku-gata):
In this structure, the operator and each investor co-own the target property. Each investor leases or entrusts their ownership share to the operator through a contract. The operator then manages the real estate and distributes profits to the co-owners (investors).
In addition to the contract types mentioned above, there are also special business formats designed in consideration of investor protection and the scale of the business.
These types of businesses, which would normally require a license under the Specified Real Estate Joint Enterprise framework, may be operated under a simpler “registration” or “notification” process, provided certain conditions are met.
- Small-Scale Specified Real Estate Joint Enterprise:
This business model is eligible for registration when each investor’s contribution does not exceed 1 million yen and the total investment amount does not exceed 100 million yen. It offers relatively small-scale investment opportunities and is characterized by being accessible to general individual investors. Many real estate crowdfunding platforms utilize this scheme. - Qualified Special Investor-Only Business:
This type of enterprise is limited to Qualified Special Investors and can be conducted by filing a notification (instead of obtaining a license). A Qualified Special Investor refers to individuals or entities recognized as having particularly extensive expertise and experience in real estate investment. This is a distinct concept from “Qualified Institutional Investors” as defined by the Financial Instruments and Exchange Act. Entities such as licensed real estate agents and special purpose companies that meet certain requirements can register by filing a notification with the Minister of Land, Infrastructure, Transport and Tourism.
As of April 30, 2025, there are 11 registered companies under this category.
Types of Permits for Real Estate Joint Ventures
Operators who have obtained permission under the Act on Specified Joint Real Estate Ventures are classified into four types based on their business activities.
These types are broadly divided into two categories: Type I Business and Special Exception Business.
- Type I Operator:
A business operator capable of handling all aspects of the Specified Real Estate Joint Enterprise, from soliciting investors and concluding contracts to managing the target real estate in an integrated manner. - Type II Operator:
A business operator responsible for tasks such as soliciting investors and concluding investment contracts on behalf of the Type I Operator.
Note: In practice, Type I and Type II operators work together and function as the “Type I Business Scheme.” - Type III Operator:
A business operator entrusted by a Special Exception Operator (a corporation conducting only real estate business) to perform real estate-related operations such as acquisition, ownership, management, and sale of properties. - Type IV Operator:
A business operator entrusted by a Special Exception Operator to act solely as an agent or intermediary in concluding Specified Real Estate Joint Enterprise contracts.
When a Special Exception Operator is involved, the business is classified as a “Special Exception Business.”
The term Special Exception Operator refers to a corporation that conducts Specified Real Estate Joint Enterprises by utilizing entities such as Special Purpose Companies (SPCs).
SPCs are generally established to ensure that operators and investors do not bear direct risks.
It is important for Special Purpose Companies to have a bankruptcy-remote structure. This means that even if the business operator who established the SPC goes bankrupt, the real estate and assets held by the SPC are protected, thereby reducing the risk of direct losses to investors.
The requirements for permissions or registrations vary according to the operator classification (Type I to Type IV) in rental housing management businesses.
In particular, operators who act as agents or intermediaries for specified lease contracts are, in principle, required to be licensed real estate agents.
Additionally, regardless of classification, operators must have sufficient financial foundation (capital or net assets), appropriate personnel composition, well-prepared contract terms, and must assign business managers at each office.
However, for Special Exception Operators, being a licensed real estate agent is not a requirement.
Since each type of permit corresponds to different strategies and risk characteristics, investors need to choose based on their own investment goals and risk tolerance.
However, it is generally understood that risk and return are correlated.
Investments with lower risk tend to yield lower returns, so it is important to understand that the choice of investment will vary depending on what the investor prioritizes.
Market Expansion of Specified Real Estate Joint Enterprises and Crowdfunding
The market expansion of Specified Real Estate Joint Enterprises is closely linked to the remarkable growth of crowdfunding businesses in recent years.
The spread of the internet has revitalized easy fundraising methods for individuals and small to medium-sized enterprises, while simultaneously providing investors with a variety of investment options.
Crowdfunding is a system where a “project creator” launches a project and solicits support by presenting its outline, target amount, duration, and other details through an online platform, and investors who agree with the project provide funds.
However, crowdfunding within Specified Real Estate Joint Enterprises is distinct from simple “support” activities and is classified as “investment-type crowdfunding,” which is positioned as a financial product.
In this model, investors make contributions with the objective of receiving profit distributions generated from the project.
As participation by general investors expands, business operators are required to provide increasingly strict information disclosures and conduct appropriate solicitation practices.
In particular, inappropriate solicitation and exaggerated advertising are strictly regulated, and violations may result in severe penalties, including administrative sanctions.
These measures are critical to thoroughly protect investors and promote the healthy development of the market.
Investment-type crowdfunding for specified real estate joint enterprises is an extremely effective method for raising funds necessary for real estate development, renovation, or regional revitalization projects.
However, when conducting fundraising activities and setting expected returns, it is essential to consider appropriate market levels and ensure thorough disclosure of accurate information to investors.
Failure to do so may lead to a lack of investor support, potentially hindering the successful execution of the project.
If involved as a business operator, it is necessary to gain investor trust through transparent information provision and realistic return design.
Additionally, those advising investors must accurately gather and analyze such information to provide appropriate guidance to clients.
A common misconception is that there is a fundamental difference in expected return levels between crowdfunding-type and non-crowdfunding-type Specified Real Estate Joint Enterprises.
In fact, both schemes require appropriate market-level returns in line with their risks.
What is being discussed at the review meeting?
The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) predicts that crowdfunding-based Specified Real Estate Joint Enterprises will continue to grow and become more active in the future. To promote their healthy development and strengthen investor protection, the ministry has gathered experts to advance discussions on the system and its operation.
The main topics discussed in the review meetings so far are as follows:
- Expansion of Information Disclosure
Discussions are underway regarding the scope of information that should be disclosed to enable investors to make appropriate and sufficient judgments, including the basis for expected returns, acquisition prices of the target real estate, and the fairness of prices in related-party transactions. Transparency discussions also cover disclosure of operational status and the actual use of funds during the management period. - Ensuring Fairness
Active exchanges of opinions are being held on what institutional measures should be taken to prevent unfair practices such as dumping prices or loss compensation in the market. - Supervision and Guidance System
To conduct administrative supervision more efficiently and effectively, the review of securitization surveys and the consideration of whether the national government should provide technical advice to prefectural governments are being discussed. The aim is to enhance cooperation among supervisory bodies and enable swift responses. - Collaboration with Industry Associations
The possibility of industry associations voluntarily introducing rules or regulations to ensure that appropriate information is provided according to the content of products is being considered. This is expected to strengthen autonomous governance across the industry.
The discussions at the review meetings can be seen as an important step toward establishing Specified Real Estate Joint Enterprises, especially crowdfunding, as more reliable and trustworthy investment products.
Summary
In recent years, real estate agents have been expected to take on broader roles beyond mere brokerage services.
The Specified Real Estate Joint Enterprise explained here is a prime example of this expanded role.
Even if they are not directly involved as operators, real estate agents often receive inquiries from investors about this field.
Refusing such consultations on the grounds of lack of expertise risks undermining the trust that has been built with clients.
More importantly, Japan’s real estate market is facing structural changes such as an aging population, declining homeownership preferences among younger generations, an increase in the number of real estate agents, and a rise in vacant houses, especially in rural areas.
Under these circumstances, continuing to rely solely on traditional brokerage activities raises concerns about the difficulty of sustaining long-term growth.
What is now required of real estate professionals is deep knowledge that can swiftly respond to such diverse market changes, along with the proactive ability to put that knowledge into practice.
From this perspective, knowledge about Specified Real Estate Joint Enterprises is an essential qualification for today’s real estate agents.
By acquiring this knowledge and providing appropriate advice to clients, they can establish a solid position even in a rapidly changing real estate market.
Original Article: 【不動産特定共同事業を読み解く】知っておくべき制度と市場の論点
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