Who would buy real estate in Japan, where the population has been shrinking for 17 years? Brookfield just did.

The global real-assets giant this week announced the purchase of 50 Japanese apartment buildings for a reported 100 billion yen ($630 million), hoping to collect rent from yuppies on the right side of the No. 4 economy's escape from deflation.

Brookfield has plenty of company. Japan has leapfrogged France and Germany to become the No. 3 destination for cross-border real estate investment after the U.S. and United Kingdom, says Damian Harrington, head of global capital markets research at industry consultant Colliers. "We've been bullish on Japan for years," he says. "It's only now coming to fruition."

The flows are a vote of confidence in a new Japan where prices are rising and wages are rising faster, says Andrew Burych, Brookfield's head of East Asia real estate. "There's genuinely a change happening that we want to be a part of," he says. "Our ambitions in Japan are quite big."

A less sunny point of view is that pain in certain spots for the new Japan is creating opportunity in others. The macro backdrop that is troubling bond investors and the U.S. Treasury-a historically cheap yen and 1% prime interest rate-looks like paradise to borrowers and acquirers. Japanese banks are adding to the easy money torrent, providing variable-rate mortgages at an average 0.95% for up to 50 years, notes Nana Otsuki, senior fellow for Pictet Asset Management (Japan). "Banks that resisted being so generous have been losers," she says.

Apartment prices are outrunning affordability despite the loose financing, says Chinatsu Hani, head of research for CBRE Japan. They have doubled nationally since 2010 and spiraled in upper-income Tokyo. "The high end is outrageously high," she says. "It has become a social issue."

Higher costs for labor and materials, many of them imported, are meanwhile constricting new construction, Burych says. "Owners of existing assets are the beneficiaries," he argues. That includes rental housing and, even more so, office buildings.

Office all-grade vacancy in Tokyo stands at a minuscule 1.4%, Hani reports. Employers are keen to upgrade to retain a shrinking pool of salarymen and women. "Office is very popular among investors at the moment," she says.

Landlords, particularly foreign institutional landlords, may not escape the social tensions building around high purchase prices for housing. Japan enforces a quasi rent-control system that generally prevents landlords from raising rents unilaterally, Hani explains. Brookfield looks to minimize these conflicts by investing in studio and one-bedroom apartments aimed at "younger people and higher turnover," Burych says.

Not to mention that the real estate boom is highly uneven in egalitarian Japan, concentrated in prime central Tokyo districts with a bit of spillover to other cities. "There's a bifurcation of society," says Shigeto Nagai, head of Japan economics at Oxford Economics. "These issues mostly affect young power couples maximizing their loans."

They also affect many crazy rich Asians who are crowding out native buyers, or so many Japanese suspect. Prime Minister Sanae Takaichi's government is inching away from an open-door policy to require foreign nationals to register ownership of Japanese property.

A more economically dynamic Japan is still a draw for real estate investment, particularly as hope for interest-rate cuts elsewhere fades. But "people are being a little more selective," CBRE's Hani says.

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