Guide to Buying Property in Japan

Researching House Loans in Japan

One of the first things you will want to do before looking at properties to purchase is to shop around and consult with several banks regarding house loans or mortgages. You should check the total amount you can borrow and under what terms; how long and at what interest rate (i.e. 2 – 3.5%). Interest rates between banks may vary and or you may not be approved for a loan at some banks.

Eligibility

In most cases in Japan, to be eligible for house loans and mortgages you will need permanent residency status or a Japanese spouse.
It will also help if you have lived in Japan for more than 5 Years, speak Japanese, have a sizeable income, and a good relationship with your bank.
It is also favorable if there is some way you can show that you intend to live in Japan for a long time – have a Japanese spouse and or family in Japan, a very permanent job, or other long term commitments or plans.
Note: Banks are not likely to grant house loans or mortgages if you are a newcomer to Tokyo and or are only here on business for 2-3 years (this is partially due to the fact that interest rates in Japan are very low).

Shopping for Properties

After checking eligibility and the terms of your house loan with the bank you will have a good idea of your budget for the property and it is time to start shopping. Depending on the type of property you are looking for you might see as many as 20 properties before deciding to purchase.

Types of Properties in Tokyo

Basically, in central Tokyo (minato-ku) there will be more apartments than houses and the further you go out from the central area, especially outside the JR Yamanote line, the more houses are available.

Property Value in Tokyo

Some of the better values in Tokyo, are on properties that are more than 5 years old.
Japanese people like new things (homes, cars, electronics) so brand new apartments have a premium on the price (a lot of times Japanese people only see the model room and buy without seeing the actual unit). Therefore after about 5 years property values drop considerably.

In most cases properties which offer the best value and slowest rate of depreciation are ranked as follows:

Buying Property for Private Use

1. buying a brand new house
2. buying a 2nd hand apartment
3. buying a brand new apartment
4. buying a 2nd hand house

Buying Property for investment

1. buying a 2nd hand apartment
2. buying a brand new apartment
3. buying a brand new house.
4. buying a 2nd hand house

For maximum capital / income gain it is best to a buy 2nd hand apartment, renovate it, and rent it out or re-sell.
In the better locations – Azabu, Omotesando, Akasaka, Aoyama – buying a brand new apartment is a good investment because you can rent it for a higher rent or flip it.
When the real-estate market is rising it is better to buy an apartment than a house because the layout and quality of a house has more personal taste where as apartments are more neutral and easier to rent out/ sell. If the market is low then buying a house is better – apartment prices can fall faster than houses because houses include land which will retain its’ value.

In general, if a house or apartment is still being built there will be no room for price negotiation, but the layout will likely be better than older houses, which often have tatami mat floors and small livingrooms. If it has been on the market for more than 3 months after completion, and if the seller is a house developer, you can more than likely negotiate a fair margin because they want to sell it and borrow more money to start a new project.

How long do properties in Tokyo typically last?

Apartment buildings normally last for about 60 years before being rebuilt or sold. In some cases, ownership of the land and the apartment are separated.
Chi-Jo-Ken – the title for the apartment building not including the land. In this case the building owner is only renting the land from the landowner for a contracted period of time. The contracted period for renting the land is typically between 40~60 years after which the land eventually goes back to the landowner.
Sho-Yu-Ken – the title for the land and the building.

Additional Monthly Fees for Apartments

In most apartments you will have to pay additional monthly fees for car parks, building maintenance and restoration. You should remember to add these fees on top of the monthly mortgage to know what you monthly payment will be.

The Cost of Houses in Japan

The cost of house construction is typically about 25~30% of the land value. For example, in the case of a brand new house for sale for ¥100,000,000, the land is probably worth about ¥75,000,000 and the house ¥25,000,000. Unlike apartment buildings, houses typically only last about 30 years, have no additional monthly fees, and the car park size is included in the overall building size.
Buying land and building your own house is a bit more expensive than buying a brand new house on the market. Additional profit for the land seller, architect, and construction company will be built into the cost. You may only be able to find land, which has only 3.5 ~4.0m of road width because the best pieces of land are usually picked up by house developers.

Closing

After the mortgage has been approved you will exchange keys and the title at the bank and the final settlement will be transferred to the sellers bank account along with the other necessary fees:
Notary’s fee – this is usually about ¥50,000~¥200,000 depending on the property

Registration license Tax – this is usually about 1% of the Building and Land Standard Asset value, which will be paid to the tax office via the notary.

Agents Fee – the standard agent’s fee is about 3.15% plus a fee of ¥63,000

Fire Insurance – you will probably want to get fire insurance from this date also.

A notary will be present either designated by the bank or by you. The notary will go to the tax office that day and change the name of the right. The tax office will change the name of the householder within about 2 weeks.

On this day you will also split the cost of the Annual fixed property and city tax with the seller.

After you move into your new home you will have to pay a one-time Purchase tax bill from the tax office. Where as the Annual fixed property and city tax will come every year.

Stamp Fees

You will also have to pay the stamp tax according to stamp used on the contract.
See Purchase Fees

The Application and Contract Procedure

1. Application Form – After you have chosen a property you will fill out an application form (Kaitsuke Shomei)
2. Signing the Contract – Once the bank has given pre-approval for the loan and both parties have agreed on the price and closing date for the property, you will sign the contract before the banks will finally approve to lend you money for that particular property. While the bank is assessing the property, it will be held and taken off the market from other interested buyers (this takes about 1~1.5 months). At this time, the bank requires some documents about the property, which you should have your agent arrange for you.
   The contract process usually takes about 2 hours. The contract will have a clause saying that you are applying for a mortgage of a certain amount, from a particular bank with a proposed approval date. If, for some reason, the mortgage is not approved the contract will be terminated.

DownPayment

On the day of the contract, you will give a cheque to the seller, (about 10% of the agreed price) as a down payment (This will come back to you in the event that the bank will not lend you the money), and the seller will issue a receipt for payment.
If you cancel after the signing of the contract other than for reasons of mortgage failure this money will not come back.
If the seller cancels the contract you will get back double the down payment.

Stamp (Hanko)

You would be better to have an official stamp (jitsu-in) to sign the contract. This official stamp is like a signature for signing contracts. You can have the stamp made at any Hanko (stamp) shop. It is a one-of-a-kind original stamp and it will take about a week to make. After you make the stamp you will have to go the ward office to register it. After you have registered the stamp the ward office will give you a card with your stamp number. Just bring the card to the ward office and they will issue the stamp certificate (inkan shoumei).

Closing

After the mortgage has been approved you will exchange keys and the title at the bank and the final settlement will be transferred to the sellers bank account along with the other necessary fees:
Notary’s fee – this is usually about ¥50,000~¥200,000 depending on the property

Registration license Tax – this is usually about 1% of the Building and Land Standard Asset value, which will be paid to the tax office via the notary.

Agents Fee – the standard agent’s fee is about 3.15% plus a fee of ¥63,000

Fire Insurance – you will probably want to get fire insurance from this date also.

A notary will be present either designated by the bank or by you. The notary will go to the tax office that day and change the name of the right. The tax office will change the name of the householder within about 2 weeks.

On this day you will also split the cost of the Annual fixed property and city tax with the seller.

After you move into your new home you will have to pay a one-time Purchase tax bill from the tax office. Where as the Annual fixed property and city tax will come every year.

Useful Real Estate Terms