For those living and working in Japan, sooner or later the idea of purchasing an investment property will come up in thought or conversation. Investment property, however, is not always appropriate, and anyone considering a big purchase should familiarize themselves with the real costs of income generating assets, as well as the basic break-even points in buying real estate in Japan after transaction costs and various government fees.
Let us assume that someone has done all the due diligence, and is in a suitable position to consider an investment property. They have built up a diversified portfolio of investments to act as a financial foundation, and have plenty of liquid capital. They are able to allocate some resources towards one of the most famous of illiquid assets; real estate.
The first objective should be to familiarize yourself with the laws and regulations in Japan concerning real estate transactions and property ownership. Some good news is that, unlike some other countries, foreigners are allowed to own real estate. In fact, a foreigner does not even have to be a resident in Japan to acquire real estate. However, there is no shortage of bureaucratic and regulatory hoops to jump through, as property is a big ticket transaction and the government goes to great lengths to prevent troublesome behavior.
Although there is no issue with owning Japanese property as a foreigner, one major hurdle is often the securing of financing. If you require a bank loan to finance the investment property purchase, things can sometimes get difficult. Japanese banks will often either not lend to foreigners, or require higher down payments and charge a higher annual interest rate. It is often a case by case basis, but most banks have a typical set of criteria to follow. There are also a few variables which are helpful (but not always mandatory), such as: having Permanent Residency, a Japanese Spouse, being fluent in Japanese, etc…
The next step would be to decide on which area in Japan you would like to purchase a property. Perhaps you have spent a lot of time in a certain area and are comfortable with that market? Maybe you would like to capitalize on one of various redevelopment projects in Tokyo? For example, Toranomon, Shinagawa, or Meguro. Perhaps you would like to capitalize on higher yields in Tokyo’s outer wards, or in some of Japan’s other major city centers such as Sendai, Nagoya, or Fukuoka…
Tokyo Metropolitan priority redevelopment areas
Familiarizing yourself with the market could be as hands-off or as in-depth as you please. You could engage a full service real estate agent do most of the leg work in filtering and selecting potential properties. Or, if you already know what you want and just need an agent to assist with the on-sight viewing and final paperwork, you could engage an execution-only real estate agent.
After viewing a number of properties and deciding on the right one, the next step is the application process. Firstly you would need to submit a formal application to the Seller, specifying your offer price, payment method, contract date, date of payment, and any other possible conditions to the sale. Should they accept your offer and agree to the terms, you (or your agent) would begin preparing the final sales contract.
At the closing, as per Japanese law it is required that a registered and licensed real estate agent meet to present to you the “Explanation of Important Matters”. This explanation includes the contract date and terms, legal limits on the property, infrastructure arrangements, building management, payment method, etc. On the signing day you will be required to bring: Revenue Stamp Fee, your Seal, a 10-20% Deposit to be transferred the same day, government issued ID (passport, driver’s license). Also involved in the transaction will be a judicial scrivener. They will handle the transfer, and also make the necessary filings for the land and property registration with the relevant government office. In due time, typically within the end of the month, you will be expected to transfer the remaining balance of the purchase price. Often this will come directly from the bank providing the loan, if the purchase is financed. You will also need to settle any remaining invoices for the transaction, such as the registry license tax, the judicial scrivener’s fee, the agent’s fee, the fixed asset and city planning taxes, etc.
After all is said and done, you will receive the keys and your name will be on the government registry. If the property is already tenanted, you will soon be receiving the first rent payment into your bank account.
-Tokyo Metropolitan Government – Bureau of Urban Develpment – Development and Redevelopment of Urban Areas: Section 3
-Japan National Tax Agency – Tax System on Possession of Land
-Japan Ministry Of Land, Infrastructure, Transport and Tourism – Tax Table of Registration and License Tax
-International Monetary Fund (IMF) – Financial Studies Division – Global Housing Cycles – Deniz Igan and Prakash Loungani