Japanese Real Estate Investing

Tokyo skyline.

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 familiarise 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. Learning how to invest in Japanese real estate is first a process of learning about the real estate market in Japan, and how it differs from your home property market.

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. How liquid you are will determine how you are able to invest in Japanese real estate. 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…

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Contrary to popular belief, taking out a large loan is not always necessary when purchasing investment property. Sure, leveraging up can provide a substantial boost to your cash-on-cash return on investment; but it can just as easily amplify potential losses, not to mention tie you down to a large long-term commitment that could be costly to shut down. Sometimes it is better to start small and begin by gradually building up a portfolio of lower-costing units over time.

How To Choose An Area For Your Japanese Real Estate Investment

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…

how to invest in japanese real estate

Tokyo Metropolitan priority redevelopment areas

Fukuoka is a popular choice for those looking to capitalize on “the geographic proximity to the global engines of Asia, and the growing need for a city on the Sea of Japan side of Japan to sustain government functions in the event of a massive earthquake on the Pacific Ocean side, where most of Japan’s urban centers are concentrated.” Fukuoka Mayor Takashima

how to invest in real estate property in Japan

 

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.

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Considering How The Decision To Invest In Japanese Real Estate Affects Your Taxes

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. Is direct ownership the best solution for everybody? Possibly not. Real estate is a fantastic diversifier for traditional investment portfolios but how you get exposure to and invest in Japanese real estate will have implications often overlooked, such as tax. Many investors would be well advised to consider real estate investment trusts (REITS) which are more tax efficient for high Japanese income tax rate payers.

Summary
How Can I Invest In Japanese Real Estate?
Article Name
How Can I Invest In Japanese Real Estate?
Description
Japanese real estate investment methods. Information on Japanese real estate investment benefits.
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Sources and Further Reading