Many people tend to think that when it comes to real estate in Japan, buying is better than renting. While it is certainly true that property in Japan can be an asset, it can easily become a liability as well. What makes it one rather than the other? That depends entirely on your goals and your circumstances. If you’re a foreign person in Japan and you’re trying to decide whether to buy or rent, you should consider all of the following factors carefully before making your decision.
Challenges to Renting for Foreign People in Japan
The Japanese rental system is notoriously complicated. Often, to rent an apartment or home, you have to go through a rental agent. Most landlords require applicants to have a guarantor. There are often also extensive fees. Beyond the application fee, deposit, and rental fee, applicants will also have to pay a guarantor fee and sometimes a “key money” fee.
Add to these challenges that English-language services are limited, and you can see why renting in Japan can be such a cumbersome and expensive process for so many people. But that doesn’t mean that you should avoid renting altogether…
Things to Consider When Deciding Whether to Rent or Buy in Japan
Purchasing a property doesn’t just mean gaining a house and a place to live, it also means committing to long-term payments and limiting your ability to move freely. And if you’re purchasing a home in Japan, it also means owning an asset that depreciates in value every year based on a statutory schedule determined by the Japanese tax authorities. Many people jump into the decision to buy without properly considering the implications that come with it. To avoid falling into the same trap, here are some questions to ask yourself:
- -How does the monthly cost of renting compare with the monthly cost of mortgage repayments? Can you easily afford either?
- -Do you have enough money saved up for a down payment?
- -What opportunities might you be missing out on by spending money on a down payment instead of investing it?
- -Do you plan on staying in this area for a long period of time?
- -Can you turn your home into an investment that increases your wealth over time?
- -Does land value historically increase or decrease in your target area?
What Are the Costs of Owning Property in Japan?
The idea of owning your own home may seem romantic, but there are many underlying costs to owning property in Japan that people don’t consider. It’s critical to take these into consideration when calculating the cost-benefit of your home purchase. Beyond the down payment and rent, you’ll also be responsible for:
- -Annual Ownership Taxes: Annual ownership taxes are paid quarterly throughout the year by property owners. The purpose of these taxes is to help finance the public services provided by local governments.
- -Real Estate/ Property Insurance: Real estate and property insurance protect you from the financial risks of owning a home. You can protect your home from damage, theft, or total loss. You can also protect your personal belongings in your home. Different types of insurance will have different associated costs. Fire insurance, for example, is usually relatively cheap. However, some banks also require a life insurance benefit built into the loan to essentially forgive the loan in the event of the main income earner’s death. These costs can be much higher over the life of the loan.
- -Maintenance costs: These are the expenses associated with keeping your property in good condition. Things like landscaping, painting, cleaning, and repairs all fall under this category of expenses. These things are also the most common type of maintenance cost because they’re things that happen regularly over time (or at least semi-regularly). Maintenance costs aren’t always easy to plan for because they can vary from month to month or year to year depending on weather conditions or other factors outside your control. This cost will normally run between 1% and 3% of the purchase price each year. Renters are protected from having to foot the bill for many maintenance costs, but property owners take full responsibility for anything that isn’t covered under insurance.
Benefits of Renting for Foreign People in Japan
Renting gives you the flexibility of not being stuck in one place for too long. You can move around as you please and don’t have to worry about renovations or maintenance on the house. You also won’t need a down payment or mortgage insurance to purchase the property, which can make it much less expensive than buying. You can capitalize on the money saved by investing it in tax-efficient savings or retirement accounts and build your private wealth over time.
Of course, there is no one “right” answer to whether anyone should buy or rent in Japan. It all depends on your individual circumstances and goals. If you’re trying to decide which choice is right for you, consider talking to a financial advisor. You don’t want to make an important decision about buying property without all of the information. An experienced advisor can help you understand all of the potential risks and rewards of renting or buying property in Japan. Furthermore, they can help you come up with a financial plan for either option to help you make the most of your current assets as well as grow them into greater assets in the future.