- Why buy property in Japan?
- Things to watch out when you buy property in Japan
- How to buy property in Japan
- Cost of purchase
- About Loan
- About Tax
Why buy property in Japan?
Stable, consistent sale/rental prices in urban areas
As you might have heard, property prices in the center of Tokyo and Osaka have been increasing steadily. This trend is expected to continue for at least the next five years, when Tokyo hosts the Summer Olympic games in 2020.
Relatively cheap sales prices compared to the rest of the world
Even though Tokyo is the largest city in Asia and Osaka is also a major city in its own right, property prices are relatively cheaper than places like Hong Kong, Los Angeles, New York City, and Singapore. Plus, the weak yen makes is making already cheap prices even more affordable.
Straightforward ownership structure
With a house, the buyer is entitled to ownership of both the building and the land, while condominium buyers will own both the unit itself as well as a fraction of land.
Low risk with moderate returns
Japanese investment is considered as low-risk/moderate-return, as it does not yield incredibly high returns like 10% per annum, however investors in Japan consistently net approximately 4-6%.
No restrictions against non-citizen/non-resident buyers
Unlike some countries, Japan does not impose any restrictions to foreign buyers. (Some exceptions may apply to areas where natural resources are in close proximity.)
Things to watch out when you buy property in Japan
- Mortgages from Japanese financial institutions are usually not made available to non-citizens/non-residents.There is a high capital gains tax when you sell within 5 years of acquisition.
- Newly built apartments depreciate quickly.
- There is a risk of natural disasters such as earthquakes and tsunamis, so you need check the stability of the structure and land.
- Proximity to convenient public transportation is important for rentability. Finding a property within 10 minutes’ walk from train station is the key.
- Secondhand market studio or single-bedroom apartments make the best investments (thanks to the liquidity of the market).
- Never buy a house/condo made of wood.
- Considering the tsunami risk, avoid getting a place that near to ground level.
- Japanese people prefer the bathroom to be separated into two rooms, one small room with only a toilet, and another room with a large bathtub and adjacent shower space.
- Japanese people like to have space inside the house or apartment where they can put their laundry machine.
- Storage space is important.
- Avoid properties facing north.
How to buy property in Japan
|If you are planning to get a mortgage, you should get pre-approved before you start looking|
|Contact a local (i.e., in your home country) mortgage firm and establish what your budget will be.NOTE: It is almost impossible to get loan in Japan unless you reside there, therefore, you should ask your local bank back home regarding mortgage.|
|Finding the right property|
|Use internet services to find a property that you are interested and/or directly contact a real estate agent. Go and see the properties. Be sure to view as many properties as possible so you can get a more comprehensive idea of the area. If possible, this includes also touring the surrounding and neighboring areas as well in order to get a grasp of what it would be like to live there. (This applies to you even if you are just buying to invest, as such factors affect rentability.)|
|Make an offer|
|After a thorough viewing, when you choose a desirable property, make an offer of purchase through the seller’s agent.|
|Three possible responses can be expected from the seller’s agent.1.The seller’s agent accepts your offer. The price is agreed and both parties begin an escrow process to finalize the deal. (See STEP 5)2.The seller’s agent makes you a counter-offer. A counter-offer can include alternative terms of contract, including price, and/and duration of escrow process. If the counter-offer is acceptable, notify the agent of your intention and finalize the deal. (See STEP 5)3.The seller’s agent rejects your offer. This means that a different buyer’s offer is being accepted, or the seller decided withdraw from the transaction process.|
|Review and finalize a contract|
|Once an offer is accepted by the seller’s agent, the closing process begins. The first step is to transfer a deposit to an agent. The standard amount is 10% of the selling price. Once the funds are transferred, the seller’s agent and scrivener formulate the necessary paperwork (the contract of sale and transfer of the deed).|
|Upon finalizing the paper work, the remainder of money is sent to an agent. Once the payment is confirmed, the transfer of the deed occurs.|
|Everything is finished and you own a new home!|
Cost of purchase
For a second-hand condominium, about 5% of the property value will come from the cost of the following payments:
Commission for buyer’s agent (if you use one)
Property tax, etc.
For new condo, about 1-2%
Real estate acquisition tax
Repairing reserve, etc.
Unless you live and work in Japan, or you have permanent residence in Japan, it is extremely difficult to get mortgage in Japan.
However, depending on where you are from and the local banks you have, local banks in your own country may have loans specially made for global property investment. It is worth looking into at your local banks.
About Tax (as of December 2014)
When you buy:
Stamp duty for a sales contract
10,000,000 JPY-50,000,000 JPY=15,000 JPY
50,000,001JPY-100,000,000 JPY=45,000 JPY
3% of the tax value of the property
For a second-hand condo, you may be required to pay the remainder of the property tax for the year that you purchased.
For a new condo, you will be required to pay sales tax, which will be taxed based on the land value.
When you hold:
Real estate acquisition tax
Although it is called acquisition tax, the tax notice will be sent out six months to a year and half after you purchase the property.
The land and building are evaluated separately for taxation purposes. In general, 3% of the evaluation result (minus special tax ease if applicable) is taxed, however, currently, a special exemption might apply. Please check with a real estate agent or Tokyo tax office.
Property tax (& City Development tax)
The land and building are evaluated separately. The tax rate applies to the evaluation every three years. The calculation of tax rate is extremely complicated and there are many different kinds of special exemptions that can apply, therefore, please check with a local tax office in Tokyo or a Japanese accountant.
When you rent out:
If you have rental income, you will need to file income tax. You can deduct cost for the rental property including depreciation and special exemptions, if there are any. Taxable rental income will be merged to another income if there is any, and progressive taxes apply. You will need an accountant to calculate how much tax you will be required to pay.
When you sell:
Capital gains tax
It depends on how long you have owned the property.
If the period of ownership is less than 5 years: 30% of the capital gain is taxed.
If the period of ownership is more than 5 years: 15% of the capital gain is taxed.
There is “Special tax for reconstruction after earthquakes” that applies.
2.1% of capital gain tax amount is taxed from the period of 2013 to 2037.
When you die:
Calculating inheritance taxes is extremely complicated since it depends on who the successors are and what kind of inheritance you have. Please consult with an accountant or tax professional.