If you consider owning property in Japan, there are many aspects to weigh before committing to such an investment. The property market in Japan has several peculiarities that cannot be found in other countries. In this guide, we provide an overview of the key things to know before making an investment decision.
- Advantages of Owning Property in Japan
- Disadvantages of Owning Property in Japan
- Owning Property in Japan FAQ
Advantages of Owning Property in Japan
Japan treats both Japanese and non-Japanese residents in the same way when it comes to handling the property. Unlike, for example, in Thailand, it is possible for a foreigner to buy land or buildings in Japan. While there are certain restrictions on the land development and peculiarities of construction regulations, they are applied in the same way to any person who would like to invest in the real estate in Japan. There is no need to deal with leasehold or with intermediary companies, which makes Japan an attractive option to invest.
Flexibility of Investment
In Japan, land and the object that stand on it (or sit below the ground level) are treated as different entities. You can buy either land or building(s). You can buy both. You can buy land and build something new there, then re-sell this property together or separately. However, the value of land and other property changes in different ways, too. Yet, it gives property investment in Japan a lot of flexibility. When calculated correctly and used wisely, these price fluctuations may benefit you.
In recent years, Japan has been reviewing its regulations to engage more people in property investment. For example, there are rebates for a ski resort property. Moreover, the recent amendments to the inheritance and gift tax offer incentives for foreigners to invest in homes and land in Japan due to the shortened claw-back period among other things. You can find out more about in our article on the topic as well as the comprehensives guides for individuals who are employees or employers in Japan and property owners.
Low Mortgage Rates
Japan has rather low-interest rates when it comes to a mortgage. In many cases, paying mortgage fees will be less expensive than a regular monthly rent. Thus, investing in a bigger apartment could eventually cost you the same as renting a smaller one.
Consider also an area where you plan to own a property. Big central city areas are more expensive due to their popularity. However, more remote locations may come with an affordable price tag. Even popular tourists destinations at Hokkaido can be cheaper than Tokyo.
At the same time, there is a very low, or maybe non-existing, risk of vacancy in big cities. With more and more people moving into the cities and increased number of tourists, letting out your property is always a safe option in the metropolitan area as there are always people looking for accommodation. Be sure to choose a good realtor who can help you identify the best options.
Despite a very hot and humid summer, with air-conditioning available almost everywhere, Japan’s weather may suit many people. The majority of Japanese islands are in the temperate climate zone and have four distinct seasons. Each of them offers unique experiences and tourist attractions. For example, cherry blossom season in spring or a red maple (momiji) season in autumn.
It is mostly Hokkaido that gets very cold in winter. However, it makes Hokkaido perfect for winter tourism as is full of amazing ski resorts. On the contrary, Okinawa has a tropical climate and is a well-known place among the surfing community.
Moreover, Japan has a rich cultural heritage and some of the most amazing places to visit. There are 23 UNESCO sites with four more in the waiting list. Many locations offer unique experiences, e.g. local cuisine, well-preserved historical places and buildings. Thus, if you chose to buy a property in Japan, you can either explore the country on your own or use it as a part of your tourism or rental business for those who would like to explore Japan.
Experiencing the Country
Owning a property in Japan means you will get to experience all the benefits of living in this country. People in Japan value comfort of life a lot. That is why there is a huge emphasis on providing high-quality products and services. Many have heard how fresh Japanese food is or how wonderfully friendly and polite service can be. You will find these tendencies in every aspect of life in Japan. Thus, residing in the country is, generally speaking, a very pleasant experience.
Disadvantages of Owning Property in Japan
Japanese banks are not keen on loaning money to people who have little to no connections to Japan. The chances to get your loan approved is much higher if you have been residing in the country for at least a couple of years and your bank history can back up you being a trustworthy person who pays taxes in full and on time. That includes your yearly earnings and maybe a recommendation from a guarantor.
Having a Japanese spouse or any other family ties in Japan can also be beneficial when you try to obtain funding from the Japanese bank. Nevertheless, even though there some quite strict rules in place, it is not impossible to get your property loan funded if you know what to expect.
Remember that the price tag you see on a property is only the baseline of your expenses. There will be some other additions on the way, which one should know about and include in the budget.
Firstly, taxes will add another 6% or 7% to the total price. Secondly, if you are using realtor services, property managers, or any other assistance, they will also charge their percentage from the concluded deal. There is a commission of about 3% for the brokerage and a consumption tax on top of that (8% at the moment).
Thus, it is important to get detailed information on what costs will come up on top of the property price and plan your budget accordingly. Here you can find a detailed guide on the property taxes.
Land is Expensive
While there are positive sides to Japan’s flexibility when it comes to property investment, it is worth remembering that the land is very expensive. Unlike buildings, it rarely depreciates. The closer you get to the big cities, the more expensive the land becomes. This is why, investing in somewhat remote locations, like Hokkaido, may be a more affordable option where one can benefit from the seasonal influx of tourists while also saving on land expenses.
Buildings Depreciate Very Fast
To many foreigners it may come as a surprise, since investing in real estate brings income in other countries where market prices may rise as the area becomes more developed and populated. However, there are several factors that add to price depreciation tendencies in Japan that we will list below. One should keep in mind that while land prices may soar, the value of buildings would most probably decline over time. Sometimes down to the point where the current owner will have to pay for the demolition to make space for the next owner to construct something new.
It is especially important for those who have taken loans. Selling an estate or transferring it to the bank will not cancel you mortgage liabilities. In the majority of cases, you will still have to pay the remaining part of the loan after selling your property, because it has dropped in price since the construction has begun.
The country is prone to many natural disasters that may damage the building or the whole area: earthquakes, monsoons, floods, and sometimes volcano eruptions. Earthquakes also pose the danger of accompanying tsunami tidal waves and fires that can start within the building because of stoves or gas burners being in use at the time of the disaster.
Unfortunately, none of these events can cancel your mortgage liabilities even if you have not used your property even once. There are insurance plans that may somewhat alleviate the mortgage burden, but generally speaking, no one wants to be liable for the unpredictable forces of nature.
Buildings are not Renovated
It is not very popular in Japan to invest in repairs. Even without the contribution of earthquakes or tsunamis, residential buildings may be demolished and rebuilt every 20-50 years depending on their condition and housing demand.
It is in a way a vicious circle: people rarely renovate or fix their houses because houses are built to stand for a limited time, but buildings are planned so because, in the end, no one will invest in their renovation. There are not so many providers who could offer renovation services. Those that do are quite expensive because there is barely any competition on the market.
With the high probability of a natural disaster wiping out one’s property, investments into renovation may not be viable. Moreover, if the building is constructed with the latest technologies in mind to withstand disasters, it instantly increases the price at the beginning of the exploitation term. Nevertheless, as new technologies come in, the building without up-to-date adjustments might be worthless in a couple of decades.
Thus, having a well-maintained old house may be expensive enough to consider demolishing it and building a new one from scratch utilizing the latest construction and natural disaster protection technologies.
Be sure to clarify the development plans for the area where you plan to buy or build property. Houses tend to be densely packed, sometimes leaving half-a-meter distance between windows. It is not rear that a new building pops up right in front of your balcony blocking the view or restricting the amount of sunlight that flows inside the premises.
Not only does it come as an unpleasant surprise to those who are not familiar with this peculiarity of city planning in Japan, but these factors may also add to the depreciation of your property. Be sure to find out about the development plans for a certain area beforehand to know what to expect.
Japan is going through demographic crises as the society ages rapidly. For many areas, it means depopulation and the follow-up depreciation of the property. Some city areas are built to accommodate young families. People may massively move into these regions. However, as the children grow up and move out while their parents grow older and pass away these regions become ghost towns where no one wants to live in bringing prices down.
Owning property in Japan comes with a lot of advantages. Besides being able to experience Japan’s amazing nature, culture, and cuisine, you can also benefit from a flexible taxation system and investment opportunities as well as tourism potential of different locations. At the same time, there are several downsides of owning property in Japan. For example, fast depreciation of buildings, high probability of natural disasters, depopulation, etc.
When choosing to invest in property in Japan, be sure to weigh all the aspects of this move. Moreover, it is important to find a realtor you trust who can consult you on the best opportunities in your particular case.
Owning Property in Japan FAQ
What kind of buildings can I have on my land?
The types of buildings allowed for construction depends on the so-called land use zones as assigned by the City Planning Law. Some areas are resered for residential building of different types, others for industrial sitrs, etc.
What is building coverage ratio?
Building coverage ration, or BCR, is the proportion of the construction are to the general area of the land in ownership. The building’s area is calculated by the territory that the ground floor has. Depending on the zone, this proportion can be anything in between 30% and 80% of the land.
What is floor area ratio?
Floor area ratio, or FCR, is the proportion of all the building floors to the land area. Since buildings may have several stories, this ration can go up to 1300% depending on the land use zone.
What about underground constructions?
Underground constructions are treated the same way as those above the ground. They are also sold separately from the land, and their floor area may be taken into account in the floor area ratio.
Can I lease my property?
Yes, you can. However, be sure to take care of all the legal matters associated with having income from your lease. Moreover, remember that leasing your property through Airbnb service or other services alike should also be done properly in accordance with Minpaku Law.
- Advantages of Owning Property in Japan
- Disadvantages of Owning Property in Japan
- Owning Property in Japan FAQ