Investing in Japan Real Estate for Foreigners – Part 4 – Finalizing the Deal

2 May, 2016 –

Japan Investment Property

Japan Real Estate

Ok, so you’ve sourced local representation, established relationships with realtors, located an attractive property, negotiated, conducted due diligence, and are satisfied with all of the above – the time has now come to finalise the deal and start earning your rental income (and, who knows, potentially some capital growth profits as well).

Here’s what happens next:-

1. Document Review & Contract Signing

The realtor’s office will invite you (or your representative, provided they have a limited Power of Attorney enabling them to attend meetings on your behalf ) to a contract signing meeting.

During this meeting, the agency’s “certified document reviewer” (taken, in Japanese) will review all of the property documentation with you, word by word. Below is a list of the typical documentation to be reviewed, as well as a list of the items you will be wise to confirm before signing off on the deal and paying your deposit. Generally speaking, Japanese realtors, like most Japanese, are “by the book” straight shooters, and you’re very unlikely to get screwed or scammed – bad apples do exist, however, and natural mistakes can also occur anywhere in the world.

Required Documentation:

The purchase contract (confirm price, ownership details and date of purchase are as agreed)

The “document of important matters,” which is a building and unit specification document (confirm unit size, age of building, accumulated funds pool status and renovation history are as advertised. Also make sure the number of units in the building are as advertised, since this greatly affects the cost of future renovations to the building itself and, as a result, your safety buffer as reflected in the accumulated funds pool status. Last but not least, as silly as it may sound – confirm the address of the building is as advertised as well)

Builder’s certificate (confirm its’ existence)

If the unit is tenanted – tenancy lease (confirm tenancy details are as previously provided, most importantly – date of residency and securities)

Other documents that do not require extra scrutiny in most cases, but are worth familiarizing yourself with are: town planning, gas and utility maps, building floor-plans, last property tax/evaluation certificate, ownership registration history and certificate, building management rules and regulations booklet and the local heritage site check (which confirms that the building has not been built on top of an old graveyard, historical site, etc – if and when it exists).

At the end of the meeting, you will sign off on the explanation document, the purchase contract, and in most cases (depending on what was specified in the original offer), you will also be paying the deposit (10% normally).

Additional 2 Clauses

You may want to try and insert the following two clauses in the purchase contract if you can – although it may not always be possible, particularly for the cheaper deals: –

a) Seller’s responsibility for any electrical wiring or plumbing issues in the unit, for six to 12 months post-sale.

b) Seller’s responsibility to renovate and repair the property back to rentable condition, in case the tenant moves out between the signing of the contract and settlement. If this is impossible, you may want to schedule the contract signing and settlement for the same day. The reason for this is that the deposit paid on contract signing is non-refundable — and you want to avoid a case where you pay the deposit, have the tenant move out prior to settlement, then have to either fork out the money for a renovation/repair on top of the settlement – or forego your deposit and back out of the deal if the price tag is too high for your taste).

You will also be required to provide any necessary identification documents, such as passport/address certificate/ signature certificate, as requested by the judicial scrivener conducting the sale, to this meeting — assuming the realtor agency’s judicial scrivener is used (more on that below).

2. Settlement

A few days prior to settlement, the realtor’s office will forward to you a settlement statement, which will contain all required adjustments to be made to your final amount owed. These will include –

a) If the unit is tenanted — adjustment for rental income, which would have been paid in advance to the current owner (credited to you)

b) If the unit is tenanted – adjustment for security deposit (if one has been paid to the current owner – credited to you)

c) Adjustment for building fees paid in advance by the current owner (debited to you)

e) Adjustment for property tax paid in advance by the current owner (debited to you)

f ) Realtor’s fee (unless the realtor’s agency is the seller, in which case there is no such fee)

g) Judicial scrivener (property lawyer, or shihoshoshi in Japanese) fee – if sourced through the realtor agency.

Note – it is highly advisable to locate and maintain a relationship with a foreigner friendly (though this usually doesn’t mean English speaking) judicial scrivener to “bring” with you to all deals – you will most likely get better pricing for their services, and they will be more easily accessible and approachable for various issues which may arise, such as ID requirements, various statements and/or certificates required from you, as a foreigner not residing in Japan, etc.

While in some unique cases, the sellers will insist on using their own scriveners, and while the realtor agency will normally want to use their own, in most cases you should be able to use your preferred scrivener. This becomes even more convenient in cases where you have several purchases lined up – if the same scrivener is conducting all of them, he will provide a highly discounted fee in most cases, and not require the same documents notarised again and again for each and every purchase.

3. Updated title deeds & registration documentation

One to four weeks post-settlement, depending on how busy the local government office is at this time of year, your judicial scrivener will receive and forward to you the new title deed equivalent (the Japanese have a different name for it, but it is essentially the same document used in other countries.) If there is more than one new owner, you will receive one set of these per owner.

Congratulations, you are now the owner of a Japanese investment property!

(First Published in “Asian Property Review,” Pic – Hand-Shake / “CSUMB-Japan Exchange”)

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