Buying Property in Japan as a Foreigner, Part 1 - Purchase & Management Infrastructures

(Author – Ziv Nakajima-Magen, co-founder, partner & executive manager, APAC)

Overview

Japan offers some of the developed world’s most beautiful and well designed homes and holiday homes, in breath-takingly beautiful and culturally fascinating locations, both urban and rural locations – spectacular and reliable investment yields – and an unparalleled, safe, regulated and fully documented business environment. The caveat to these advantages, however, is that the country is also highly ethnocentric, culturally isolated and extremely foreigner shy. Except in very particular areas such as in the heart of Tokyo, Hokkaido’s international ski resort villages, or Okinawa’s main island, and other locations hosting US army and navy bases, the average Japanese person has very little exposure to foreigners of any sort, barring perhaps the occasional Korean or Chinese service person, or a Westerner he happens to see on the street or at his or her favorite eating establishment. Japan is, both historically and currently, not an immigration friendly country, with only about 2.3% of the population being of non-native Japanese origin (as of 2019). What this means in practice, is that very few people in Japan speak any English (or any other foreign language for that matter), let alone read or write it to any significant extent—and although it is now a mandatory part of the curriculum in elementary schools nationwide, this educational policy has only been in effect for a very few years. Furthermore, the extent of these lessons, or any exposure to English as a rule, is still very limited. Add to that the natural Japanese shyness, fear of change (or anything different, to that matter), and the individual tendency to “stick to themselves”, and you’ll begin to understand why sometimes, even when approached by a foreigner speaking fluent Japanese, many Japanese will avert their eyes in panic, duck into a shop, or cross the street to avoid the encounter at all costs.

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Business implications

This self-imposed cultural barrier naturally carries through to the business environment as well—further complicated by the rigidness of tradition and the multi-layered, many-faceted business culture. The Japanese have an entirely different vocabulary used in business situations, with further sub-vocabularies used when addressing clients, superiors or elders – and place great importance on “the right way” to do anything, particularly in a business environment. These “procedures” range in levels of complexity, from the correct number of official and non-official meetings required before deciding on a potential business relationship, and all the way to minute details, such as the “correct” way to present a business card when meeting for the first time. Even large companies employing English-speaking staff, or those which have the resources to hire interpreters and translators, will still insist on these ceremonial “necessities” — which are often the downfall of ‘non-initiated’ foreigners attempting to do business in the country. With smaller companies, as well, which do tend to focus less on “proper” Japanese etiquette, language and fear of foreigners are still an issue—even more so, since the chances of these companies having anyone, in-house or outsourced, who can speak English, is very close to none. Specifically in the real-estate sector, which tends to be old-fashioned as a rule, and since Japan is Asia-Pacific’s largest and most active property market, local property companies would normally have no real incentive to step out of their cultural comfort zone. To put it simply – they would normally have more than enough local business to satisfy their requirements.

Bridging the Gap

As you may have guessed by now, the first step to penetrating the cultural veil lies in having local, native Japanese representation in all practical matters — unless you happen to be dealing in areas and industry sectors which tend to cater more to foreigners – or are in the market for tier A properties, costing millions of dollars and more, in which case you may be happy to pay the price associated with relying solely on large multi-national property brokerages – who normally charge hefty fees, and prefer to focus only on high-end properties to justify their overhead.  Local representation, however, isn’t necessarily an insurmountable hurdle. There are smaller, English-speaking, one-stop-shop purchase / sale / management agencies serving foreign investors in some of the bigger cities such as Tokyo and Osaka — although these tend to focus mostly on their “back yard” areas. Additionally, there are a handful of buyer advocacy firms, such as ourselves here at NTI, who do cover all of Japan, at all purchase prices, and can also represent investors at a very reasonable fee. The advantage of working with companies such as ours, beyond our knowledge, experience and expertise, is the fact that we are not associated with particular real-estate agencies, nor do we have interest in selling any particular property or types of property over others – are focused entirely on providing the best result for our clients – and can utilize any and all local professionals for this purpose. Another option, which may be more profitable, depending on the estimated size of the portfolio planned, could be to hire full or part-time English/Japanese speaking assistants— these may be property professionals looking for more international exposure and extra earnings on their free time—or even college/university students. Various online forums, virtual assistant websites, and “friends of Japan” type pages can all provide a reasonable selection of these types of hirelings at very reasonable prices. Bear in mind, however, that in these cases, you would have to rely on your own real-estate know-how and experience, in order to properly instruct your employee/s in the tasks required of them at all stages of the research, due diligence, document review and ongoing management of properties. It is essential, however, for the person hired to actually reside in Japan, for the following reasons :–

* Much of the work will be conducted over the phone

While some Japanese realtors and property managers can and do communicate via e-mail, and certainly it is essential to receive confirmation and information for critical matters in writing — government agencies, building management companies and insurance companies would normally not be able to handle electronic communications very well, if at all. The person you will be placing in charge of ongoing contact with all third parties, will most definitely need to make and receive quite a few telephone calls, on a regular basis, and no one in Japan will be willing to make international calls for this purpose. It is possible these days to get a virtual “local” Japanese telephone number, which diverts to any other telephone number anywhere in the world – but the quality of these calls is normally quite low, which can be rather frustrating and lead to miscommunication issues.

* Non-residents cannot open local bank accounts

AND – almost no one in Japan, including all of the professionals and third parties mentioned above, will be able to remit and/or receive funds internationally – therefore, the local representative will need to open a local bank account, or use an existing one, to receive funds into and make payments out of (while it may be possible to pay some of the bills via international transfer, if the local target account’s SWIFT/BIC code and bank details are known, the cost of such transfers makes the exercise highly unprofitable on a regular basis and for payments under several thousands of dollars at the very least). Furthermore, certain bills, such as tax statements, for example, require physical payment at post office branches or convenience stores, at least the first time they are paid – and often throughout the property’s ownership lifecycle.

* A local postal address is a must

Last but not least, while certain government agencies in certain foreigner-friendly areas of the country can post tax statements and other correspondence overseas, this is the exception rather than the norm. In the vast majority of cases, posted correspondence will require a local address—and the Japanese love paperwork— which means that, as a property owner, you should expect to receive dozens of posted correspondence items, per property, on an annual basis –a local postal address is therefore essential for management purposes.

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Once local representation has been found and sourced, the scope of services, payment and mutual responsibilities cemented via legal contract, and bank, address and telephone details known and documented, it’s time to get down to the actual business of market research, due diligence and, finally – the property purchase itself (to be continued…)

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