In Part II (see below), we’ll cover family/holiday/vacation homes, either as condominiums or detached houses.
So you’re ready to buy your first property in Japan? Or maybe you’ve already been down that rabbit hole and are wondering if you’ve done something wrong? One commonly overlooked concept in purchasing real estate around the world is due diligence. By definition, due diligence in terms of real estate is care taken by research and analysis of a property and its affiliations in preparation for a transaction. One of the quirks about the Japanese real estate market, however, is that the due diligence is only conducted once your offer is accepted.
Before making an offer, you can do basic research such as an analysis of the neighborhood, tenancy rates, income levels, crime rates, population, job growth, and property value trends. However, the real due diligence, the nitty gritty stuff, comes only after an offer is made.
Why can’t I get the details first?
In Japan, the entire real estate purchase process, like many other things in comparison with the rest of the world, tends to be unique. The purchase process is scrutinizingly documented and there tends to be miles long of paperwork , leaving a clear and distinct paper trail. Most documents and information needed to carry out due diligence will be provided upon acceptance of an offer and before officially sealing the deal.
This is because the real estate market in Japan is very fast and realtors generally will not want to research, prepare, and provide detailed documentation for the average person with limited interest in any particular property. Once an offer is made by a serious buyer, of course, any documentation available will be given upon request… but not necessarily without requesting it! Therefore, it is vital to know what to look for before when making the decision to buy or not.
What should I look for?
There are some different aspects to look into depending on the type of property, whether it’s an investment property, a vacation property, or a family home.
Welcome to Part 2 of the Due Diligence series covering family/holiday/vacation properties!
For family/holiday/vacation homes, either as condominiums or detached houses…
Since this is a very personal process, most people care mainly about the price and if it suits them. The only due diligence that is usually carried out is restricted to finding out whether or not there are any hidden expenses, such as repairs needed, and if the property is in livable condition.
Due diligence #1: Check the monthly building fees for condominium units and ensure that they are affordable.
This is similar to investment properties, although still considered a personal choice according to lifestyle, budget, and intended property use.
Due diligence #2: If it’s a second-hand property, make sure that there is nothing wrong with it, making use of professional inspections where possible.
If there are any issues, estimate the expenses for repair and affordability. Whether the repairs are necessary immediately or can be postponed is also a factor, since everything will be coming out of your own pocket. If a property is old enough for concern, perhaps 30-40 years old, it might be wise to request a structural inspection to ensure there are no big issues underlying the purchase. These inspections cost about $1,500~$2,000 USD, and this expense is completely up to the buyer.
If any issues are already known by the seller, they are obliged by law to tell buyers about them, such as holes, leaks, etcetera. Sometimes it’s possible to insert a clause into the contract that would make the seller responsible for unseen or unknown faults for somewhere between 1-3 months after settlement. When the realtor is the seller, the real estate company is responsible, by law, for 2 years after settlement.
Due diligence #3: Ensure that the location, size, condition, and costs are acceptable for your lifestyle.
Some areas for consideration are access to public transportation, whether you’ll be using a car. For condos, sometimes parking spaces are available at an extra monthly fee. If it’s a detached house with a car port, don’t forget that it has to be registered at the local police station. Ensuring there are nearby fuel stations or a charging port available for electric vehicles is also helpful to know. Distance to local amenities and points of convenience is important to consider depending on lifestyle and intended property use, such as whether supermarkets, hospitals, and home supply centers are within walking or driving distance. Taxes need to be factored in as a budget item as well.
Due diligence #4: Checking whether or not the property has resale value.
This area is another personal preference, but important to include for thought. If you feel that you’d like to option to resell the property in the future, it’s important to consider how easy that might be. For both detached houses and condominiums, distance to the nearest train station is a large factor in ability to resell. Land/property prices are usually largely dependent on this factor also. Within 5-10 minutes from the station will raise prices and chances for resale. However, houses depreciate upon purchase. Older properties will require heftier repairs, renovations, and maintenance. The most expensive part of the purchase, and the only thing that has the potential to appreciate, is the land, not the actual house. In many cases, it is important to ensure whether or not a new property can be rebuilt on the land plot. Many older properties are affected by building restrictions and zoning regulations that change over the years, making new rebuilds prohibited, further restricting future uses for the property. However, renovations and repairs of the existing structure would be allowed if limited to similar size and purpose.
For condominiums, especially if it’s a newer building and close to the station, the unit should retain its value, giving you the advantage of selling at almost the same cost as the original purchase price.
Due diligence #5: Reviewing the property for future uses.
A last thought would be to consider what you might need from the property in the years to come. Although we can’t tell the future, some important things to think about are life changes. If it’s a family home, confirming the nearby school districts and walking distance are a must. Ensuring that the walking commute is safe for children is also a good idea. If you’re planning to live in the home until long after retirement, buying a home that is easy to navigate would be a safe choice, since difficulties walking in homes with many stairs or complicated layouts may prove dangerous later on. If it’s a vacation home in the mountains, safe traveling routes and tools for clearing snow would be a good idea to plan for, as well as storage needed for such tools. For all types of properties, disaster planning is a must and routes to the nearest evacuation sites should be studied carefully.
For due diligence about investment properties, such as condominium units within co-owned buildings…see Part I here.
Nippon Tradings International. https://nippontradings.com/buying-real-estate-property-in-japan-as-a-foreigner-part-3-negotiations-due-diligence/
Nippon Tradings International. https://www.youtube.com/watch?v=1kBrlyyg1YQ