Most foreigners in Japan rent, but an increasing number are staying long-term and looking to put down roots. However, buying real estate as a foreigner can be complex. The information in this article will help you avoid common pitfalls and become more knowledgeable about the pros and cons of property ownership in Japan. Most price estimates below are based in the Nagoya real estate market.
Check the Construction Year of the Building/House
After a devastating earthquake in 1978, Japan introduced new building standards in 1981. Thus, apartments built before June 1, 1981 are valued less. The 1995 Hanshin Earthquake led to another revision in 2000 concerning wooden structures, so wooden homes built before then are also less valuable.
Even if you find a well-built used home, there is a stigma that a 20-year-old home is old.
Until the 1990s, many post-WWII homes were poorly constructed, leading to structural issues. Consequently, these homes may require significant repairs to become livable. So, if you do end up wanting to sell your well-built home from the early 2000s, some Japanese buyers will not consider it because of the image older homes have.
Moreover, there is a cultural tradition where newlyweds buy a new home. Thus, no matter how sweet the deal is, newlyweds shy away from used homes.
Additionally, unless you are handy with a hammer, renovation can be expensive. Just a shower renovation can be upwards of ¥3 million if done properly. So, it makes more sense in the long run to take a loan and get something newer if you are considering a home built in the 1960s to 1980s.
Learn About Taxes
Japan’s property taxes are low compared to countries like the U.S., where taxes can be burdensome.
For example, suburban homes near New York City usually have property taxes in the $6,000-$8,000 range annually. In contrast, a 20-year-old home in a large Japanese city can have yearly taxes around ¥120,000 and older homes can go down to as low as ¥50,000.
For basic guidelines about taxes in Japan, click here
Know your budget: Mortgage Options Exist, but Cash Remains King
The advantage of purchasing property in Japan is the low annual percentage rate (APR) for mortgages. For example, Shinsei Bank’s current variable rate is 0.42% and a 25-year fixed rate is only 1.35%. Considering inflation, a mortgage at these rates is basically like free money when compared to paying cash. Rates in the U.S. hover around 6.5%.
Mortgages in Japan also come with incentives such as life insurance. Many banks include clauses such as if the person who takes on the loan dies, the mortgage will be paid off in full for their spouse. For an additional 0.1% on the loan, there are also options where full loan forgiveness will occur just from a cancer diagnosis.
However, most banks will not grant a mortgage to a foreigner without permanent residency, regardless of their assets, except for a very select few lenders, and their terms and conditions are very challenging to meet. Additionally, the loan amount you can obtain is determined by your salary, as current assets are not factored into the calculation.
For home loans, most banks will not approve a second mortgage if you already have one outstanding, regardless of any salary increases or available cash. However, for investment loans, the property is assessed based on its own profile and the potential rental income it could reliably generate, along with the borrower’s other income sources, to determine their ability to repay the monthly premiums.
Carefully Consider Whether to Buy a House or Condo
A condo is a good choice if you live in a major city such as Tokyo or Osaka due to the lack of availability, cost of houses and their high resale value. Just be aware that condos in Japan face rising maintenance costs, which can make renting more economical in the long run. Let’s look at an example from Nagoya. The city can serve as a good yardstick since it is a major city, but it is not on the extreme end like Tokyo or Osaka.
Recently, a 65-square-meter, 2LDK condo built in 1988 was for sale for ¥9.8 million. This may seem cheap, but its monthly maintenance fees were high at ¥42,000 per month. That, combined with the yearly property tax (usually around ¥100,000), upkeep and the loss of value as the building ages will probably not make sense financially when you compare it with a rental. Moreover, when you rent, you can easily move if you get a new job.
Cheap condos in older danchi (public housing buildings) might seem appealing, with 55 -square-meter units going for as low as ¥3 million and maintenance fees around ¥13,000. While some do not have income restrictions, these buildings were poorly built and have little value in Japanese people’s eyes.
At this point, many units have been abandoned as their concrete crumbles and it may just be a matter of time before owners vote to tear them down and you only recoup a pittance on the original price. So, don’t let their low prices suck you in.
If you inherit an older home from your Japanese spouse’s family, you might consider demolishing it to build a new one. Demolition costs can range from ¥2 million to ¥3 million if the home isn’t attached to a neighbor’s. Then, when you build your home you can choose from a number of plans or you may want to have your dream home built.
To hire an architect to design your home can cost from ¥3 million. Keep in mind that if you currently live in the home, you’ll have to pay rent for at least six months while your old home is being demolished and your new home is being built, moving costs (twice) plus real estate fees for the temporary rental that will house you and more. All of that can really add up, in addition to being quite the headache.
Realistically speaking, if you want a nice home in a decent location (excluding highly desirable locales), it is going to run you around ¥40 million to start in cities like Nagoya. In central Tokyo or Osaka, however, this figure might increase to ¥70 million or ¥80 million for a city-center condo unit. However, while condos might initially seem cheaper than homes, in the long-term they could end up costing more due to maintenance fees, depreciation and limited control over the property.
Building or buying a home or condo is a dream many of us have. Japan’s declining population and economic situation have created a serious buyer’s market. The low crime rate, low property taxes and APRs, and many other virtues make putting down roots in Japan enticing. Just make sure you are well-informed regarding the pitfalls.
Feel free to also check below additional articles on property ownership in Japan:
Owning Property in Japan: Responsibilities and Insurance Essentials
