Japan differs from Western housing markets in many ways. One of the biggest is in the preference for new property. In Japan, used homes represent about 13% of total sales, compared to 78% in the United States and 89% in Britain. That is changing, as the Japanese government encourages the construction of long-life homes, but many people still see homes as consumable items.
Also, the idea of a “handyman’s special” — where you buy an old, decrepit home, fix it up and resell it — is uncommon in Japan. Most home are demolished after 30 years and rebuilt.
Another difference is the lack of insulation. Given that Japan imports almost all of its energy, double-glazing, thermal insulation and other environmentally friendly technologies have been slow to catch on. A fourth difference is in the accessibility of information. In the United States and Canada, the Multiple Listing Service (MLS) and zillow.com give buyers a huge amount of data. The Japanese equivalent to MLS, the Real Estate Information Network System (REINS), is only available to real estate agents.
Are there particular areas in Tokyo where people can look for bargain properties?
Prices in grittier areas, like Adachi-ku and Itabashi-ku are surprisingly inexpensive. If you want to live in Azabu or Hiroo, on the other hand, you’re going to pay for the privilege. The irony is that working-class neighborhoods in Tokyo are not like working-class neighborhoods in other cities, which are often rundown, crime-ridden and poorly served by transportation and other infrastructure.
You can also find bargains in rural areas, but you have to consider the economic viability of the community where you’re buying. With declining populations and the hollowing-out of Japan’s manufacturers, there have been lots of cutbacks to essential services, like hospitals, schools, train services and so on. Those cutbacks don’t bode well for your quality of life or rental yields.
Steps for Purchasing Property in Japan
Speak to your bank about finance. Housing Japan is able to help with introductions to expatriate friendly lenders.
Get to know the market. Spend time searching the web-site and talking to your agent about properties. Look at the recent sales and understand the values and relative prices of properties in your target range.
The more you see the better you will understand the market and the easier it will be to make the decision to buy when you find the right property.
When you find the right property submit an “application to purchase”. This is a non-binding written expression of your interest to purchase the property at certain price. An application shows the seller you are serious and will start the negotiation process.
5. Explanation of Important Matters
Once the price is agreed your agent will start the contract process. The agent is required to investigate the details of the property and provide you with an “Explanation of Important Matters”. This document defines all the important terms of the contract. You should read and fully understand this document before executing the contract.
6. Executing the Contract
The contract execution usually takes place at the agent’s offices and takes about 2 hours to complete. It is typical to pay the owner a deposit of 10% or JPY 10 million at the time of the contract.
7. Loan Application
While you may have pre-approval from a lender, once the contract is complete you can make the formal loan application. It usually takes a month to six weeks for final approval after which the final closing date can be set. If you using finance, the contract will have a clause saying that you are applying for a mortgage from a particular bank with a proposed approval date. If, for some reason, the mortgage is not approved the contract will be terminated at no cost.
8. Final Settlement
The final settlement usually takes place at the buyer’s bank and is handled by a judicial scrivener. The buyer will transfer the remaining balance to the sellers account and the title of the property will be transferred to the buyer. On completion the seller delivers all the keys to the property and the transfer of ownership is complete.
Summary of Transaction Costs and Taxes
1. Acquisition Tax (取得税)
Buyers of residential property are subject to one-time acquisition tax of 1.5% of the government valuation of the land and 3% of the value of the building. The government valuation is usually about 60-80% of the market price of the property. This tax is paid to the local government and is usually due within six month of the purchase.
2. Registration Tax (登録免許税)
The transfer of a property incurs registration tax. Currently the tax is 2% of the government valuation of land and 1.3% of the value of the building. Registration Tax is also payable on mortgages at a rate of 0.4% of the loan amount.
3. Stamp Duty (印紙税)
Stamp duty is levied on the sale contract and mortgage agreement and varies on the contract type and amount.
4. Judicial Scrivener Fees (司法書士手数料)
The Judicial Scrivener acts like a solicitor to settle and register the property transaction. The fees vary depending on the size and complexity of the transaction. As an indication, for a property of ¥100,000,000 the fee will be about ¥100,000
5. Agents Fees (仲介手数料)
Agent fees are set at 3.15% of sale price + ¥63,000
Popular Myths About Japanese Real Estate
“Japan real estate remains one of the priciest in the world. Tokyo came fourth in the Global Property Guide’s 2009 survey of the world’s most expensive markets, behind Monaco, London and Moscow. The average price for an apartment in Tokyo city centre is a staggering US$17,998 per sqm”
FALSE. The reality: The Global Property Guide 2009 list with the above $/sqm price is here, and states the average price in Tokyo as USD$17,998/sqm (1,500,000 JPY/sqm). Average prices are closer to half this amount. In Minato-ku, the most expensive and desirable location in Tokyo, the average price for a 120sqm apartment of any age is 760,000 JPY/sqm (Homes.co.jp December 2010 data). For apartments built in the last 10 years, the average price is 930,200 JPY/sqm. Using the price-to-rent ratios, the Economist house-price indicators show Japan to be 34% undervalued (the most undervalued out of all the countries surveyed). Perhaps this disclosure on the Global Property Guide says it all: “We draw our figures from our own, in-house analysis”.
“A recent study by The Economist Group reports that on average Japanese houses last for only 30 years.”
TRUE. The reality: Wooden houses are usually replaced after 30 years. Through proper maintenance and repairs a house can last much longer, but with low construction costs many homeowners or buyers find it easier to rebuild. Concrete construction may last 50-60 years, and there are now 100-year concrete products available.
“Buildings have little value – the land does” Davis says, “which means there is basically no market for second-hand residences.”
TRUE AND FALSE
“Buildings have little value – the land does”– TRUE. Land in central Tokyo is expensive and makes up a higher proportion of the total price (approximately 70% for a newer property, and 80-90% for an older property). In the rural areas where land is much cheaper, these figures are reversed – land may make up to 30% and the construction costs may make up to 70% of the price.
“There is basically no market for second-hand residences” – FALSE. The second-hand market in Japan is very strong. There are many more opportunities in this market. According to a report conducted by REINS on real estate movements in Metropolitan Tokyo for 2009, the total number of second-hand houses sold in 2009 totaled 10,835 (average price of 30 million JPY), while only 3,472 new houses were sold (average price of 35 million JPY).
“Roppongi Hills and Tokyo Midtown are available only for lease – catering to a large base of expatriate as well as local families – while Mitsubishi’s upcoming project is available for sale with prices starting at US$8 million.”
- Roppongi Hills Residence A & B units are for sale.
- Tokyo Midtown is for rent only.
- Azabudai Parkhouse is for sale, but on leasehold land. It is extremely overpriced for a leasehold property and they are having difficulty moving units. Prices actually start from 65 million JPY (US$776,000) and the most expensive unit is 840 million JPY (US$10 million).
“Location, in particular proximity to a subway station, is an absolute requisite for luxury residences in Tokyo”
Location is key. Convenience to subway and aboveground stations is important, but is not the sole factor in high-end central Tokyo properties where residents are less likely to rely on public transport. In Minato and Shibuya-ku you are never too far from a train station. Sometimes the best areas are not too close to noisy stations, for example Shoto/Kamiyamacho is 10 minute walk from Shibuya station but is much more highly valued as a residential area compared to the area directly around Shibuya Station.
“Last March, London-based HSBC Group announced it would tie up with two Japanese real estate companies to extend mortgage loans to foreign residents so they can buy property in Japan more easily.”
FALSE. The reality: HSBC is no longer offering loan services in Japan. The National Australia Bank lends to foreign residents in Japan.
Buying Property in Japan: How to Negotiate on the Asking Price
How much can I negotiate?
Strictly speaking, the discount on asking prices is 10%, but actual reductions can vary wildly between zero and over 40% – it really is case-by-case.
Although the seller’s agent will usually advise them on the pricing strategy for their property, there are a variety of factors that will influence the seller’s minimum acceptable price:
- Market conditions.
- If they have a mortgage on the property, the bank will not let them sell for below the mortgage value.
- Whether they are in a rush to sell are happy to wait for a higher offer.
- How much they paid for the property. If you think the price is far higher than current market prices, then you may find the seller purchased the property during a peak and is too stubborn to sell at a loss. As transaction prices are not made public, the seller is not obligated to tell you how much they paid for the property. An alternative question is to ask when they purchased the property so that you can ascertain the market conditions at the time they purchased.
- How long has the property been on the market for?
- What was the initial asking price? If it has been reduced several times, the current price may now be nearer to the seller’s bottom line.
- Why is the current owner selling? If they are an investor, they may be hoping to make money on the sale. If they live there, they may have found their next home and need to sell quickly
- How much are they willing to negotiate? The seller’s agent will not be able to give you an exact figure (and if they do, it may not necessarily be true), so you may want to ask if an offer in the range of X would have a chance of being accepted. However, without making a formal offer there is really no way to know how low they will go.
Things to ask before starting negotiations:
The negotiation process:
(1) The buyer will submit a written offer which is a declaration of their intent to purchase the property at the price they have offered. This is usually considered to be a serious offer, so a buyer is not expected to back out if their offer is accepted. The amount of the first offer is up to the buyer to decide, but is usually lower than their maximum budget. If the initial offer is too low, the buyer will be rejected then and there. The buyer would then have to come up with another offer.
(2) The seller will come back with a counter-offer. The buyer can either accept this offer or negotiations will ideally continue until both parties are happy. In some cases, the seller may accept the buyer’s initial bid.
(3) Both parties have agreed to a price and the date for signing the contract is set. The purchase contract is usually signed within a week and the buyer must have the 10% deposit (up to a maximum of 10 million Yen) ready to pay to the seller at the contract signing.
*Note: If the seller accepts your offer, you cannot change any of the terms of your offer or it will no longer be valid. Unlike an application for a rental property where you may be able to negotiate new carpet or appliances, a house or apartment in Japan is usually sold “as-is”. Sometimes the seller may offer to do an alteration or renovation for the buyer, but this must be made clear in the negotiations process.
How to improve your bargaining power:
Have your finance sorted! Find banks that you are eligible to apply for mortgages from – visit them and have your entire paperwork ready well in advance. This will include income tax statements and other documents that will need to be prepared by you. Although very few banks offer pre-approval, if you can show the seller that you have some potential banks lined up, as well as the contact people in the bank branches, it will put you in a much better position to negotiate compared to someone who has no idea whether they can obtain finance or not.
Use a buyer’s agent. In many real estate transactions in Japan, the seller uses one real estate agency, while the buyer may use another. You may be in a weaker bargaining position when your agent is also representing the seller and is trying to get them the best possible price. A buyer’s agent is solely working for the buyer and wants to get their client the best possible discount.
ü Be prepared to give up some personal information. At this point you need to convince the seller of your strong finance position just as much as you would convince your bank. If you work for a large corporation, you may want to let them know your position and how many years you have been there. You can also let them know your average salary so they know you can afford the property.
Offer to close early. A typical closing date is approximately 4 weeks from the contract date, which works out to be 5 weeks from making the offer. If you are able to close sooner, and the seller is also able to, then make sure you mention this.
Got cash? Being a cash-buyer will usually give you some extra bargaining power, especially with a seller who has had previous contracts cancelled due to financing problems. It won’t work in every case, however.
Negotiating with an apartment developer:
Developers of new apartment buildings also offer discounts. They can range from 10~20% on average for apartments in Tokyo. There are several important factors which will influence the negotiability:
- If sales have just started, then usually no discounts are given.
- If the unit is being sold under the lottery-type system (chusen-hanbai), then no discount is available. This is where a select number of units are made available for sale and the general public can submit purchase applications on their units of choice. If your name is drawn from the barrel, then you are obligated to purchase the apartment at the asking price.
- If sales activity began some time ago and the developer is now just trying to sell the last remaining units, discounts may be possible. This is usually seen on buildings with several hundred units, or buildings that have been very difficult to sell due to little interest or high prices.
- If market prices have fallen since the property was completed and several units remain unsold, larger discounts may be possible. This is because the unit price list was set at a time when prices were at their peak. The developer cannot change the publicized prices as this will upset owners who had purchased units early on at the non-discounted prices.
The chart below is based on data from a survey from various developers in Tokyo, Chiba, Saitama and Kanagawa Prefectures in 2007. The newly released apartments were not negotiable on price, but as the apartments spent more time on the market, the ability to successfully negotiate on price increased. The results were based on a 10% discount.
Most property transactions in Japan will involve one or more real estate agents, so it is important to choose one who will work in your best interests. It is the agent who will be negotiating on your behalf, so do not be afraid to ask them lots of questions about the seller, and about how they plan to negotiate for you.
At the end of the day there may be some properties where the seller is simply not in the mood to negotiate. If the seller is stubborn and the price is not what you are happy with, then walk away.