A number of investors may soon be in for a rude shock as the Asahi Shimbun newspaper has revealed rampant abuse of home loans for investment properties. Anyone caught out may see their loan immediately called in.
The newspaper published an interview with a former employee of a Tokyo-based real estate agency who admitted to brokering the sale of around 150 second-hand apartments to investors, all of whom used the Flat 35 home loan on apartments that were intended solely as rental investment properties. This occurred over a two-year span up until June 2018. Some of the investors have already been questioned by the Japan Housing Finance Agency (JHFA) that guarantees the loans.
The majority of affected investors are in their 20s and 30s and had borrowed between 20 ~ 30 million Yen each. The real estate brokerage targeted novice investors through seminars and online advertisements. The sales spiel told potential buyers that purchasing real estate could help reduce existing debts. The majority of the investors had annual incomes of under 3 million Yen and many were already saddled with debts of around 2 million Yen. Not only did the buyers make fraudulent home loan applications, but in some cases the prices they paid for the apartments were inflated to include extra commissions for the brokers.
How the fraud occurred
The broker would advise the buyer to lie on the loan application by saying the property was for their own personal use when, in fact, it was for an investment, essentially having the buyer commit mortgage fraud. To further this lie, the buyer would then transfer their registered address to the newly purchased apartment for around six months before transferring it back to their true home address.
For any correspondence that the bank sent to the apartment, the brokerage had an arrangement with the property management company to forward any mail to the owner’s true address. However, should the bank ever send mail marked Do Not Forward, the owner would be caught.
Flat 35 home loans are designed to provide full-term fixed-rate mortgages to home owners. Fixed interest rates may currently be as low as 1%. The loans are only provided to borrowers purchasing a personal residence. They cannot be used for properties to be rented out to tenants. Typical loans for investment properties come with stricter lending terms and conditions along with interest rates of around 2% and higher.
At a press conference held on May 7, Keiishi Ishii, the Minister of Land, Infrastructure, Transport, and Transportation, announced that the Ministry had issued instructions to the JHFA to provide clarification of the situation and implement measures to ensure it does not continue to occur. The JHFA is looking at conducting a factual investigation into all existing home loans that could start later this month.
The Asahi Shimbun, May 3, 2019.
The Asahi Shimbun, May 4, 2019.
The Asahi Shimbun, May 7, 2019.