A common question we get from buyers is how much of a discount can they get on the asking price of a property. The honest answer is that it varies. Some properties will sell at their full asking price, while others may sell at a discount. Typically two-thirds of all reported apartment sales in central Tokyo (Minato, Chiyoda, Chuo, Shibuya, Shinjuku and Shinagawa) sell at a discount of less than 3%, while a third sell at their full asking price.
Before buying an investment property in Japan it is important to understand how tenancy laws work. What may be acceptable in one country is not necessarily allowed in Japan where tenant rights are strong.
A big difference to be aware of is how to end a rental lease as a landlord.
Why would you want to kick out a tenant who is paying rent on time? You may want to list the property for sale, in which case, depending on the type of property, it may be more advantageous for the property to be vacant to appeal to a wider range of buyers. Or, you may want to vacate a building so that you can redevelop the site, or use the property yourself.
To ensure consistency, the Real Estate Transactions Act has rules that real estate companies must follow when displaying property floor sizes on advertisements and in contract documents.
Why does it matter?
Some tax breaks have size restrictions, and these sizes will be based on different methods of measurement. The home loan tax reduction, which allows a borrower an annual tax deduction of 200,000 ~ 400,000 Yen for up to 10 years, requires a minimum inside-wall measurement of 50 sqm. Some banks may also refuse to lend on properties with an inside-wall measurement of less than 50 sqm. The acquisition tax payable upon purchase of real estate is slightly lower for residences with a taxable floor area of between 50 to 240 sqm.
If you are buying land or a house and land in Japan, it is essential to understand how land sizes are measured and represented on contract documents.
Measured size vs. registered size
Each parcel of land has a size that is registered on the land title. This size is decided by the Legal Affairs Bureau and may vary from the actual size of the land for various reasons, primarily due to outdated survey methods used in the past.
It is possible for the seller to hire a surveyor to measure the actual size of the land. However, many may choose not to due to the cost involved.
Quite often the surveyed size will be different to the registered size, although there is no general rule as to how much they differ. A property owner may apply to update the land register to show the true size of the land, but permission from adjoining landowners will be required since their land registers must also be updated. This can be extremely difficult, as neighbours would not consent if it would result in their registered land size being reduced. Many do not bother to go through with this process.
Recently, several of Japan’s major real estate brokerages have started offering home inspections on properties they list. In some cases the agency will offer to provide coverage for up to two years following the sale for any defects, but the fine print usually requires the property to already be free from defects and for the agency to act on behalf of both the buyer and the seller resulting in a double commission (a full commission collected from each party).
This poses a serious conflict of interest, since agents have a vested interest in the sale. Buyers should be cautious about relying on these reports. There may be cases where inspection reports arranged by the seller’s agency receive passing grades but fail to include obvious defects.
Located between the mountains and sea, Kamakura is an ancient city located 50 km south of Tokyo. The city came to prominence in the 12th century when it was home to the Kamakura Shogunate. Unlike some of the more urban cities in Japan, Kamakura has retained much of its traditional character. The city is characterised by its traditional streetscapes, numerous temples and shrines, and lush mountainside. In fact, 40% of the city is forest and greenery.
Nowadays, much of this character is preserved through numerous strict building and zoning codes enforced by the city, along with efforts by local residents.
Nowadays Japan has some of the most rigid earthquake codes, however that wasn’t always the case and older buildings may be more susceptible to earthquake damage than some buyers realise.
Picking a location
Choose a property on solid ground.
Properties on reclaimed land, flood plains, former lakes, ponds, riverbanks, rice fields, or marshes are more susceptible to collapse and tilting from liquefaction. Even newer homes may not be protected from the danger of being built on soft soil.
Choose a property built after June 1981.
If you own real estate in Japan, you may with to obtain optional earthquake insurance to provide some coverage against earthquake damage. Earthquake insurance payouts from the 2011 Tohoku disaster totalled 1.3 trillion Yen. Not only were homes lost or damaged from the shaking, but fires and the devastating tsunami caused significant damage.
If you are a property owner, the main type of insurance is fire insurance. However, ordinary fire insurance does not provide coverage against tsunamis or fires caused by an earthquake. For coverage against earthquakes, a property owner must obtain an additional earthquake insurance policy on top of their fire insurance.
Earthquake insurance premiums are generally the same regardless of the insurance company. Fees will vary, however, depending on the type of construction, size of the property, and where the property is located, as some areas have been assigned higher risk levels than others.
February and March are the busiest months in the real estate industry in Japan. In the Tokyo metropolitan area, approximately 30 ~ 50% more sales occur in March than in April.
In April, fresh graduates will be starting at their new jobs, while schools will be starting their new year. This means many families and young workers who are moving will be keen to be settled in their new home before the end of March. If you are an investor and looking to buy a property to rent out to tenants, now is the peak moving season for tenants, so closing on a property by March is ideal.
If you are looking for a property for your own use, you may be up against more competition over the next two months, and may find that your preferred properties are snapped up.
The market for property sales in Tokyo has been heating up since early 2013, and transactions and prices have been steadily climbing. Reported sales of second-hand apartments in central Tokyo’s 3 wards were up 9.7% in 2015 from the year before. It is not uncommon for a well-priced property in a prime location to sell within days or weeks of listing, and for a seller to have several offers to consider. Adding a seller’s market into the mix means that buyers are going to be up against some strong competition for the next couple of months.
For those looking to buy you will need to be prepared to act quickly in order to secure the property of your choice. Act too slow and you may miss out on your 1st, 2nd and 3rd preference.
The keys to getting the property of your choice:
1] Understand the current market
What is demand and supply like? Is is a seller’s market or a buyer’s market? How long are properties typically listed before selling?
As we previously wrote about in May last year the property market in central Tokyo has indeed switched to a seller’s market.
In December 2014, the supply of secondhand apartments in Chiyoda, Chuo and Minato reached a record low. Compared to 2011, there are currently less than half the number of apartments on the market. Meanwhile, sales activity has increased with the number of transactions in 2014 up 47% from 2011. Transactions in February 2015 were up 50.8% from the previous month and up 8.1% from February 2014. This was the busiest February seen in the past five years.
The supply of new apartments is also shrinking, while prices in February reached a five year high. Future supply is also looking to be limited with growing construction costs, increasing land prices and a shortage of suitable development sites causing great stress for developers.
We are noticing that even the old stock is starting to be snapped up as buyers get desperate. January, February and March are typically the busiest months in the real estate industry, as companies scramble to make last minute sales or purchases by the end of the financial year, and people get settled in their new homes before the start of the school year.
Naturally the higher demand and lower supply is pushing prices upwards. We noticed an especially steep increase in prices from July ~ August 2014 onwards, with some sellers increasing their asking price while the property was still on the market.
What does this mean for you as a buyer?
First of all, your options have already halved from a few years ago. Depending on your requirements, you may not have a lot to choose from.
Secondly, you are now competing with more buyers thanks to recent changes to the inheritance tax system which has spurred investment from wealthy Japanese, and a weaker Yen which has added to the number of foreign buyers. These kind of buyers are typically cash buyers who are prepared to move fast to secure a property.