Renting vs. buying in Japan: How to cut your rent by up to 50%

Japan’s real estate market offers relatively high rental yields. Coupled with a low cost of funds (1% floating interest rates from Japanese banks, although rates on investment loans may be higher) the net return is one of the most appealing features to many investors.

The typical gross rental yield for an apartment in central Tokyo is between 4-6%. This may be as low as 2~3% for a high-end luxury expatriate apartment, and over 10% for a studio or one-room type apartment in an older building.

So what is the easiest way to cut your rental payments by up to 50%?

Chances are, if you were to purchase the apartment or house you are living in now, your mortgage repayments would be less than your rent. Let’s see some examples:

Plaire Minamiaoyama 1st Floor
24.57sqm studio apartment, 10 min walk to Omotesando Sta.

Current rent: 95,000 JPY/Month (7.6% Yield)
Purchase price: 15,000,000 JPY

Mortgage repayments*: 34,440 JPY/Month
Management/repair fund fees: 12,800 JPY/Month
Total Payments: 47,240 JPY/Month (49.7% of rent)
Total savings of 47,760 JPY/Month if you purchase.

Duo Scala Akasaka II 7th Floor
42.36sqm 1-Bedroom apartment, 2 min walk to Akasaka Sta.
Current rent: 200,000 JPY/Month (6.57% Yield)
Purchase price: 36,500,000 JPY

Mortgage repayments*: 83,800 JPY/Month
Management/repair fund fees: 14,960 JPY/Month
Total Payments: 98,760 JPY/Month (49.4% of rent)
Total savings of 101,240 JPY/Month if you purchase .

Axia Hiroo 3rd Floor
64.76sqm 2-Bedroom apartment, 7 min walk to Hiroo Sta.
Current rent: 247,000 JPY/Month (4.7% Yield)
Purchase price: 63,000,000 JPY

Mortgage repayments*: 144,640 JPY/Month
Management/repair fund fees: 15,850 JPY/Month
Total Payments: 160,490 JPY/Month (65% of rent)
Total savings of 86,510 JPY/Month if you purchase.

Harajuku Park Mansion 7th Floor
116.08sqm 4-Bedroom apartment, 8 min walk to Shibuya Sta.

Current rent: 390,000 JPY/Month (6.7% Yield)
Purchase price: 70,000,000 JPY

Mortgage repayments*: 160,700 JPY/Month
Management/repair fund fees: 37,100 JPY/Month
Total Payments: 197,800 JPY/Month (50.7% of rent)
Total savings of 192,200 JPY/Month if you purchase

*Estimated repayments are based on a 35-year loan of 80% through a Japanese mega-bank with floating interest of 1.1% as of January, 2011. Loan conditions vary depending on bank and borrower. Calculations do not include other expenses such as annual city taxes, one-time purchase fees or unexpected repairs.

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