Tax breaks and better home loan rates to boost Japan’s second-hand home market

Journal Standard Renoveru 2
A renovated apartment in Kawasaki City by Renoveru (a collaboration between Journal Standard Furniture and ACME).

As part of a plan to support and boost the market for used homes, the Japanese government is considering introducing measures to encourage lower interest rates on mortgages that include a component for renovations as well as tax benefits for buyers of older homes.

Although there is growing demand from consumers for relatively cheaper existing homes, more than half require some form of work such as earthquake-retrofitting or upgrades to make them barrier-free for older occupants. It is hoped that easier financing will encourage more consumers to consider older homes and reduce the number of vacant homes across the country.

Expanding the Flat 35 Home Loan

The Japan Housing Finance Agency’s ‘Flat 35’ home loan offers interest rates from as low as 1.69%. Although the loan can be used for both new and old properties, it may soon be expanded to provide additional financing for renovation costs at the time of purchase.

Second-hand property sales account for just 10% of the housing market in Japan, compared with about 80 ~ 90% in the US.

The median cost of renovations was recently estimated at 6,000,000 Yen. Home buyers wishing to renovate the property they purchased typically have to take out a separate loan at a higher interest rate to pay for renovations. This has caused some consumers to shy away from the secondary market.

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) plans to implement the change to the Flat 35 loan conditions by the end of the year.

Reduced property taxes

The government is also considering reducing real estate taxes. For example, when a real estate company or renovation company purchases a property, renovates it and then sells it to a private buyer, the government collects real estate registration taxes twice in a short period of time (once from the company when they purchased the property, and again from the private buyer who bought the renovated property).

To reduce the tax burden, the real estate registration tax rate for private buyers has been reduced from 0.3% down to 0.1%. This reduced tax rate applies from April 2014 until the end of March 2016. The MLIT are also considering introducing tax exemptions on real estate acquisition tax for real estate companies and renovation companies. It is hoped that the reduction in acquisition costs for secondhand properties will result in lower end prices for private consumers.

The government is working on a plan to expand the renovation and resale market for used homes, and have set a goal of doubling this market to 20 trillion Yen industry by 2020.

Source: The Nikkei Shimbun, August 12, 2014.

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