New reporting requirement to boost transparency in Japan’s property market

In an attempt to improve transparency and encourage more circulation in the resale or ‘second-hand’ real estate market in Japan, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) plans to introduce several new measures including enforcing status checks on listings, and encouraging building inspections.

Japan’s real estate market is decades behind other foreign markets in terms of the resale market, and also falls far behind in terms of disclosure laws and ethics. This may partially explain why the sale of second-hand properties accounts for just 10% of all home sales in Japan, while the resale market in the US and UK can account for as much as 90% of transactions.

Agents in Japan list properties on a nationwide multiple-listing database called REINS, which is operated by the Real Estate Information Network. This database is accessible to all licensed agents and helps to match listings by sellers agents with buyer-side agents.

Under the Building Lots and Buildings Transaction Business Act (the real estate transaction law), an agency that receives an exclusive listing is obligated by law to list the property on the REINS multiple-listing database where it is visible to all agents across the country. This is to encourage fairness and prevent the seller from being coerced into an unfavourable sale. Essentially an exclusive-listing in Japan is the least exclusive of all as it must be made available to all buyer-side agents.

However, abuse of this system is rife. When other agents call the listing agency to arrange to show their buyers through the property, the listing agency may sometimes lie and say the property has sold or is under offer, and refuse to show the property. This is done in an attempt by the listing agency to find a buyer themselves, and thereby make a double commission (3% from the seller and 3% from the buyer). They essentially close off the property, putting the needs of the agency ahead of the seller. Properties can then sit on the market for months, with the price gradually being reduced, because the agency is determined to make a 6% commission at any cost.

A recent expose by a major media publication made the headlines earlier this year after conducting anonymous surveys of several of Japan’s top brokerages. A high percentage were found to have been lying about the status of a property to other agents in order to achieve a double commission sale.

REINS will be introducing a system where the listing agents must include the current status of a property on the database, showing if it is available, under offer or temporarily off-market. Sellers will be able to check the status of their own property to make sure their agent is not hiding it from potential agents and their buyers.

Sellers will receive an ID number and password included with the certificate of registration that must be provided to the seller by their agent when their property is listed on the REINS database. The seller can then log-on using their ID and check the current status of their property.

The new rules will go into effect from January 4, 2016. Agents found to be violating this rule will receive warnings from REINS and may have their company names made public.

Sources:
The Nikkei Shimbun, December 21, 2015.
Real Estate Information Network for East Japan, December 2, 2015.

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