The Nikkei Shimbun newspaper broke the story of yet another real estate company that is alleged to have been signing up buyers for home loans on investment properties. The news caused the company’s share price to plummet by as much as a third in the week following the news report.
The company, founded in 2000, is listed on the Tokyo Stock Exchange and boasts of being the industry’s leading home loan financial institution.
The newspaper reported at least 10 instances of loan application fraud, the majority of which involved investors with annual incomes of under 3 million Yen. One buyer received a home loan to purchase an investment property despite having no employment at the time of purchase, while their home loan application had been fraudulently filled in to say the borrower had an income of over 5 million Yen. A second buyer reported their income tax certificate had been falsified to triple their actual salary.
Most investors had fallen for spruiky sales-talk that included guaranteed rental returns promising rent regardless of whether the property was tenanted or not. Pushy sales convinced a young investor to buy a studio apartment in Nerima, Tokyo, for 30 million Yen. Some found that the guaranteed rent period was cut short or the promised rent decreased after purchase, while others discovered they had paid well above market price for their apartment. Toyo Keizai reported that some of the buyers had paid as much as double the actual market price, while the guaranteed rent was also double the market rate.
The fraudulent loan cases appear to have originated from two of the company’s franchisees in Kanagawa Prefecture, both of which are not directly operated by the company.
A word of warning:
Altering official government documents, such as income tax statements, and lying on loan applications, can lead to serious charges of forgery and fraud.
Home loans can only be used for purchasing a primary residence. They cannot be used for properties that will be rented out to tenants. Some shady real estate agents and investors commit mortgage fraud by lying to the bank about the true intent of the buyer. The buyer temporarily updates their resident address to the purchased property, which they then lease to a tenant. This is done to avoid the higher interest rate that is charged on an investment loan. Once caught, the bank can immediately call in the loan or switch it over to a high interest rate mortgage. Some banks have already started calling in loans.
If you currently have a home loan but are planning to move out and rent the property to a tenant, you are obligated to inform your bank of the change in use. The bank may request that you either sell the property or convert the loan to an investment one. Check the terms and conditions with your bank in advance.
Toyo Keizai, January 31, 2020.
The Nikkei Shimbun, January 27, 2020.
Bloomberg, January 27, 2020.