Foreign buyers targeted by fraudulent investment property scams

In May the Mainichi Shimbun newspaper ran a series of reports on property investment scams targeting foreign residents in Tokyo. This is a continuation of the ongoing reporting by newspapers into the fraudulent loans on so-called investment properties that have, until now, focused on Japanese buyers.

UPDATE:


A kind reader has sent along information on a class action lawsuit for victims of whole-building investments.

Class Action Suit for Victims of the Suruga Property Investment Loan Scam
Deadline for registration: August 10, 2021.
Tel: 03-6380-5277 (Japanese-language)
Web: https://www.si-higaibengodan.com (Japanese-language)

There were several real estate brokerages running schemes that would specifically target expats in Tokyo earning over 7 million Yen a year, by holding frequent property investment seminars. An American living in Tokyo who had purchased through one real estate brokerage in the past often appeared at seminars to assist foreigners with the loan process.

While the seminars targeting Japanese investors would attract as many as 50 attendees, the ones targeting the English-speaking expat community struggled to attract 10 guests at a time. The seminars boasted of no-money down loans for so-called high-yielding whole-building and individual unit investments. The president of one prolific real estate brokerage was often quoted in paid-for English-language news articles speaking about foreigners being able to obtain 100% loans. The bank providing those loans, according to the Mainichi Shimbun, was Suruga Bank.

The seminars followed a similar pattern with the real estate brokerage spending the first half of the seminar sharing their techniques for obtaining a full loan, discussing investment scenarios, and talking about how the average investor purchased around three buildings. A bank representative would take over the second half, and the attendees would be offered one-on-one consultations. 

The loans often included all of the various purchase fees, taxes, and fire insurance premiums. Essentially they were over-loans. This was the first red flag. The second red flag often appeared a little later, when vacancies grew and rental income did not meet original estimates. There were suspicions that the properties may have been purchased well above their true market values.

One of the investors was a Canadian working for a foreign finance company in Tokyo. That investor had decided to go through with the purchase of a 30-year old, 8-story block of apartments in central Nagoya. The total purchase price, after adding in the various fees and taxes, came to 380 million Yen. The lender was Suruga, and the interest rate was 4.5%. The real estate agent assured the investor that this high interest rate would only be temporary and that they could switch over to another bank after two years and halve the rate. The sales spiel also mentioned potential tax depreciation that the investor could benefit from.

Two years after the purchase, the investor went to a major retail bank to try and switch over the loan to one with a lower interest rate. It was then that they discovered that the building was not reinforced concrete, as the real estate broker had told them, but instead was steel-frame. The bank refused their refinancing due to the lower valuation given to steel-frame buildings. They had little recourse, since the Japanese-language construction certificate for the property that they received at the time of purchase had correctly indicated that it was steel-frame, and not reinforced concrete. Vacancies also started to climb in the building, with rental income dropping. The investor was struggling to keep up with costly maintenance.

The expat buyers targeted by these real estate companies were often foreigners working in IT or global finance companies in Tokyo. An investor in the article has amassed a group of 30 foreigners who are all victims of these investment scams, but the true number is likely to be much higher. The investor is currently talking with two lawyers to try and resolve their situation.

Source: The Mainichi Shimbun, May 29, 2021.

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