As a foreign buyer of real estate in Japan, whether living abroad or in the country, you may find that there are only a small number of real estate agencies that are capable and experienced in working with foreign clients. Even if the language barrier is not an issue, finding an agent who has worked with foreigners and can understand and explain the key differences and intricacies about Japan’s property market is essential.

We have heard of nightmare stories from buyers who have purchased properties without receiving full explanations or even incorrect explanations of property details, resulting in some very bad investments. With a growing number of foreign buyers, these bad practices are only going to increase.

In late 2015 the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) conducted a survey of real estate agencies across Japan to gain an understanding of the needs and issues faced when dealing with foreign clients, including buyers, sellers and tenants.

80.5% of the respondents reported between 0 ~ 5% of their total sale transactions involving a foreign buyer or seller, down from 81.3% in 2014 and 83.3% in 2013. Results were similar on the leasing side with 80.9% of companies reporting 0 ~ 5% of rental transactions involving a foreign tenant, down from 82.4% in 2014 and 83.3% in 2013.

Only 10% of the companies had a staff member in charge of foreign clients and inquiries on the sales side. 12.5% indicated that they plan to hire additional agents to work with foreign clients, but 75% of the companies said they had no plans to add specialist agents.

On the building management side, only 0.5% of respondents reported having a staff member who could assist with foreign apartment owners, despite 75% reporting having foreign owners in the buildings they manage.

Contract documents

Only 8.5% of companies reported preparing contracts of sale in English, and 84% of companies have no plans to do so. Even worse, just 6.5% of companies reported preparing the Explanation of Important Matters document in English, while 86% have no plans to do so.

Contract documents, including the Explanation of Important Matters, contain all of the finer details relating to the property and the contract terms. This is where all disclosures are made to the buyer. A failure to understand the items contained in these two documents is one of the leading causes of disputes between buyers, sellers and their agents.

While the documents to be signed will be in Japanese, it is very important that you obtain English transactions of these documents to go over in detail before signing. Before you start working with an agent, ask them what kind of translation or interpretation support they provide for the contract process.

Reasons for buying

The top reasons that foreign clients gave for buying real estate were:

  • Relatively cheap property prices compared to overseas markets.
  • Cheap Yen.
  • A safe and stable property market in Japan.
  • Expectations of capital gains*.

 

*Buyers should note that there is no guarantee of capital gains in Japan. The property market goes through cycles like in other countries, and investors should be aware that prices could go up, down or sideways. Some unscrupulous agents have been known to make promises to foreign buyers that property prices will go up 15% annually until the Olympics. Buyers are advised to be extremely cautious of any agents or agencies that make promises of capital gains since no one can make such predictions (making these sort of claims is also punishable under the real estate transaction law).

Problems and misunderstandings

13% of agencies responded that foreign buyers could not understand the concept of paying monthly building management and repair fund fees when buying an apartment. This is one of the concerns that developers and other apartment owners have when foreign investors buy into an apartment building. Building fees have to be paid each month when you own an apartment. If you fall behind on these fees, the apartment owners association can eventually take steps to foreclose on your apartment.

27.8% responded that their foreign clients had little to no understanding of the rules and regulations regarding property transactions and general business practices in Japan.

Complaints

Respondents made the following remarks about working with foreign clients:

  • Language barrier made the process difficult.
  • Concerns that the translated documents or interpretations were not accurate.
  • Not willing to conduct any transactions due to concerns that the foreigner may not understand what has been explained or may not understand the cultural practices.
  • Fears that the client may not feel any sense of responsibility to make any payments, causing undue damage to the seller or landlord.
  • Clients made extremely low offers or attempted negotiation tactics that were too aggressive or not in keeping with Japanese business practices.
  • One agent reported trouble with a foreign buyer who cancelled the contract of sale after signing and sought to get their deposit back, even though the Explanation of Important Matters clearly stated that it would be forfeited if the buyer cancelled. The buyer argued with the agent that they were not made aware of this fact since it was written in Japanese.
  • Not being able to open a local Japanese bank account for a non-resident foreigner.
  • Delays in receiving international money transfers from offshore buyers.
  • Not being able to confirm the identity of offshore buyers who do not visit Japan before the purchase.
  • Cases of foreign owners conducting interior repairs and renovations without providing the required notice to the management company, or conducting illegal extensions or additions to apartments.

 

Special restrictions

Companies reported imposing some of the following restrictions on foreign clients:

  • Limiting the number of apartments sold to foreign buyers to avoid any future issues regarding management of the building (e.g. to ensure that domestic owners control the majority of any important voting decisions).
  • Only selling 20% of the apartments in a building to foreign buyers.
  • Not selling any apartments to offshore investors.
  • Requiring the foreign client to either speak Japanese or have a relative or proxy who speaks Japanese.
  • Refusing to work with a foreigner who did not speak Japanese.
  • Refusing to sell an apartment directly to the foreign buyer. Instead, requiring the buyer to purchase through a proxy (Note: This is a strange requirement).
  • Only working with foreign clients who have been introduced through closely related agencies.
  • Requiring the foreign buyer of a brand new apartment to pay the full purchase price in cash only.
  • Some management companies have considered adding restrictions to management bylaws to prohibit the re-sale of apartments to foreigners, but found it too difficult to implement.

 

Future impacts of foreign buyers on the Japanese property market

Respondents made the following predictions about future issues that could arise due to the increasing number of foreign investors in Japan’s real estate market:

  • Unpaid building fees could result in apartment buildings having insufficient funds for future repairs and maintenance. Building management companies have already reported that a relatively high number of foreign owners are delinquent on monthly building fees.
  • Owners ignoring management bylaws and putting apartments on hotel-listing websites such as Airbnb.
  • Absentee owners not participating in important votes regarding future repairs to the building.
  • Dumping apartments on the market just prior to the 2020 Tokyo Olympics in order to cash out of their investments, resulting in an oversupply and a drop in market prices.
  • Difficulty in seeking credit claims against an offshore resident.

 

Source: MLIT, March 2016 (PDF)

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