1. Is 2019 a good time to buy property in Tokyo?
This is one of the questions we are most frequently asked. It’s important to look at the market from both a macro perspective and at the particular micro factors that affect the timing of your purchase decision.
With respect to buying a residential property, I would say that many factors go into deciding whether it’s a “good time” to buy. These are some key things that should affect your decision: how a home purchase would affect your work life and performance, the makeup of your family, your financial situation, and the actual living environment (such as the quality of the school district) near the property you’re thinking of buying.
If you are looking to buy an investment property, it is perhaps more important to look at macro factors, such as the outlook for the Japanese economy and price movements in the particular neighborhood in which you are planning to buy.
It’s also good to remember that unlike stocks, real estate prices move slowly (over months), so it’s important to plan ahead and be prepared for where the market might go. However, like the movement of a large passenger ship, once the market starts to change directions, it’s impossible for any one person to stop it.
Market Timing and Taking Profit
Currently, the people making capital gains from their real estate investments are the ones who are selling property that they bought when prices were on a downtrend following the Lehman Shock. When you look at the charts, you will see that property prices as a whole are higher than they were in the aftermath of the Global Financial Crisis.
Tokyo’s Position as a Major Global City
Tokyo occupies a leading position as one of the world’s four major cities and is the economic and political center of Japan. Due to construction and re-development related to the Tokyo 2020 Olympics, we are already seeing inflation of property prices; but along with this, Tokyo will also become an even more livable city and a more convenient one.
Thinking About the Rental Market When You Buy a Home
I myself actually bought a home that is about 10-minutes away by car from Tokyo Station because I was also thinking about the rental market when I bought it.
I think that now is the time to consider movements in the rental market, even if you are buying a home as your primary residence. This will also increase the range of properties that you can target to buy.
2. Is it a good idea to try to buy property before the consumption tax increase? Why or why not?
This question is also one that gets a lot of discussion!
First, let’s think about this question from the perspective of when you expect to take delivery of the property.
If you want the purchase to qualify for the current consumption tax rate of 8%, you will need to take actual delivery of the property by September 30, 2019. Note that this date applies to the date of the property handover, not the contract date.
However, if you are building a home, even if you take delivery after October 1st, the 8% consumption tax rate will still apply as long as you signed the construction contract for the property by March 31, 2019.
Here are some basic points to remember about how consumption tax applies to property purchases:
- Consumption tax does not apply to the land, just the building.
- It’s common knowledge that consumption tax applies to the purchase of newly constructed homes and not re-sale properties.
- However, more precisely, consumption tax applies when you buy a property from a taxable business.
- So if you buy a re-sale property from a taxable business, consumption tax will be applied.
Let’s run some numbers
If you are buying a ¥30 million property, here is how consumption tax and the agent’s commission would affect the price:
- With an 8% tax rate, the price would be ¥32,400,000 (of which ¥2,400,000 is consumption tax)
- With a 10% tax rate, the price would be ¥33,000,000 (of which ¥3,000,000 is consumption tax)
- The agent’s brokerage fee will also add ¥31,200 to the purchase price
Whether the difference is substantial depends on your individual assessment.
Personally, for me, the difference of about ¥631,200 would not affect my decision to purchase a property.
Also, considering that labor and material costs are likely to increase even after the Tokyo 2020 Olympics, I do not think that there will be a big market drop following the Games.
Also, personally speaking from the perspective of being an investor, if there is a drop in the market, I don’t necessarily think of this as a negative but rather as an opportunity to possibly increase my holdings.
3. Do you have any advice for clients regarding how to choose a property?
With respect to choosing a property, I think it is important to look at the physical aspects and the quality of the building itself.
For re-sale properties, I highly recommend that buyers commission an inspection of the property as part of the purchase decision. In fact, our agency offers the industry’s first ever English-language building report.
If you are looking to buy a condominium unit (a manshon), it’s also important to check the quality of the building structure itself, as well as the quality of the property management.
One current trend to take note of is that branded condominiums(manshons) built by major developers have been selling well because of the high value-performance associated with these brands.
When you are looking at a whole-building investment, it’s important that you check the grade of the building materials and to evaluate the ability of the tenants to pay their rent. So it’s a good idea to understand a little about your potential future tenants; for example, by holding a meeting to get to know them before you make such a big purchase.
It is also really important to think about whether the property you are buying will allow you to live the lifestyle you envision for yourself and your family. This includes, for example, the surrounding environment, local amenities, green space, and how easy it would be to raise small children there, and so on.
If you want to raise your children in a place that’s surrounded by trees and the outdoors, for example, you probably would not want to buy a condominium in the city center.
However, generally speaking, I think it is a safe bet to buy a property that fits the purchase profile of the majority of other buyers. For example, if you are thinking of buying an apartment for a family, buying a property located within about a 10-minute walk of the station and at least 50-sqm in size, would fit this demographic.
Also, even in Kanto, the number of vacant houses is growing. I think this is a potential business opportunity. For example, you can plug into this by buying a vacant home, renovating it, then leasing it out as an AirBnB property.
4. What are some common misconceptions that foreigners have about buying a home in Japan?
I’ve found that some clients do not know about recurring monthly expenses associated with buying a condominium, for example, such as the property management fee and repair reserve fund.
Also, because tax laws differ from country to country, I often have to explain the tax aspects of the purchase to clients, including such things as the real estate acquisition tax, fixed asset tax, and registration tax.
Some clients also aren’t aware that in order to pay recurring monthly expenses such as the property management fee, it is necessary to have a domestic bank account from which these funds will be automatically withdrawn.
Also, because all the paperwork is in Japanese, it takes a tremendous amount of time and effort to go through and fill out.
Basically, I think it’s the job of the agent to explain everything to the client in detail and to answer any questions they may have.
5. For foreigners, what are the main requirements for getting financing for a home mortgage through a Japanese bank?
I think that the main factors are your annual income, job performance, and how many years you have been with your company.
The amount you will be able to borrow also depends on how much of your own funds you put down as a down payment.
But this is a bit of a sensitive topic and is something that is probably better discussed on an individual basis.
6. Do you have any advice for clients regarding how to choose an agent that is right for them?
I think this is true the world over and not just for Japan, but the most important thing is whether you trust your agent.
Another key point is whether the agent will do their utmost to act quickly on your behalf. A trustworthy professional is someone who will work to maximize your return and profit.
In the real estate industry, speed is of the utmost importance. If you find a property listing that you like and would like to buy, it’s unlikely that you will actually do so unless you get to see the inside of it; and you may not actually see the property if your agent cannot quickly arrange a room view for you.
For these reasons, I would advise you to find a reliable agent who will do the utmost on your behalf. That is the shortest path to finding good properties.
7. What kind of due diligence should buyers do when deciding on a property?
If you can find a competent and reliable agent based on the recommendations I mentioned above, please leave the technical aspects of due diligence (building, land, and road codes and required yield, for example) to your agent, who is a professional.
What you should focus on is this: “By acquiring this property, will it help me build wealth and make me happier?” Because this is a judgment that can only be made by you.