For those who are interested in the in-depth video analysis, please check out our video here:
For those of you who are interested in the information-dense cliff notes, we got you covered with a quick list of all the big misunderstandings associated with purchasing a home in Japan.
Misunderstanding 1:
Foreigners can’t buy homes in Japan.
Some of you may be aware of the problem of owners of properties not renting out to foreigners in Japan for lack of equality laws, but a homeowner just wants their money and they don’t care who gives it to them. In fact most of the time, it’s the bank that is approving the loans and paying the owners. As long as you have a VISA there is a good chance you will be approved for a loan and be eligible to obtain that elusive Japanese home owner title.
Misunderstanding 2: You must have a big down payment.
There is this misconception that you need a massive 20% + down payment on a home in order to buy and so if you’re looking at a 30 million yen home (approximately 300,000 USD) you need 6 million yen (approximately 60,000 USD). That may be true in some cases, but if you have a fairly standard foreign worker salary, nowadays you may qualify for a 103% loan. Yes, the bank may give you more money than the value of the house to buy it and rates for fixed 35-year loans are not that high now and lower than in the US, so a home may be something to consider.
Misunderstanding 3: You have to have a huge salary to qualify for a loan
According to a report this year of the Japan Housing Finance Agency, If you’re making over 4 million yen a year, you can qualify for loans where the monthly payment is up to 35% of your income, while if your income is less than 4 million a year, you can still qualify for loans where the monthly payment is up to 30% of your income.
So if I make 3.6 million yen a year and I apply for a 20 million yen home at a 2% interest rate I get around a 66,000 yen a month house payment. With a monthly salary of 300,000 yen this is only 22% of our income and so you are good to go.
Misunderstanding 4: You can rent your property out to other people whenever you want
Housing loans are separated into many different types, but the first thing your banking institution will want to know is if it is for a personal home or for the purpose of renting it out to others to make money in rent payments. The loans for renting out your Japan property have a higher interest rate and thus would cost you a little bit more monthly.
So, if you decided to live there only 2 years and then pack up and leave the country and rent it out you CAN do this, but you have to refinance the loan as a NEW investment type loan.
Misunderstanding 5: Renovation and management fees on condos go up
When buying a condominium or an apartment room in Japan 99.9% of the time they have a management company that takes care of the building for a monthly fee. Your building may have someone who comes and cleans it weekly or daily, they may have a concierge working in the lobby, etc. This fee never disappears.
The restoration/renovation fees are also collected even from day one after the building was newly built and usually scale up for the next 12-15 years and tend to max out.
You see a lot of people buy a condo property brand new and as the fees ramp up, if their income does not go up or they are not prepared for it they can be in quite the pickle. Houses on the other hand have no management or restoration fees except what you yourself want to put into them and thus may be cheaper on the monthly if you don’t have constant repairs or restoration needed.
6. My house will last 100 years
Japanese houses tend to last considerably less than some foreign made houses and they also devalue over time.
Maybe this is some conspiracy by the Japanese government to churn the economy! In the mystical world of Japan, houses actually lose most of their value after 20 to 30 years. They are not only mostly made to only last this long but the stigma of buying an old house because of this valuation issue is the reason many homeowners will knock an old house down and build a new one.
This only hurts the hundreds of thousands of empty homes out in the suburbs and countryside as people flock to the city and tend to buy condos.
7. putting two names on the contract is better than 1
This just depends on your family situation. If you are a couple both working full time then you may be able to receive the even amount by both getting a half percent up to 350k yen of deductions.
So, example on a 35 million yen property, 1 percent is 3.5 mil yen kojo, SO, for two people it is 175,000 yen kojo for each, but if one person’s income is higher than the other and the second person makes less than 1 million yen a year (10,000USD) it may be better to just give the breadwinner the deduction).
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8. Raising rent each year with inflation
If doing it as an investment, you generally can’t raise rents on the current tenant.
There are stories I heard in one of the apartments I lived in that a Japanese elderly gentleman moved in 40 years ago when the rent was half of what I was paying. Until they move out, you rarely see the rent go up for the current tenant.
This is bad if you are renting out to someone expecting to raise the rent along with the price of inflation, but good if you have the property filled constantly with turnover every few years.
9. Home’s appreciate great
This goes back to houses not lasting long, but expect not to make money off appreciation so much on a house and really not so crazy much on a condo either.
If appreciation trends continue in Japan, your investment money will come mostly from the cash flow of rent money being paid. You can expect to make approximately 7-8% of your investment pre-tax.
10. The aging and depopulating country is why you shouldn’t buy
This is not true for cities, where people are flooding too and the GDP level of many entire prefectures is going up each year even with the slight population decreases.
Outside of Tokyo and Osaka perhaps where yields might not be as high, many of the big cities of Japan are booming with construction and new residents all of the time, especially single-person homes.
Well, that’s all for today folks, always be aware of the risks of buying a home in Japan. Knowing many of these misunderstandings can prepare you for your future home purchase.
We’d love for you to come say hi to us at our International Real Estate branch in Kusunoki. We help foreigners find apartments in Hiroshima and Okayama. Reach out to our staff who can speak English, Chinese, Vietnamese and Spanish if looking for a place at ryowainternational@ryowahouse.co.jp.