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Buying Old Vs. New Property

Japan real estate financial planning low-risk investment Old Vs. New Property

When it comes to land, there’s no distinction between “old” vs. “new”. However, when it comes to buildings, this is a decision that many new buyers face. Should you buy old (second-hand) property, or new property? Should you buy a second-hand house or a new house? Should you buy an old unit or a new unit in a large building? It’s a complex topic, and there are strong arguments in favour of both sides. Let’s explore the pros and cons of both old and new real estate.

old vs new apartments in tokyoOld Vs. New Property: New Property

Pros Of A New Property

New property is the most popular, and has a certain glamour to it. A young couple, perhaps in their 20’s or 30’s, may buy a new property and create a family there. The children grow up and form fond memories in the new house. This epitomises the ideal of “house happiness”.

New property is more aesthetically pleasing. Take a picture of a room with old tatami mats, wooden beams, white walls, and a simple stainless steel sink and show it to your Japanese friends. They’ll likely say it looks very “Shōwa”, a reference to the emperor who reigned from 1926 until 1989. It’s charming in a nostalgic way to some people, but for most, a new property is preferable.

It’s more carefully sealed, for example, against insects such as cockroaches and termites. It also has better soundproofing.

When considering old vs. new property, new property is more ecologically friendly.

Not only can you do your part to save the planet, you can also save money in the process. E.g., new properties are more likely to have double-glazed windows (two panes of glass, containing inert gas for better insulation). The standards of these windows are still behind the standards in Europe, but they’re catching up.

More developers are building eco-friendly buildings these days, for instance, using the LEED standard (an internationally-recognised standard). LEED stands for Leadership in Environmental Design, and is a green building rating system. You can buy a new building that adheres to these standards, or have one built yourself. One example (the first, in fact, dating back only to 2015) is Azabu Gardens, a high-end apartment complex in Azabu 3-chōme. Because buildings using this standard only go back to 2015, you’re much more likely to find a new LEED property.

Japan also has its own CASBEE standard (Comprehensive Assessment System for Built Environment Efficiency). This has existed since the 2010s. Therefore, most old properties don’t have it, whereas you can buy a new property that does.

Hundreds of architects in Japan have received training in how to design “passive houses”. Passive Houses reuse “free” heat to heat the home. The authority on passive houses in Japan is Passive House Japan. Most passive houses on the market are new. One example is Kevin Meyerson’s house in Karuizawa, Nagano. It’s a certified passive house; the famous Passive House Institute in Germany has certified it. More such houses are springing up constantly, now.

When comparing old vs. new property, new properties have more modern amenities.

Examples include: card keys, floor heating, rubbish disposals, LED lighting, newer water supply technologies, and re-heaters for baths and other auto-bath technologies.

The tax situation is different between old and new properties, so pay close attention to that. This is not to say that either old or new properties are necessarily more expensive than the other. However, the tax system differs depending on whether a property is old or new. Registration tax is less expensive for new buildings. For free-standing houses, you only have to pay half property tax for the first three years. In the case of owned apartments, this becomes five years.

You don’t have to pay brokerage fees for a new building, either. You usually buy it directly from the developer.

New buildings may have newer earthquake resistance standards—though this gap is narrowing. A major update occurred in June 1981. Another one was in June 2000. Yes, there are definitely many old properties that adhere to one or both, but buying a new property guarantees it.

pros and cons of japanese real estateCons Of A New Property

They depreciate very rapidly. The land value stays about the same (though in the most popular parts of Tokyo the recent trend has been that of price appreciation). However, the buildings lose value over time faster than in Europe or the US. Much of this depreciation happens during its transition from “new” to “old” and in the first few years.

The location of a new property might not be as good as with an old property. Developers built many properties before the urban sprawl occurred, back when land near a given train station was still affordable. Now, these properties might be old, but their locations are prime.

At purchase time, you need to pay a large one-off amount of money into the “repair fund” (修繕積立基金, shūzentsumitatekikin). This is about ¥300,000, typically. It increases the financial burden at purchase time vs. an old property.

It costs several hundred thousand yen to connect the water; a payment called suidōfutankin (水道負担金). An old property already has this taken care of.

The developer may not have built it yet, in which case there’s nothing to tour. You might be able to see models, drawings, diagrams, plans, and/or blueprints. However, you may not be able to walk around inside or in the neighbourhood. How’s the sunshine going to be? What kind of people are the nearby residents? It’s hard to tell unless the building currently exists and you can tour it.

Old Vs. New Property: Old Property

“Old” properties range from ones that were new just a few years ago, to buildings dating back approximately 90+ years. Right near our offices in Akasaka, there are still apartment buildings built in 1930. You can find rural or suburban properties in an akiya (空き家, “old house”) bank, but for investment purposes (i.e. being able to find tenants), and to ensure you don’t buy a lemon or spend a fortune on renovations, it would be a better idea better to consult a licensed real estate broker (like us…).

 

Pros Of An Old Property

Cost: the Ministry of Land, Infrastructure, Transport and Tourism published a report titled “FY2016 Housing Market Trend Survey”. In it, the average new house costs ¥38,100,000. The average second-hand house costs only ¥26,933,000. If funds are limited, an old property may be the way to go.

More favorable ROI: Imagine that you have two properties that are pretty much identical except for their age. They’re both located in the Tama Area of Tokyo. The old one is ¥2,000,000, and the new one is ¥4,000,000.

You rent out the old one for ¥30,000 per month (¥360,000 per year):

¥360,000 in rent per year ÷ ¥2,000,000 purchase price = 18% return on investment (ROI)

Now, imagine that you splurge and buy the new one, instead. The prospective tenants really don’t care that much that it’s new, but it’s a minor selling point. You’re able to command somewhat higher rent: ¥40,000 per month (¥480,000 per year) instead of ¥30,000.

¥480,000 in rent per year ÷ ¥4,000,000 purchase price = 12% return on investment (ROI)

It’s not a bad ROI. However, it’s not as high as the old building’s.

Another pro of old properties is that they’re often in prime locations. Even in 2020, Japan is still urbanizing (the population of Tokyo increased by over 148,000 people in 2019). The urban sprawl continues. Properties built decades ago are often closer to the train station, etc.

When it comes to taxes, comparing new and old properties is somewhat complex. For example, there are differences in how much income tax you can deduct for an old property vs. a new property, and with an old property, you must pay registration tax. However, old properties bought by individuals are exempt from sales tax.

low cost old real estate japan

Cons Of An Old Property

Old Vs. New Property: Disadvantages Related To The Building Being Old

The bathrooms in old properties can be somewhat…antiquated. Generally, if built during the ‘80s onward, they’ll have all of what most people consider essential. If built before then, then there may be a squat toilet (though some people prefer them).

The kitchens aren’t as modern. A given kitchen may be tiny, somewhat dilapidated, and/or difficult to clean. There may not be a dishwasher, meaning you or the tenant has to wash dishes manually. Instead of a rubbish disposal, there might be a place in the sink for food scraps, or namagomi (生ごみ). Don’t forget to stick the namagomi in the freezer. Or, better yet, put it out on the curb in a specially-marked bag, before going on your summer holiday. Otherwise, when you come home…

Old properties typically don’t have as much insulation as new buildings. Winters can feel chilly. In summer, without running the fan or air conditioning, you might feel like you walked into a sauna.

You might need to renovate it. There might also be asbestos if the building dates back to before the 1980’s. Not only would this be a health issue and possibly require renovation, it could also make demolition more dangerous and difficult. Eventually, demolition is the fate of every building. However, with an old building, it’s a little bit more visible on the horizon. One must also consider the cost of demolition, which is not insignificant. In addition to asbestos, contaminated soil can be another issue with old buildings. For more information about harmful substances such as asbestos, contaminated soil, etc., please reference the building’s Explanation of Important Matters (重要事項説明書, Jūyō Jikō Setsumeisho).

Old Vs. New Property: Long-Term Monetary Disadvantages Of Old Property

Old properties have higher average repair costs. However, on the positive side, there’s no need to pay ~¥300,000 upon purchase for the tsumitatekikin. Old properties are usually cheaper to acquire, but slightly more expensive over the long run.

There are disadvantages to buying and owning old properties in terms of mortgages. First of all, some lenders won’t lend money for an old building. Furthermore, if the building is older than 20 years old, it might not be possible to receive a mortgage interest deduction on your taxes. The generous 13-year mortgage interest deduction system (extended from 10 years under the Abe administration) also doesn’t apply. You may still be able to write off some mortgage interest. However, it’ll likely not be as much as you would be able to write off with a new property.

Old Vs. New Property In Japan: Conclusion

There’s no right or wrong answer about whether to buy an old property or a new property. If it’s for your own use then you may sway towards something newer, cleaner and aesthetically pleasing. If it’s an investment, you may sway toward an older property which has less depreciation and higher yields. Weigh the above pros/cons and look at your finances, and what you’re comfortable with, to make a decision. We’d be happy to help you reach a conclusion.

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