Owning a house can be different from owning an apartment because apartments always have common areas. Common areas often include hallways, stairs, a laundry area, a front entrance, gardens, parking, etc. These common areas belong to all the unit owners collectively. Managing these common areas is the responsibility of the whole community, not just any one owner. It’s possible to have a free-standing house that shares no common areas with any other houses. It could have a backyard surrounded by a fence, and even its own pool. In contrast, it’s extremely rare for an apartment to have its own pool. The pool is part of the common area. With individually-owned apartments, there are always common areas, and these require fees to manage and repair. How do management and repair fees work in Japan? How much do they cost?
Part of the fees that apartment owners pay are “management fees,” or kanrihi (管理費). Another name for them is “CAM fees” (CAM stands for Common Area Maintenance), or kyōekihi (共益費). “Management fees” is more common with larger buildings; “CAM fees” with smaller ones.
Management fees cover cleaning the common areas, elevator maintenance, rubbish disposal, landscaping, legally required inspections, utilities for the common spaces, etc. They can even include optional equipment, facilities, and services. These include: cable TV, car/motor scooter/motorcycle/bicycle parking, central heating/cooling, Internet, neighbourhood association fees, and storeroom rental.
Repair (Reserve) Fund Fees
Repair fund fees (積立修繕費, tsumitateshūzenhi), or repair reserve fund fees, cover maintenance, repairs, and refurbishments (reforms and renovations). Do the tiles on the ground floor need replacing? Break out the tsumitateshūzenhi. Does the building need plumbing work? Tsumitateshūzenhi to the rescue! As an owner, you pay these fees monthly.
How Much Are The Management And Repair (Reserve) Fund Fees?
Typically, altogether, they’re ¥300~¥400 per month per square meter. This breaks down to about ¥200 for management fees and approximately ¥200 for repair (reserve) fund fees. However, these are just ballpark figures and vary widely depending on the building, the owners’ association, and the management company. For a typical example, let’s say that Carlos buys an 18.25-square-meter apartment in Kabe-shi, Tokyo Metropolis. How much would he pay per month in management and repair (reserve) fund fees?
18.25 square meters × ¥400 per square meter = ¥7,300 per month in management and repair (reserve) fund fees
Divide this number by 2. Then you’ll get how much of them would be for management, and for repairs: ¥3,650 for each. However, please keep in mind that this is just a ballpark estimate. The fees could be lower, or they could be much, much higher. Factors that can raise the management fees above the level in the example include:
- Elevators (inspections, maintenance)
- Staff who must be on-site and their facilities. These include a dedicated management office and/or on-site staff wages.
Repair (Reserve) Fund Fees: How Much Are They?
The above example has ¥200 per square meter as a typical value for the repair (reserve) fund fee. However, the actual value could be much lower or higher. If it’s lower, then beware. Some buildings start with an initially low repair (reserve) fund fee to lure buyers and renters. ¥1,000 per month for each unit’s repair (reserve) fund fee is not sustainable in the long run. That is, unless each unit is a 5-square-meter walk-in closet. After they’ve enticed buyers to purchase a piece of real estate there, then the fee climbs and climbs. Maybe ¥1,000 per month was already less than what it cost. Or maybe ¥1,000 per month covered the costs associated with a 1-year-old building, but not a 40-year-old building. Even in cases in which the fee was not deceptively low, it’s not uncommon for this fee to triple eventually.
How Do I Know If Repair (Reserve) Fund Fees Are About To Go Up, And That The Building’s Fund Is “Healthy”?
You can take a look at the building’s chōuki shūzen keikaku (長期修繕計画). E.g., what is the history of past maintenance/repairs? Further, how much money is there currently in it? Moreover, how many owners are currently behind on their fees? Furthermore, what maintenance, repairs, and refurbishments has the management company scheduled for the future? Another thing to inquire about is whether they have noted when fees will go up. Anyhow, look at these factors, and you can make an informed decision about whether to buy property in this building. Additionally, other factors to consider include:
- Do owner-occupiers own the units, or are they mostly investors living at a distance? Because owner-occupiers have to live there everyday, and are more likely to want to maintain and repair the building properly. Whereas investors who live at a distance concern themselves more with the financial bottom line.
- Are most of the residents elderly pensioners? Because they’re usually on fixed incomes. Therefore, they might be unlikely to want to pay to have expensive maintenance/repairs/refurbishments performed. In addition, they may not live as long as the building stands. Therefore, they may not care about its long-term future as much as younger owners would.
- Is there a management company? For 98% of buildings in Japan, the answer is “yes”. However, for the other 2%, if there’s no management company, then that means the owners’ association manages the building directly. In the event that this is the case, this is worrisome because transparency and accountability are less than with a management company.
If The Previous Owner Didn’t Pay The Fees…
Make sure the previous owner paid the management and repair (reserve) fund fees. Because if there are any unpaid fees and you buy the unit, then you’ll be legally responsible for them.
How To Pay The Management Fees and Repair Fees
The management company withdraws the fees automatically from your bank account. However, in the event that you don’t have a Japanese bank account, a real estate management company can help you. For example, they can use proxy bank payments to allow the management company to take the fees.
What Happens If You’re Unwilling Or Unable To Pay?
First, you’ll get friendly letters reminding you to pay. If you continually do not pay, then you can end up in court. In the event that one does not pay for a long time, the worst-case scenario at that point is foreclosure. Therefore, please stay on top of your fee payments.
If You’re A Landlord, You Can Get Tax Breaks.
Every month, the management company should send you a letter in the mail that details the fees. Of course you should hold onto these letters, because if you’re a landlord, management fees are tax-deductible. In addition, repair (reserve) fund fees might be tax-deductible, as well, but it depends on a complicated set of rules.
Management Fees and Repair Fees: Conclusion
To support the management of the common areas, an apartment owner pays “management fees”. Each owner also pays into a sinking fund that will go towards maintenance, repairs, and refurbishments. These fees are “repair fund fees” or “repair reserve fund fees”. Check them carefully before buying the piece of real estate. Beware of fees that are too-good-to-be-true or too expensive (common with very old buildings). No one has a working crystal ball, but there are ways to predict future increases. What are the demographics of the building? What’s the history and predicted future of the building in terms of maintenance, repairs, and refurbishments? How much money is in the repair (reserve) fund right now? Answer these questions before buying. Then you’ll be better able to predict management and repair fees. Stay on top of your fees, which are a cost of doing business, and enjoy your passive income.