Your Key To Passive Real Estate Income

Guide To Owning Japanese Real Estate For Overseas Investors

Owning Japanese Real Estate financial planning

invest in japan overseasOwning Japanese real estate offers extensive benefits to the overseas investor, especially when renting out the property. Various Japanese cities and metropolises offer some of the highest cap rates in the world. Of course there is Tokyo, with its stable and robust ROI (return on investment). This is 5.5% on average in the 23 Special Wards, or 6.5% in the outlying areas. Osaka and Fukuoka also have competitive cap rates. There are even some more specialised real estate investments, such as ski resorts in Niseko, with 7% ROIs. Investors often see Japan as a “safe haven”. It has a reputation for being politically stable and having an excellent economic and legal framework. This protects your investment and your money.

It all sounds too good to be true, though. Don’t you have to be Japanese, or at least a resident of Japan, to buy Japanese real estate?

NO. YOU. DON’T. You see, Japan (currently) has no restrictions on foreigners purchasing land and/or buildings. Not only don’t you have to be Japanese, you don’t even have to be in Japan.

This is different from Mainland China. It only allows foreigners to lease land for 70 years at a time; they can’t rent out that real estate. It only allows them to own a condo/building if they’ve lived in China for at least a year. They also must go through a special training program. Japan is also different from the Philippines, which prohibits foreign land ownership. In Indonesia, foreigners can only have “The Right to Use,” and this applies to land and buildings. What about other countries in the Asia-Pacific region? Australia and New Zealand allow freehold in theory (in some cases, even for foreigners). However, in practice, there are many restrictions on foreigners buying land, a home, and/or investment property in either country. Knowing the context of the Asia-Pacific region makes Japan’s lack of restrictions on freeholds by foreigners all the more appealing.

So as an overseas investor, how do I own Japanese real estate?

Finding The Real Estate

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First, you need to find a real estate broker. How can you find one? Of course you can search Google. You can get a referral from someone in-the-know. Or you can ask your financial adviser. Make sure to ask if the company is licensed. Is it part of a real estate association supervised by the government?

You can do some preliminary research by yourself using a website such as Suumo. However, when you get more serious about buying Japanese real estate, find a real estate brokerage. Ask them to search REINS, which stands for Real Estate Information NetWork Systems. This is the national database to which only real estate brokerages have access. It contains far more listings than Sumo.

 

Please note that these steps are possible without being in Japan. You can do them through e-mail, Skype, etc. Your real estate brokerage can be on the ground in Japan taking care of them.

The Transaction Process Part I: Purchase Application Form

Did you find a piece of real estate you like and decide to buy it? Your first step is to fill out a “Purchase Application Form”. Write down your offer price and preferred payment method. Fill out the contract date and the date of delivery (when you hope for the property to become yours). Finally, the real estate broker will submit this to the seller.

The Transaction Process Part II: Explanation Of Important Matters

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The seller must provide a document called “Explanation of Important Matters”. A nationally-licensed Japanese Real Estate Agent (formerly known as “Real Estate Transaction Specialist”), will sign and seal it. It includes:

  • A contract date
  • An overview of the property and infrastructure arrangements
  • Rights (both of the buyer/future owner and seller)
  • Legal limits (what they are and compensation for contract violations)
  • Management of the building (for example, a home owners’ association, condo association, or management company)
  • The payment method

The Transaction Process Part III: Signing The Contract

If everything looks okay in the “Explanation of Important Matters,” you sign it. You generally do not need to pay the full price immediately. However, you need to pay a certain amount, typically 10~20% (a deposit). In Japanese, this is tetsukekin/手付金, or atamakin/頭金 (literally “head money”). This amount (which counts towards the purchase price) shows that you’re serious. It also holds the property down. If the seller backs out of the transaction, he/she will need to pay you 200% of the deposit amount.

The Transaction Process Part IV: Payment

You can either pay the remaining 80~90% in cash, or finance it with a mortgage/investment loan. Some factors financial institutions (e.g. banks) look at include:

  • Whether or not you’re a permanent resident of Japan
  • Your income
  • The stability of your position (i.e. whether you’re a permanent employee [seishain, 正社員])
  • Your Japanese ability
  • Whether or not your spouse is Japanese

If you don’t meet some of the above criteria, don’t give up. Some financial institutions will give you a mortgage with only some of the above points.

What if you find yourself unable to pay cash or find a lender? Fortunately, most real estate contracts in Japan have a provision that covers this. The seller must return your tetsukekin and the real estate broker can only charge you half the commission.

If successful in getting a mortgage, some (but not all) contracts require that you make an “interim deposit”. This is similar to tetsukekin in that it applies to the purchase price.

Property Acquired: Time To Enjoy Owning Japanese Real Estate

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Receive The Rent Money

If investing from overseas, you should hire a property manager (PM). The PM will take care of finding tenants. He/she hands the keys to them and deals with issues (e.g. repairs). The PM collects rent and gets it to you. If you don’t have a Japanese bank account (common among overseas investors), he/she will send it to you overseas. Four times a year is typical. The PM will also take care of having the property cleaned up when a tenant moves out. Then the PM finds a new tenant for your property.

File Taxes

As your tenants pay rent, the PM will take out withholding tax, which is 20.42%. Don’t worry. It doesn’t mean you’ll actually have to forfeit that 20.42%. Particularly if you have limited income in Japan, you’ll get all or most of it back.

The tax filing season is February 16-March 15. Your PM will find a tax representative for you, who will file your taxes. You’ll probably get a refund unless owning Japanese real estate in extensive quantities. Your PM will make sure it reaches you.

Summary of Owning Japanese Real Estate For Overseas Investors

Firstly, Japanese real estate has high cap rates in a reliable, stable environment. Surprisingly, not only Japanese nationals or residents of Japan, but also overseas investors can enjoy these returns. First of all, enlist the help of a licensed real estate brokerage to find your perfect property. Then sign a contract and purchase it. Afterward, rent it out for great return on investment. Finally, have your property manager and local tax representative take care of the day to day. For example, this includes dealing with tenants, repairs, taxes, etc. During this phase, enjoy your passive income from owning Japanese real estate, and achieve financial independence.

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Does Japanese Real Estate Decrease In Value?

Should I Buy Or Rent In Japan?

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