Imagine, in your life in Japan, never paying rent again. Never being subject to the whims of a landlord. Having a home you can furnish and decorate, and a garden you can landscape and garden however you want. Perhaps even renting the place out when you aren’t there, and making passive income. This is the dream of home ownership. Is it possible for a foreigner to buy a home in Japan? If so, what is the process to buy a home in Japan?
In Japan, the real estate ownership system is “freehold”. This means a buyer buys a piece of land (and any building[s] on it) and owns them; for instance, you buy a home on a plot of land. This isn’t necessarily a given in East Asia. For example, on Mainland China, 70-year leases are the norm. You buy a home (assuming you meet China’s stringent criteria), but not the plot of land underneath it. Hong Kong has freehold in theory, but here’s some interesting trivia: There’s only one freehold in all of Hong Kong, and it’s St. John’s Cathedral. The rest of the land there is on leases (e.g. 99-year, 999-year in a few rare cases, etc.). Owners own buildings and lease the land underneath temporarily, but don’t own it.
However, Japan, on the other hand, has freehold, meaning one owns the land directly, in his/her own name.
What about foreigners, though? Can a foreigner buy a home in Japan?
Don’t you have to have Japanese citizenship, or at least permanent residency? The answer is “no”. Many foreigners and Japanese are unaware of this, but it’s true. Foreigners can buy and own land and buildings without restrictions. There’s no need to hold Japanese citizenship or naturalise. There’s no need for a special visa. An investor in the middle of the desert in Fez, Morocco could buy a skyscraper in Shinjuku, Tokyo without ever setting foot in Japan.
However, keep in mind that simply owning real estate in Japan doesn’t entitle you to a visa. Hopefully you already have a stable visa so you can live in your home. It’s also more difficult for a foreigner without permanent residency to get a mortgage. There are lenders who lend to foreigners, though. In some (but not all) cases, you might need to report your new home to the Bank of Japan within 20 days. However, this is simply a report after the fact, not seeking permission.
As long as you have a valid visa to live in Japan, you can live in your home. If renting it out from overseas, make sure to have a professional manage the property and take out the withholding tax from your rental income. File your taxes between February 16 and March 15 every year, using a tax professional if you prefer. If renting it out from within Japan, make sure your visa allows it. Permanent Resident, Long-Term Resident, Spouse, and Investor/Business Manager all allow it. However, certain activities-based visas (e.g. Engineer/Specialist in Humanities/International Services) may not.
First Steps To Buy A Home In Japan
Research Properties And Figure Out What You Can Afford
First, have a look at homes on websites such as “SUUMO,” “at home,” and “LIFULL HOME’S”. These contain all kinds of listings. Be careful not to rely solely on English Google. Doing so yields large amounts of expensive luxury real estate, leading to false impressions that Japanese real estate is not affordable. Some Japanese skills are helpful to search Japanese real estate websites- or use the Google Translate browser plugin. How old is the building? How many square meters does it have? What’s the FAR (Floor-Area Ratio)? What’s the BCR (Building Coverage Ratio)? Get an idea of prices; what can you afford?
For reference, one price-related metric is the “median national income multiple”. It’s a ratio of home price to income. Currently, in Japan, it’s 7.81. For example, if someone makes ¥4 million:
¥4 million in income × the median national income multiple of 7.81 = an estimated ¥31.24 million he/she will spend on his/her home
Of course, this is just a statistic based on averages. Do you aspire to be “average”?. For you, your ratio could be less than 1, or it could be more than 20. We only provide it so you have a ballpark idea.
Keep the front-end ratio in mind. This is the percentage of your income that can go to a mortgage. In Japan, the maximum front-end ratio is usually 0.25 (25%). For example:
¥250,000 per-month income × 0.25 front-end ratio = ¥62,500 per month maximum mortgage payment
Expect to make a down payment of approximately 20%, as well. Don’t forget taxes and brokerage fees, either. These will add up to 5~8%. Good news: existing buildings don’t have sales tax, and neither does land, only new buildings.
Figure Out Funding And Maybe Get Mortgage Pre-Approval
Do you have the cash to buy the home outright? If not, before proceeding, look into funding options, such as banks or other financial institutions. They’ll probably ask for:
- Your ID (driver’s license or passport)
- A list of your assets
- Annual tax receipts (源泉徴収票, gensenchōshūhyō).
Consider whether you want a fixed-interest or adjustable-rate mortgage (ARM). Although in many western countries, ARMs may be more cost-effective over the course of the loan, in Japan, think again. At the moment, with interest rates of only 1~1.5%, it’s extremely unlikely rates will go lower. With rates like these, try to lock them in with a fixed-interest mortgage. Once pre-approved for a mortgage, it’s time to get serious with your real estate broker.
Go To A Licensed Real Estate Broker And Have Them Use REINS
REINS stands for “Real Estate Information NetWork Systems” and is like “SUUMO,” “at home,” or “LIFULL HOME’S” on steroids. It’s not as pretty, but it has many, many more listings than any of those three end-user-oriented websites. However, only real estate agents and brokers have access to it. You’re eventually going to need a real estate broker anyway. Why not pay a brokerage a visit and have them run a free REINS search or two?
Your licensed real estate brokerage will happily give you tours. You can go to open houses, as well.
Did you like what you saw, and decide to buy? Then, with the help of your broker, fill out and submit an Application To Purchase (購入申込書, kōnyūmōshikomisho) or a Letter Of Intent (買付証明書, kaitsukeshōmeisho). Particularly if it’s a new development with many interested buyers, there may be a lottery to decide who can buy.
Getting Serious About Purchasing
Anyone can say “I want to buy”, but are you ready to put your money where your mouth is? If so, sign a “Purchase Agreement” and stamp it with your official seal, or inkan (印鑑). If you don’t have one then you’ll need a certified copy of your signature from a notary or embassy. You’ll then need to pay “earnest money”, or tetsukekin (手付金), which is typically 10% of the purchase price. It’ll apply to the full price of the home. For example, if the home’s price is ¥10 million, you’ll pay ¥1 million in earnest money. Then you’ll only owe a balance of ¥9 million yen thereafter. Once you’ve paid this money, the seller can’t back out without repaying double your earnest money!
At this point, the seller’s agent will write up a lengthy, 20~100-page document called an “Explanation of Important Matters”. In Japanese, this is “Jūyō Jikō Setsumeisho” (重要事項説明書). It discloses anything “important,” e.g. a vote to demolish the building, if it’s a stigmatized property (and why), etc.
At this point, formally apply for the loan. If you have pre-approval already, this should go smoothly, but a little bit slowly (expect it to take two months). You have the right to conduct one last physical inspection of the property before you sign the final, legally-binding documents.
Finally, when the loan goes through, the original owner will receive funds from the bank. A legal scrivener (司法書士, shihōshoshi), which is basically a “document lawyer”, will check for any liens or other legal problems related to selling the home. He/she will then change the legal registration to your name, and you’ll get the keys to your new home.
How To Buy A Home In Japan: In Closing
Japan is a freehold country allowing owners to own not only buildings, but also land in their own names. Even non-Japanese can buy without restrictions, though it doesn’t usually confer any special visa status. Do some preliminary research. Figure out your budget and your funding, perhaps a mortgage. Your mortgage options will depend heavily on your permanent residency status, whether or not you have a Japanese spouse, your time spent in Japan, your income, and your Japanese language proficiency. After you’ve gotten funding, go through the procedure with a licensed real estate broker. Finally, have a legal scrivener update the real estate registry, and the house keys will be yours.
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