You may have heard that it can be difficult for foreign residents of Japan to navigate the financial services industry here. From being denied credit cards, to not being able to sign up for life insurance, to banking; we have all heard stories about people being told that their signatures do not look -enough- like their own signatures by the people on the other side of the screen at the bank. So how do you get an investment mortgage in Japan?
Getting a loan from a Japanese bank for a real estate investment can be difficult. As discussed previously, the requirements for getting an investment loan are higher, because the statistical likelihood of debtor defaults is higher too. Makes sense. Some people may be able to secure mortgages for their house purchases, but then unable to get a second mortgage for a property investment. The two loans are different products at the bank, and operate exclusively of one another. Before going to your local bank and waiting in line, get to know beforehand what the bank will be looking for from an applicant beforehand.
Requirements For Investment Loans
Fundamentally, each and every Japanese bank will have different requirements to qualify. Their loan products are also different. Using the list of below requirements, look to gain an approximate feeling of where you stand as an applicant. The list is loosely in order of importance, but is by no means definitive. One of the surprising things about banks in Japan is that their policies will often vary from branch to branch, i.e the Shibuya Branch of Megabank may be more amenable to foreign applicants than the Ikebukuro branch of Megabank; they may also be willing to make concessions on different areas of your situation. Knowing who to talk to, and at what branch, is half the battle won.
1) Resident Status
This is binary. Do you have a “permanent resident” status (永住権)- Yes or No? This will thin the herd of banks more so than any other consideration in this list. If you do -not- have a permanent residency your options will be extremely limited. It is not impossible to get a loan without PR status, but you will have to shine in the other categories that they will be looking at to make up for your low score in the “residence status” box.
2) Taxable Income
What has been your taxable income in Japan for the past year? This will be proven with your income tax return (源泉徴収票). I.e, if it isn’t reflected in your income tax return then it didn’t happen. The higher your income, the larger the amount you are able to borrow. The same as any other country. Each bank will have its own proprietary calculations to work out how much credit can be extended to each applicant, and annual income is the largest determinant in that calculation. There is no blanket rule as to how much you can borrow based on your annual salary. Asking the loan officer at the bank how much you can ‘theoretically’ borrow will be met with head-scratching and “sou-desu-ne”. Any indications given at that time should be taken with a pinch of salt as you won’t really know until you have submitted target properties for the bank’s review. In summary, for an investment loan, the more annual income the merrier. We have yet to see an investment loan being extended to somebody with a taxable annual income of less than 5,000,000 JPY.
3) Employment Status
You need to have stability. Ideally full time (正社員) company employee status. Again, this does not mean that you are precluded from applying if you are a contract worker (派遣) or self employed (自営業), but guess what- they will need to see exceptional results in the other fields to make up for it (e.g a very high taxable income, or a substantial asset base). If you are a student, unemployed or retired your quest for low-interest loans ends here.
4) Current Debt
This is meant in the broadest sense. Include your traditional debts (credit card balances, university loans, mob debts…), but also the outstanding balances of other mortgage loans outstanding that you may have. Banks will again have their own calculations that tell them any given persons ability to service a certain level of debt, and the maximum amount of credit that can be extended to them on that basis. In short, if you are already sitting on 70,000,000 JPY of outstanding residential mortgage loan when you arrive at the bank, you better have a pretty impressive income tax statement in your pocket….
5) Japanese Language Ability
If your Japanese only extends so far as ordering fried chicken and beer you may have an issue. Banks do not take the lending of their capital lightly, and the rationale is that if you don’t ‘rikai’ Japanese you could conceivably throw your hands to the sky in 10 years time and tell them that you ‘didn’t understand the contract’– and refuse to make your loan repayments. This is the doomsday scenario for a lender and they avoid it at all costs. Again, this is measured against the other categories and averages out. Just as banks aren’t in the business of lending money to 7 year old’s, they rarely lend money to adults with the conversational ability of 7 year old’s either (unless you are fantastically wealthy. Then it’s 50/50!).
6) Marital Status
If your spouse is Japanese you get an extra tick in your Japan box. The idea is that if you have a spouse here, you have roots here. You are “committed” to Japan – i.e less likely to default on your debt obligations. Also, if the bank ever has issues communicating with the foreigner, they can always call in the re-reinforcements and send for your more reputable significant other.
7) Asset Base
Your level of existing wealth would also indicate your ability to meet your repayment obligations for a loan (or the inverse, if you don’t have two pennies to rub together). Interestingly, having lots of money alone is not sufficient to secure a loan. The bank would rather see employment with a Japanese company as a salaryman than a big stock portfolio. The rationale behind the thinking is that you could spend your million dollars on a bubbly night in Ginza, but your monthly paycheck is for life. That withstanding, the bank always feels more comfortable if you are able to show that you have financial assets elsewhere and are not a complete financial leper. Having real estate investments is also a plus.