Your Key To Passive Income
Contact Us

03 6277 8135

Umezawa Building 5F

Akasaka, Minato, Tokyo

9AM-6PM

Monday-Friday

Coverage Ratios Explained

As you know, there are no shortage of rules in Japan. This is especially so with highly regulated industries like real estate. Coverage ratios are a small but significant part of Japanese construction and building regulation. During your search for real estate assets in Japan you may have come across the following ratios:

建蔽率 – Kenpeiritsu
and
容積率 – Yousekiritsu

Kenpeiritsu = Building Coverage Ratio (BCR)
Yousekiritsu = Floor Area Ratio (FAR)

Now that we have done away with the Kanji-compound terms, lets stick to our acronyms. Before we look into their meanings, its important to understand the system that birthed them.

 

Construction Zoning In Japan

Most of the Land that you will encounter as an investor in Japan is controlled by the National Town Planning Association (日本都市計画). They will classify land as either promoted for development (construction) or controlled (whereby construction is prohibited). Certain municipalities will also have further stipulations for the land under their jurisdiction, sometimes regarding developments or long-term initiatives for reform. Land that is promoted for development will fall under 1 of 12 possible zone designations, as outlined by the Ministry of Land, Infrastructure and Transport (国土交通省).

 

 

 

The government categorization of the land will determine what time of building is permitted to be built there, and will also determine the acceptable parameters for building size and building density. This is where we get to our acronyms; BCR & FAR (building coverage ratio and Floor Area Ratio)…

 

What is the Floor Area Ratio (FAR)?

The building sits on land. The size of that land is significant. Based on its categorization, a building is only permitted to have floor space that, when added together, totals a certain % of the land that it sits on. As such, the FAR is expressed as a percentage of the total land that the building sits on. This is across all floors (and now perhaps its easy to understand why people don’t simply buy a small piece of land and throw up a tower to maximise their living space).

FAR % = total floor area / Land area × 100

It is worth noting that the permissible FAR varies from location to location. The rationale behind its existence is to prevent overcrowding.

Note that this maximum can even be as high as 1,300 % of the land area, so don’t assume that a building is non-compliant just because it exceeds 100%….

 

What is the Building Coverage Ratio (BCR)?

The BCR is another ratio expressed as a percentage, that quantifies the area that the building sits on as a percentage of the total land area.

BCR% = building coverage area / land area × 100

The rationale behind its existence is to limit building density, lessen the risk of fire, and control the character of an urban area.

 

Other Considerations

Although you will commonly see these two ratios on any fact sheet for a real estate asset, there are also other things to be aware of that might require a bit of research. There are also rules surrounding the distance of a property from a roadway. This will be to ensure sufficient space for passing vehicles (ambulances, fire engines, police cars you get the picture…). Further, There are regulations restricting the height of buildings; again varying based on the zoning classification from the local government. If you are investing in a single unit inside a large multi-unit building then this level of inquiry is probably overkill as 1) the building has already been successfully built and 2) your total land ownership is calculated as the total land occupied by the building, divided by the number of apartments in the building (i.e not a lot). However, if you are purchasing a whole building, or purchasing land on which you intend to build then it is definitely worth being aware of what you can and cannot build by law (both now, and in the future).

 

Sources
国土交通省 – Japan Ministry of Land, Infrastructure, Transport and Tourism
公益社団法人日本都市計画学会 – Japan Town Planning Academic Association
公益財団法人都市計画協会 – Public Town Planning Foundation
東京都都市整備局 – Bureau Of Urban Development, Tokyo Metropolitan Government

Why Real Estate Is The Best Asset Class (Part 2)

8 Reasons Why Real Estate Is The Best Asset Class (Part 1)

Transaction Costs For Japanese Real Estate Buyers

Taxes For Japanese Real Estate Investment

What Is A Cap Rate?

Why Tenants In Japan Are Great Investments

Holding Companies: Investing In Japanese Real Estate

Investment Loans: How To Choose The Right One

5 Point Checklist Before Investing In Real Estate

How To Calculate Your Breakeven Occupancy Ratio

Get In Touch

Share This