Japanese real estate investment is a great way to increase your wealth and your disposable income. Returns are typically far greater than the returns one would get from bonds, however, you should consider all of the associated costs before jumping in. Transaction costs are the money that you pay in the beginning to the real estate agent, the judicial scrivener (司法書士, shihōshoshi), and the government via taxes. After paying these fees you receive your keys and officially own a piece of Japan, and start collecting monthly cheques from that day forward!
Transaction costs payable via the real estate agent, the judicial scrivener, and taxes, will probably add 6~7% to the purchase price when looking at total cost. For example, imagine that someone goes to a real estate agent, looks in the window, and sees a shiny picture of a condominium with a floor plan, and the purchase price is shown as ¥10 million. Does this mean that he can just bring in ¥10 million and own the property outright? Well, actually, no—the total cost to acquire the property will actually be more like ¥10.6~¥10.7 million:
10,000,000 JPY × 1.06 = 10,600,000 JPY (adding 6% in estimated costs)
10,000,000 JPY × 1.07 = 10,700,000 JPY (adding 7% in estimated costs)
The following is a list of costs for real estate investors buying real estate in Japan.
Brokerage Fees For Japanese Real Estate Buyers
You cannot represent yourself in a real estate transaction in Japan and that responsibility is fulfilled by a licensed real estate broker. Brokers provide valuable services- they provide advice and have a wealth of knowledge about real estate. When you buy, brokers direct the whole transaction; taking care of the contract negotiations with the seller, explaining the terms and conditions of the contract of sale, having a judicial scrivener register the property, paying the various taxes, costs, etc. to the appropriate recipients. Their fees are statutory, determined by the government to be 3.24% plus tax on any sale above ¥4 million.
Judicial Scriveners (Document Lawyers)
A judicial scrivener is a legal professional (basically a “document lawyer” who completes administrative procedures). He or she can register your real estate purchase in the tōkibo (real estate register), so that everyone knows who the owner is. Judicial scriveners provide various administrative services, real estate registration being only one of them. They too are licensed professionals and it is difficult to become one. The pass rate for the judicial scrivener license exam is only 2.8%! Once the judicial scrivener has worked his magic transferring the ownership deed and re-registering your property to you, you will be the new official owner of the property. The cost of the service is usually a flat fee and probably won’t exceed 200,000 JPY.
Fire And Earthquake Insurance In Japan
As building techniques and safety protocols improve, fires become less and less common and the damage that they do decreases. This said, fire is a risk no matter where someone buys real estate, anywhere in the world—even Antarctica has a fire department! With this in mind, a real estate investor may wish to purchase fire insurance. If one does decide to buy a policy, they are typically not expensive, and cover a period of years at a time.
Japan is located on the borders of several tectonic plates, so mild tremors occur several times a day around the country, but most are small and cause no damage. The Japanese themselves often take little notice of them, and continue to go about their business. Japanese buildings are built to state-of-the-art earthquake resistance standards for this reason. Japan is a world leader in building techniques that mitigate the risk of earthquakes, and buildings built after construction codes were revised in 1981 are even more durable than before. However, on rare occasion, a stronger earthquake may hit, which is why earthquake insurance might be a good idea. Earthquake insurance is usually purchased in a bundle with fire insurance. It is not legally required, but many investors will buy it anyway.
Real Estate Registration Tax For Buyers
The buyer pays a tax on the fixed asset (固定資産, kotei shisan) value of the property, so it can be registered on the national real estate ownership register (登記簿, tōkibo).
The good news here is that this ‘fixed asset value‘, on which the real estate investor pays this tax, is a lower value than the purchase price; for example, some properties might have a fixed asset value of only 50% of the purchase price. This real estate registration tax is 1.5% of the value of the land, and, in the case of real estate investors who are buying the property as an investment and not to live in, 2% on the value of the building. The third real estate registration tax type is on the mortgage (if you will have one); the buyer pays 0.4% of the mortgage amount in tax during the transaction. For example, if an investor buys a property using a mortgage with a market value of ¥12 million, the fixed asset value might only be ¥6 million- two thirds of which would be in the land, and one third would be in the building. In this hypothetical scenario (your mileage may vary), said investor would only end up paying ¥148,000 in real estate registration tax, which is only 1.23% of the purchase price.
Stamp Tax In Japan
Just like mailing a letter, buying real estate in Japan means you buy a stamp (or multiple stamps). This is called “Stamp Tax” (印紙税, inshizei). This tax can be as low as ¥200 on a property purchased for ¥0.5 million or less, but the most common amounts are ¥5,000 (for a property bought for ¥5 to ¥10 million) to ¥60,000 (for a property purchased for ¥100 to ¥500 million, which is $915,800 to $4,579,000, respectively). Again, unlikely to be a significant cost for most investors.
Real estate investment in Japan is pay to play. Good real estate investments are profitable even when accounting for transaction costs and ownership expenses. The real estate investor only has to deal with the transaction costs once, and then he or she owns the property outright. The ownership expenses (property tax, maintenance, etc.) are recurring, but fortunately, your ownership expenses will be tax deductible and any cost that you do end up paying will be nominal compared to your return on your initial investment.