The number of foreigners moving to Japan is increasing, leading to a growing interest in buying a house in Japan. As the country's population declines and the migrant workforce expands, the demand for homes within the Japanese housing market is rising.
This guide provides a comprehensive overview of what to consider when purchasing a house in Japan, covering everything from key legal aspects to post-purchase considerations, equipping buyers with the necessary knowledge and confidence for their home-buying journey."
1. Japan Real Estate Prices
The Japan real estate price index has risen slightly for land and houses since 2020. This is in line with the rising cost of living in Japan. The largest increase has been for Japanese apartments. However, it has remained relatively stable compared to overseas real estate markets.
Japan real estate price index. Source: Japan Land Research Institute. Graph created by Romancing Japan
1.1. Comparison of Land and House Prices:
How much is a house in Japan? That depends on where you want to live in Japan. The two areas that attract the most people are the Greater Tokyo Area (Tokyo, Chiba, Saitama, Kanagawa, etc) and the Kinki/Kansai Area (Osaka, Kyoto, Kobe, Nara, Shiga). Anywhere outside of these areas tends to be even cheaper.
Average land price value for the Greater Tokyo Area and the Kinki Area. Source: Japan Land Research Institute. Graph created by Romancing Japan
1.1.1. Greater Tokyo Area
Tokyo land prices at the start of 2024 averaged just over ¥33,270,000 JPY (around $213,600 USD) and houses in Tokyo were just over ¥41,320,000 JPY (around $265,282 USD).
Average house price value for the Greater Tokyo Area and the Kinki Area. Source: Japan Land Research Institute. Graph created by Romancing Japan
1.1.2. Kinki/Kansai Area
At the same time, Kinki/Kansai land prices averaged just over ¥24,010,000 JPY ($154,149 USD) and houses prices were just over ¥23,470,000 JPY (around $150,682 USD).
Tokyo real estate has higher average prices, about 53.56% more than Kinki real estate. These prices in both areas tend to fluctuate from month to month, which could be due to market volatility or seasonal adjustments. This big difference in prices really shows how different the economic landscapes are in these two regions.
2. Understanding the Japan Real Estate Market
2.1. Key Trends and Dynamics
Property Depreciation and Land Value Stability Japanese houses are seen as having a depreciating value. In fact, many Japanese homes will be knocked down and rebuilt (or renovated) after 20 years. The real value is the land that the house sits on. In Japan, land retains its value, unlike the Japanese house, making it a significant consideration for investors 2.
Importance of Earthquake-Resistant Features Due to Japan's seismic activity, properties built to withstand earthquakes, especially those constructed post-1982, are highly recommended. Properties on soft soil, near the sea, or rivers might pose risks 2. About 90% of all Japanese homes are built using wooden frames, which makes them more flexible in an earthquake.
Accessibility of Real Estate Information Platforms like SUUMO, HOMES, and athome provide comprehensive listings, making it easier for anyone, including foreigners, to search for properties across Japan 4.
Foreign Ownership Rights Foreigners enjoy the same rights as Japanese citizens in terms of property and land acquisition, although restrictions apply to land designated as "forest" or "agricultural" without government permission 67.
Market Restrictions and Opportunities Some condominiums may have restrictions against sales to non-Japanese residents. However, investing in properties is feasible even for those not residing in Japan 7.
Real Estate Market Growth The residential property price index indicates a growth of about 2.4% in 2023, with significant price increases in existing condos in Tokyo real estate and Osaka real estate 12345.
2.2. Strategic Insights for Foreign Buyers
Navigating Legal and Market Restrictions Understanding local property markets, regulations, and specific restrictions like gaijin bans (some Japanese people do not want to sell to foreigners) is crucial for foreign investors 78.
Investing in Foreclosed Properties Foreclosed properties can offer low prices and high yields, with reliable documentation ensuring transaction integrity 8.
Demographic Considerations Targeting areas with population growth and understanding the impact of Japan's demographic challenges on real estate can guide investment decisions 8.For example, Kyoto's population is forecast to significantly decrease over the next 20 years, while Tokyo will continue to attract new residents because of it economic advantages.
Foreign Investment Trends Despite a 30% drop in foreign real estate investment in 2023, sales to foreign investors doubled, highlighting a complex but potentially lucrative market 9.
Institutional Investment Opportunities Japan's real estate market is one of the most institutionalized globally, offering safe investment opportunities with good returns, especially in major cities like Tokyo and Osaka 10.
3. Legal Aspects of Buying Property in Japan as a Foreigner
Foreigners considering buying a house in Japan will find the legal landscape accommodating, but with specific requirements and restrictions to navigate. Here are the key legal considerations for non-Japanese buyers:
3.1. Nationality and Visa Status
Foreigners can purchase Japan real estate irrespective of their nationality or visa status.
3.2. Residence Requirements
Although buying property does not necessitate a Japanese residence visa, a valid residence card or visa is crucial when conducting transactions 25. Having a Japanese permanent residency visa is beneficial when applying for housing loans 3.
3.3. Registered Personal Seal
Foreign buyers need a registered seal (a personal stamp with your initials - called jitsuin - 実印) for property transactions 7.
May people use stamps that can be bought anywhere, but the stamp you use to apply for a bank loan must be officially registered at your local ward office (kuyakusho - 区役所). Contact the local ward office to find out about stamp design approval process.
3.4. Loan Guarantor
Securing a loan from Japanese banks can be difficult for foreigners due to the need for a thorough understanding of the buyer's financial history. Additionally, a financial 'guarantor' is required 7. This can be your employer, your in-laws (if your married to a Japanese person), or a company that you can pay to become your guarantor. Some financial institutions offer loan products specifically designed for non-permanent residents 3.
3.5. Property Rights and Ownership
Property ownership in Japan real estate is on a freehold basis, giving the owner full rights without time restrictions 3. The same rules and procedures apply to both Japanese citizens and foreigners, ensuring a level playing field 2511.
3.6. Government Permissions for Specific Land Types
Foreigners must seek government permission to purchase land designated as 'agricultural' or 'forest' 1357. Strict building restrictions may apply to these types of lands. Additionally, ownership restrictions may apply near military bases 1.
3.7. Reporting and Documentation
Purchasing property as a foreigner involves specific documentation, such as proof of identity and an affidavit for non-residents 24. Under the Foreign Exchange and Foreign Trade Control Act, foreigners must report property purchases if they are not residents in Japan 245.
4. Financing Your Property Purchase in Japan
Navigating the financial landscape for purchasing property in Japan as a foreigner involves understanding various loan types and requirements. Here's a breakdown of the key financial aspects.
Bank home loans in Japan may prove difficult for some foreigners to obtain. As mentioned earlier, if you have a Japanese permanent residency visa, or have a spouse as a guarantor, you have a chance of getting approved for a loan.
4.1. Japanese Banks Can be Overly Cautious
Japanese banks are very cautious, especially with foreign customers, and will only approve a loan if they feel confident you can pay it back. When I got my home loan at one of the major Japanese banks, they wanted a copy of my parent's bank statement to show that they had money to loan me, even though my parents had no official role as guarantors in my home loan process!
4.2. Key Requirements for Mortgage Approval
Residence Status and Credit History: Valid residence status (Japan permanent resident visa) and a good credit history are essential for mortgage approval 2.
Stable Income and Down Payment: Applicants must demonstrate a stable income and manage a down payment of about 5-10% of the property's total value 2. If you are a contract employee, that is not a problem as long as you can show a history of consistent income.
Additional Financial Requirements: Proof of income and assets, and possibly a guarantor or co-signer may be required 2.
4.3. Japanese Home Loan Interest Rates
In September 2023, Japanese home loan interest rates experienced notable changes due to rising Japanese government bond yields. This shift follows the Bank of Japan's decision in July to effectively increase its 10-year Japanese Government Bond (JGB) yield cap from 0.5% to 1%. As a result, the benchmark yield briefly reached a 10-year high of 0.77%.
Several major banks adjusted their home loan rates accordingly:
MUFG Bank: Raised its 10-year rate for most preferred customers by 0.06 percentage points to 0.94%.
Sumitomo Mitsui Banking: Increased its rate by 0.05 percentage points to 1.14%.
Mizuho Bank: Raised its rate by 0.10 percentage points to 1.45%.
Resona Bank: Increased its rate by 0.08 percentage points to 1.65%.
In contrast, Sumitomo Mitsui Trust Bank lowered its most preferred rate by 0.04 percentage points to 1.26%, following a revision of its interest rate system.
These adjustments highlight the dynamic nature of the home loan market in Japan and underscore the importance of staying informed about interest rate trends.
4.4. Repayment Methods
Principal and Interest Equal Repayment: Fixed principal amount with consistent monthly payments.
Principal Equal Payment: Initial higher payments that decrease as the principal lowers.
Bonus Repayment: Regular monthly payments with additional payments during bonus seasons.
4.5. Additional Costs
Brokerage Fee: Approximately 3-4% plus a fixed rate of around 60,000 yen.
Revenue Stamp, Registration, and Legal Fees: Varies with the property cost 2.
Liquidation Fees: Covers pre-paid expenses like property tax and maintenance fees 2.
Understanding these financial nuances can significantly ease the process of securing a home in Japan, especially for those committed to making this culturally rich country their new home.
5. Choosing the Right Location
Engaging an Architect for Optimal Location Selection
Instead of buying a house in Japan, you may want to purchase some land and build a house. In this case, you will need an architect. Architects not only bring a deep understanding of the local land and building regulations but also offer creative insights to integrate your lifestyle needs with the available spaces 13.
5.1. Key Considerations with an Architect
Area Suitability: Architects can pinpoint areas that align with your lifestyle preferences and daily needs, ensuring the location adds value to your life 13.
Site-Specific Design: Tailoring the house design to fit the selected site optimally, architects can maximize the functionality and aesthetic appeal of your property 13.
Regulation Compliance: They are adept at navigating local building codes and regulations, which can vary significantly across regions 13. For example, Kyoto building regulations are much stricter than those of Osaka, which can include the colors you can choose for your house and even the type of tiles for your roof.
Cost Management: Providing cost-effective solutions and budget advice, architects help manage your finances effectively throughout the project 13.
Disaster Risk Assessment: Ensuring your future home is earthquake-resistant is crucial in Japan. Architects help avoid properties built before 1982 or located on risky terrains like soft soil, near seas, or rivers 2. Buildings with a wooden structure are considered better suited to earthquake prone areas.
5.2. Benefits of Architect Involvement
Customized Solutions: Architects offer personalized designs that resonate with your vision and the characteristics of the chosen site 13. In my case, we requested a kitchen design that was more Western then Japanese. Japanese kitchens are tiny and we wanted larger cooking area. Our architect was able to organize our kitchen at a very affordable cost.
Neighborhood Insights: With their local knowledge, architects provide a thorough understanding of the neighborhood, which is invaluable in making an informed decision 13. Some Japanese neighborhoods have very close knit communities, which requires local knowledge to help make good with everyone.
Handling Complexities: From contract negotiations to obtaining building permits, architects handle the intricate aspects of property acquisition, making the process smoother for you 13.
By hiring an architect early, you can ensure that every aspect of your property—from location to design and compliance—is meticulously handled, aligning perfectly with your expectations and lifestyle needs 13. This approach not only simplifies the buying process but also enhances the long-term value of your investment, making it a wise strategy for those new to the Japanese real estate market.
6. Navigating the Purchase Process
Navigating the complex process of purchasing property in Japan as a foreigner involves several critical steps, each requiring careful attention to detail and understanding of the local real estate norms. Here’s a detailed look at the key stages:
6.1. Step-by-Step Guide to Purchasing Property in Japan
Engage a Real Estate Broker: Given the complexities of the Japanese real estate market, especially for foreigners, using a broker is highly recommended 2.
Search and Visit Properties: Utilize Japanese real estate portals like SUUMO, HOMES, and athome to find properties. For non-Japanese speakers, PLAZA HOMES offers services in English and Chinese 2.
Application and Negotiation: Once a suitable property is found, you apply for the purchase and enter into negotiations over terms and conditions 4.
Contract Procedure: Moving forward, you will sign a contract formalizing the agreement. Ensure all documentation is thoroughly reviewed 4.
Hiring a Building Inspector: It’s crucial to hire a professional building inspector to assess the property. This step helps identify any potential issues that might not be apparent without specialized knowledge 6.
Assemble a Professional Team: Creating a team that includes a broker, loan officer, judicial scrivener, and tax advisor is essential for navigating the complex transaction process. All documentation will be in Japanese, necessitating professional assistance 15.
Finalizing the Purchase: The final stage involves a detailed consultation, the signing of contracts, and the transfer of property rights 3.
7. Post-Purchase Considerations
7.1. Ongoing Costs and Taxes
Annual Taxes: Owners of real estate in Japan are required to pay Fixed Asset Tax and City Planning Tax annually 4. This means that the tax on your land and the tax on your house are separate. After acquiring your house, inspectors will assess your house and property to determine the amount of tax you must pay. Asset tax is 1.4% of the assessed value of the property. The value is reassessed every three years, which can lead to changes in the tax amount.
Income Tax on Rental Earnings: If the property is rented out, income tax is applicable on the rental income, necessitating the filing of a yearly tax return 4.
7.2. Property Management for Overseas Owners
Comprehensive Management Services: For those residing outside Japan, companies like PLAZA HOMES offer extensive property management services, which include tenant recruitment and various repair services 4.
7.3. Maintenance and Upkeep
Regular Maintenance Plan: It is crucial to have a plan for regular upkeep of the property, especially during extended periods when the owner is away 6.
7.4. Additional Financial Considerations
Initial and Recurring Costs: Beyond the purchase price, buyers must account for registration costs, brokerage fees, and other related expenses 4.
Detailed Breakdown of Fees: These fees generally range between 5-10% of the property's purchase price and include agent commission, registration fee, moving expenses, and contract-related fees 3.
FAQs
Can foreigners buy property in Japan? Absolutely! Foreign nationals have nearly the same rights as Japanese citizens when it comes to buying property or land in Japan. This applies regardless of whether you are a permanent resident or what type of visa you hold. There are no additional requirements or taxes for foreigners when purchasing property in Japan.
Is it difficult for Americans to acquire property in Japan? Not at all. Americans, along with other expatriates, can buy land and properties in Japan without the need for citizenship or a residency visa. The process is straightforward and the same legal procedures apply to both Japanese nationals and foreign buyers.
What are the property taxes for foreigners in Japan? For non-residents or foreign corporations selling property in Japan, there is a withholding tax of 10.21%. However, if the property is purchased by an individual for personal use and the price is under 100 million JPY, this withholding tax does not apply.
Why are older houses in Japan so affordable? In Japan, houses are considered a consumer good rather than an investment. They depreciate quickly, similar to cars or appliances. A typical Japanese home can lose almost all of its value within 30 years, which is why older houses may be found at very low prices.
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James Saunders-Wyndham
With over 30 years of experience in Japanese culture and lifestyle, I am a permanent resident of Japan. As a web developer, I built Romancing Japan from scratch. Although originally from Australia, I have dedicated a significant part of my professional career to teaching at Japanese universities. My extensive travels across Japan have given me intimate knowledge of life in this country, and I am excited to share these insights with you.