Buying a property in Japan as a foreigner?

Wanted to share this as review of what I was discussing with an agent from Miyoshi Real Estate 三好不動産　(one of the big names in the Fukuoka area).

Where to go?

I had the discussion in Yoshizuka　（吉塚） store, having been directed there from the Hakata eki mae （博多駅前） store which deals more with rentals than purchases. Do take note that different stores seem to focus on different aspects of real estate work.

Even in the Yoshizuka store, the second floor is the one that handles property purchases, while the first floor does rental.

First, you buzz the agent through the intercom and someone will pop out to serve you while you are in the well furnished waiting room.

What I learnt/ re-learnt:

Foreigners can buy property, the agent at Miyoshi confirmed that they do have foreign clients.

Taking a loan as a foreigner is not impossible as well, especially if you have a company here. (Check out the loan section below for more information

The critical points where failure is likely:

Step 3, you fail to secure a housing loan from a bank (high probability).
Step 5, there was an issue during the contract signing with the bank (the probability is lower since you passed Step 3)

From what the agent told me, if you’re willing to pay for the property in cash, the chance of being able to purchase is almost 100%.

Things to note:

You’ll need to hire a judicial scrivener to handle all the legal matters from change of ownership to city registration.

Good news? Money will solve your problems.

Fees involved:

The ballpark figure for a unit from 20 to 30 million yen will be about 7.5% of the property listed price.

The fees will include registration, agent introduction fees, scrivener fees etc.
Other fees may be included but he did not elaborate on every single item that has to be paid for.
Basically, budget for 107.5% of what you expect to pay for the property.

What happens if you back out?

Assuming you did not pass step 4 and sign a contract with the owner, there is no known penalty for not proceeding with the sale.

If you do back out for whatever reason past step 4, there could be a financial penalty.

The entire process from indicating your interest to actually moving in will be around 1-1.5 months. I would suggest budget 2 months for buffer.

This does not include renovations, but on this point, he did mention that some property have been pre-renovated before sale so you could go for those options.

Do you need to take a loan? 8 points to consider

1. Banks usually look at the amount of taxes you have paid to determine your credit worthiness… the higher taxes you pay means you have a higher tax bracket, higher income for example.

2. The banks would look at the property itself, like location and quality as an investment, because they can end up with the property if the loan is not paid back.

3. You can buy several properties, and a few years ago the max total investment loan is around 8x your annual income.

Ergo, if you earn 10 million yen, you can borrow as much as 80 million yen in total spread over several properties and even several banks.

4. The downpayment is usually very low per property, hovering around 100k yen each to encourage buyers.

5. The real estate agency earns revenue via selling you the property with a slight markup.
They usually say they will not charge for processing and transfer fees, but think of it as already included in the property price.

6. The loan still includes the life insurance, same as normal mortgages , plus property insurance.

7. The investment loan interest rate is much higher than home mortgage. A few years ago, mortgage was around 0.8% for 35 years variable rate, vs. 1.7 – 2% variable rate for investment properties.

Depending on how old the property is, you can borrow as long as 42 – 45yrs!!! The banks seem to not care how old you are that much, versus the earnings potential of the property itself.

8. Oh, and the property agent would usually require you to have a contract with them to manage your property (collect rent, find tenants, etc.) for a monthly fee of 3-5% of monthly rent.

These contracts usually last 2-3 years and up to you to renew.

The above loan information courtesy of Mr Thomas Edison Yu, edited slightly.

Additional Notes on loans:

From my contact Mr Emil Gorgees, his podcast here.

If you own a company here, preferably in the Kabushiki Kaisha (株式会社)　format, meaning limited by shares, taking a loan would be possible if you declare upfront that this will be an investment by the company. The information apparently applies to Prestia Bank.

Pros:

Taking a loan becomes possible, since foreigner non permanent residents usually find it impossible.

You can use the loan and home depreciation for tax shielding (cutting taxes legally).

Cons:

You can only borrow up to 60% of the quantum, ie, if the property is 100 million yen, you can borrow up to 60 million yen.

Because you are taking an investment loan, the interest rate will not be the sweet 0.6-0.8% but likely 2%. Still, in 2023 with interest rates being sky high, you can do worse, especially when compared to Singapore where the interest rates can hit 4% or more.

The company will be the owner, not the person, this may be an issue for some.

As an investment, the property will not be for the owner to live in but for renting out.

Conclusion

This post is for information only, by no means is it investment advice and I am not an agent so will not be profiting from any transactions.

It was meant as a summary of my research into property buying in Japan but I’m glad if it is helpful to anyone out there.