What expatriates need to know to buy property in Japan

It is not common for an expat to purchase a place of residence in Japan; however, with the latest growth there has been a much greater interest on the part of foreigners to start buying while the market is still at the beginning of the recovery. Of course, there are also expats who enjoy the country so much that they want to have a permanent place to stay. Whatever the reason for wanting to purchase a home or apartment, there are a number of things that foreigners need to know about purchasing property in Japan.

Even when the real estate market was in a slump with declining prices, Japan is one of the most expensive places to live. Over the past year the housing and land prices in the major cities have started to turn around, so that the country is once again attractive to investors. However, obtaining a loan to purchase property is extremely difficult for expats.

For those who are serious about purchasing property, the following should help set expectations and prepare you for what you will need to know.

The Laws

The first place to start is with finding someone who both speaks Japanese fluently and who knows the laws governing the sale of property, particularly to expats. No foreigner is expected to know the laws or to be able to do extensive research, but that does not mean that they should not make sure that everything is done by the book. Before beginning to look, everyone should have representation to make sure that all of the applicable laws for the areas of interest are known. This could play a significant role in where a person buys their property.

Japanese laws for property are extremely complicated. For tax purposes, many people do not have their property registered under their own names. Because of the way the laws are written, many of the details about purchasing property are up to individual interpretation.

There are also a number of different conditions for how land and property changes hands. Since one lawyer can see it one way and another lawyer might interpret the laws in another way, it is vital to understand as much as possible before beginning to purchase anything.

It is also important to know the laws of the expat's home country. Taxes for both countries will be important to understand as paying taxes for multiple countries can be difficult if they are not known upfront.

The Loan

There are no laws preventing the sale of land to foreigners, but that does not mean that banks are required to loan the money to non-Japanese customers. However, with the recent change in economic climate, some institutions are easing up their policies a little. One thing does remain the same: if an expat is purchasing property in Japan, they must show that they are settled in Japan and intend to remain there. Being able to show this is one of the few ways to find a guarantor.

As an expatriate applying for a Japanese loan, buyers are required to have the following:

1. Proof of permanent residence in the country
2. Financial guarantor
3. Detailed financial records
4. References

The other option is to obtain the funds before arriving and being able to pay for the property up front. Naturally this is not an option for some, but for those who plan it carefully it could be possible to save for it.

Do keep in mind that Japanese real estate is considerably more expensive than in most places, except cities like New York and London. Be aware that many mortgages are meant to be covered by multiple generations, not by a single person. It is not uncommon for a Japanese mortgage to have a 100 year lifespan.

The Process

To start the process, would-be-buyers must submit a purchase application to start the negotiations. Everything that follows will be based on this application.

Following the review of the purchase details with a legal representative or real estate agent, it will be time to put down a 10% deposit and the agreed upon commission for the agent. Before signing anything or applying any deposit, make sure to review the contract to see if the money is refundable.

Once the deposit is received, the contract is approved, and this is when the purchaser obtains the mortgage. This is why it is important to ensure the money is refundable before signing.

The last step is registering the property in the buyer’s name. Both the contract and the mortgage are required before a licensed legal specialist will register the property. Once the sale is complete, the buyer will receive the deed and the keys to the property.

The Cost

Most steps in the process incur a cost. The following are the minimal fees and costs a buyer should expect:

• Property cost
• Initial deposit
• Real estate agent commission
• Stamp duty
• Taxes and legal fees, including the legal specialist
• Insurance

The cost of the stamp depends on the cost of the property; the higher the cost, the more expensive the stamp.