Property Investment in Japan

Some many years ago when I decided to take my finances into order and begun research into various investment tools in Japan, I set my eyes on real estate. But having no experience purchasing and renting properties, I sought advice from an experienced Korean language school classmate on where I can get more information. She pointed me to Kenbiya, Rakumachi, and Homes, where properties for investment are abundant and where businesses regularly conduct seminars for those interested in real estate investments.

I participated in a few myself and learned some things but what I initially wondered (why these seminars are free) gradually became clear. While the companies conducting investment seminars do provide useful information and lessons in your journey in real estate investment, they are less there to teach you so you can gain enough knowledge and interest to buy from them but more to sell to you what they have to offer at the seminars.

I recall one company that focuses on newly built apartments doing an entire seminar on why it’s better to buy new ones and then later tried to get us to purchase a unit from them. The reasons provided were that you can get 100% loan so you don’t have to pay anything upfront, new units can easily get tenants, and maintenance costs are low. However, upon further research into the topic, I found that what these companies don’t tell you is how maintenance costs can and will continue to rise over the years as the buildings get older, very often eating into the original profit that you were receiving in the early years of buying the home. And ultimately, the profit you were receiving without paying a single sum out of your own pocket will disappear and you find yourself in a couple of decades of debt as rental yield falls below your mortgage.

I also attended one seminar by a company that only deals with resale units and they did share about the maintenance fees of new units as opposed to older ones. While what they said about the maintenance fees of resale units having stabilized and will unlikely increase much, and also offered a 10-year guarantee on rental yield were attractive offers, I was safe from being caught in the property trap as the salesperson in charge of talking to me annoyed me a lot. I’ll talk briefly about the guarantee first. Now, these companies will ask you to buy the unit and rent it out to them for 1 to 10 years, and during this time, they will pay you rent regardless of whether they manage to find a tenant or not, which guarantees you rental income (although it will definitely be lower since they have to make money out of it). The sales guy did up a data sheet on expected income over loan amount and showed me how I could profit from day one. The unit they tried to sell me was a small old apartment situated in Setagaya ward, one of the more expensive areas in Tokyo, which means the land prices are unlikely to drop. With all these info, I would’ve gotten into debt if not for the fact that I didn’t have the cash to pay in full. When he learned that I was doing freelance work, he said it would not be possible to get a bank loan and suggested I pay full cash for the unit. I told him I do not have that kind of money and he said, “You can ask your parents to give you the money to buy.”

WTF?

I said, “No,” and he asked, “why don’t you try asking them?” I decided this salesperson is not trustworthy.

I’ve been to a number of others and some were willing to try looking for banks to give me property loan while some required me to pay 300,000 yen to join their investment guild before they would help. So, if you are interested in attending the seminars, be prepared for such sales tactics and be firm about walking away from them if you don’t want to buy them.

Property investment is a very tricky business in Japan with all the natural disasters and falling property prices. A friend of mine who owns a number of properties experienced one such issue where the agents asked them to build apartments over one of their lands and guaranteed rental for 10 years. However, they simply disappeared after 10 years leaving them for the remaining 20-odd years to get their own tenants and create their own rental income, so he warned me about such promises.

The thing about buying houses here is that the price falls as soon as you purchase the house and with the regulations on Airbnb rentals, it has become difficult to run a property business. However, buying properties is not a lost cause as I’ve met with Chinese agents here who were more than willing to help foreigners get loans. The catch is, since it’s difficult to get loans from Japanese banks, you’ll have to get it from the Bank of China. Also, BoC only offers up to 70% loan, so you’ll have to pay the remaining 30% yourself.

The other alternative is to pay full sum for a house and one guy I know did exactly that and it is possible if you are willing to stay in houses out of the city. The house he bought was a really old detached house and it cost him only around SGD$90,000. Half of which he paid with his own savings and the other half was paid for by his aunt.

If you still find purchasing properties for investing a little daunting, you can always try social lending or turn to REITS.

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