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.
Another interesting investment topic! 😀 Just wondering, if we want to loan money from Japanese banks, do you have to be PR to be able to get a loan? Working Visa cannot? How long can we own these “units” too? E.g in Singapore, usually it’s 99 years, what about Japan? 30 odd years?
That’s a good point I should’ve included. I would think being a PR would be easier to get a loan from local banks and as for how long you can own the units or houses, technically it’s forever because, most of the time, the land belongs to you. So I guess the benefit of owning a house here is that you don’t have to worry about it being taken away from you by the government although some pieces of lands are under loan so you’ll have to check before purchasing a house.
I’m currently based in Singapore. I see a lot of advertisements in the papers regarding investing in Japanese property, with promises of guaranteed returns. How reliable are these? I mean, if it were really that good and safe, wouldn’t the companies themselves invest in these rather than look for buyers?
Hi Christopher, it’s hard to comment without seeing details of the listings but here’s my two cents worth. It’s important to be careful about the location of properties even within Tokyo as in the most extreme case, it can mean the properties are literally surrounded by trees and mountains and considered countryside. But I would assume the offers you see are within the bustling central areas of Tokyo, so apart from what has already been written in this post, it is important to understand why there are so many new apartments in Tokyo. It is not because of a property boom or because there is high demand for housing, but because there is high demand for NEW housing.
Because many people rent apartments here as opposed to owning one in Tokyo, the more affluent ones with more disposable income tend to move to new apartments every few years. This means, when investing in a new apartment, you may get good tenancy rate at the beginning but as your unit gets older, the chance of it remaining vacant for prolonged periods of time gets higher and higher.
Further, as the Tokyo Olympics is due to be held next year, this is probably not the best time to invest in apartments as the time to jump on the bandwagon has passed. History has shown that recession hits host cities when the Olympics is over and Japan is no stranger to that.
With that in mind, however, certain locations do seem to provide good opportunities in the future. Many of which are areas whose land prices are expected to stand the test of time and not fall much in value. This means, when purchasing a unit, pay attention to the ratio of land price vs the house price. It is not advisable to purchase one where the ratio of the price of the house is much higher than the land as the price of the house drops as soon as you purchase it but the land value will likely hold out much longer. Also, make sure the land is sold to you (which is more often the case than not) instead of rented to you.
Airbnb is also strictly regulated such that no unit is allowed to be rented via Airbnb for more than 180 days. These units also have to go through stringent checks to ensure they comply with safety regulations before they are allowed to be rented out.
As a reference, a friend of mine bought a unit of about 10 years old in Ginza and listed it on Airbnb (before the regulations kicked in). She bought it at a price of about 50 million yen (about SGD$600,000) and makes about 450,000 yen a month from the rent. The loan costs her about 370,000 leaving her with about 80,000 yen profit a month. Assuming she paid the minimum 30%, that’s a return of about 6.4%. I haven’t spoken with her some time now, so I’m not sure how it’s doing at the moment.
There are various reasons why companies want to sell instead of investing in these apartments themselves because selling makes them money faster, and they can use this money to make even more. Also, companies that do investments typically do not want to take risks. If they are involved in risky investments, they typically lower their risks by selling it to other people.
In any case, be careful about promises and guaranteed returns. There’s probably a fine print somewhere. If the safest “investment” (i.e. putting money in the bank) only guarantees you a 0.001% interest, you have to beware of even a 1% guaranteed return.
Hi Gaijinhan,
Thanks for your very detailed response. I will have to study it further. I am no property investor in any case (only got 1 property in my name in Singapore currently) but thought of investing in Japan because the missus is keen to move to Japan in the future (how far in the future I dunno). She’s more interested in the countryside and farming (I’m not entirely sure she knows what she’s getting into…) so I thought it would be good to read up somewhat regarding buying property in Japan.
The countryside in Japan does feel like a nice place to be in. Hope everything falls into place for you!
Haha, thanks! Really long range planning, don’t expect it to come to fruition any time soon.
In the meantime, planning for upcoming trip to Japan at the end of the year, probably visiting Tokyo, Kyoto and Karuizawa (if I spelt it right).