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Comprehensive Cost Analysis: What to Expect When Purchasing Japanese Property

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Introduction

The Japanese real estate market offers unique opportunities and challenges for investors and homebuyers alike.

This article delves into the myriad costs associated with property transactions beyond the listing price,

helping you to budget effectively and navigate the market with confidence.

 

Understanding Purchase Costs

When buying property in Japan, costs extend far beyond the advertised price.

These vary based on the property’s location, type, and the transaction’s specifics.

 

Brokerage Commission (仲介手数料）: 

In Japan, brokerage fees for real estate transactions typically consist of 3% of the property’s sale price, an additional fixed fee of 60,000 yen,

and a consumption tax, which is currently at 10%.

These fees(commission) are payable to real estate agents (buying agents or listing agents).

 

Similarly, when you decide to sell your property through agents, the same fee structure applies.

You will need to pay 3% of the property’s sale price, plus a fixed fee of 60,000 yen,

along with the 10% consumption tax currently applicable.

These fees are payable to your selling agents.

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Beyond the Price Tag: Understanding Agent Responsibilities in Tokyo’s Property Market

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Case Study: The Imperative of Reporting All Purchase Offers

in Real Estate Transactions

 

In the Tokyo real estate market, the ethical and legal responsibilities of real estate agents are often tested in complex transactions.

A compelling example is a case involving the duty to report all purchase offers to a seller, even when these offers fall below the seller’s specified minimum price.

This case study provides vital insights into the professional obligations of real estate agents and the nuances of navigating client relationships.

This case study was created using an example published by the Real Estate Distribution Promotion Center, a public interest incorporated foundation.

 

Scenario: A Dilemma in Reporting Offers

Our real estate firm faced a challenging situation with a property listed for sale.

The seller, preparing for retirement, set a minimum sale price of 35 million yen for their 10-year-old single-family home, even though the asking price was slightly higher at 36 million yen.

The rationale was straightforward: the seller wanted to use the proceeds to partially repay the mortgage on their newly purchased condo.

The complexity arose when an offer came in at 34 million yen, facilitated by another agent.

In line with the seller’s initial instruction, we (agent) chose not to report this lower offer immediately.

This decision, made from a place of respect for the seller’s wishes, soon revealed itself to be a pivotal learning point.

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Safeguard Your Investment: Understanding Bait Listings in the Japanese Real Estate Market

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Do you know ‘Otori-bukken’ ?

 

Truth be told,

 

We have to admit there are a number of

 

shady and dishonest real estate agents in Japan.

 

 

As a foreign investor considering investment opportunities

 

in the Japanese real estate market,

 

it’s crucial to be aware of the tactics some unscrupulous agents

 

 

employ to lure potential clients.

 

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Real estate investment in Japan : Beautiful Stories, Hard Realities

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Beautiful Stories, Hard Realities

Real estate agents/realtors are always holding seminars in Tokyo, Osaka and elsewhere, luring in amateur investors (for Japanese investors so far)

and telling them beautiful stories of how this person or that person got rich in the property market.

I never exaggerate such successes in my seminars, although of course they do exist.

Instead, I always tell the audience true stories from my experience and those of other clients and inexperienced investors, and in particular about the mistakes made.

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Now, the real truth about the real estate investment in Japan : Kabocha no Basha and Suruga Bank scandal

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In today’s uncertain economy, dynamic growth potential with low risk is tempting.
Real estate companies are constantly manufacturing the opportunities to captivate the naive investors.
Kabocha no Basha was one of them.

Suruga Bank Scandal background
Japan’s Financial Services Agency has launched an emergency inspection into Suruga Bank over investment irregularities involving women-only shared houses.
Suruga Bank extended over 100 billion yen ($915 million) in loans to about 700 people, mainly middle-aged salaried workers, to invest in Kabocha no Basha — or “Pumpkin Carriage” ; women-only shared houses operated by Smart Days.
Tokyo-based Smart Days also worked as a middle man between Suruga and investors and solicited investment from salaried workers, pledging to pay them rents for 30 years.
But Smart Days struggled with low occupancy rates and stopped paying the rents to owners they promised in January 2018.
Smart Days filed for bankruptcy in April 2018.

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High yielding, guaranteed rent should be too good to be true ?: ‘Kabocha no basha’ subletting problem in Japan

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Pitfall of sub-leasing(sub-letting) real estate investment

High yielding, guaranteed rent（sub-leasing)  should be too good to be true ?
Recently one of the scandals which rattled the industry is KABOCHA-NO-BASHA
(Pumpkin Carriage) problem.
The background of the scandal is as follows.
Investors were guaranteed a fixed monthly amount over an extended period if they invested money by contracting with a real estate company called Smart Days(Tokyo)
that used the funds to set up and manage share house facilities under sub-leasing agreement.
Since 2015, Smart Days, operator of women-only share houses called Kabocha no Basha (Pumpkin Carriage), has promoted high yield investments through the media and has mainly acquired customers of office workers. In the sub-leasing contract, rent payment collected through the sub-leasing is sought to pay back the debt for a long period plus small profit.
For example, suppose you borrow 100 million yen from a bank and the monthly repayment amount is 500,000 yen, if you earn rental income of 550,000 yen a month, it will generate 50,000 yen a month profit. This system is typical leveraging in the real estate investing and there is no red flag about it.
In an ideal setting, Smart days as the sub-leasing company would rent out rooms to tenants and bring in a steady and continuous supply of rent, a portion of which would go to the investors.The shared house with shared toilets and bathrooms is not as wide as 7 m² in living space, but the initial cost of moving in is kept low (so they say), and it was expected that more women moving into Tokyo from rural cities will choose to stay in these share houses.Smart days also promoted the business to support tenants finding a job (This is an alarming part)

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Are there any rogue real estate agents in Japan ?

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The real estate trade can be stressful in any country.
The financial commitment is substantially large, the regulations and laws are complex
and the market risk is high.  Average Japanese people share the same concern.
Another problem is a large part of consumers’ assumption that all estate agents, letting agents and
landlords are all regulated. In Japan, all the agents who actually arrange the real estate transactions
(including rental contract) must be licensed.
Engaging in the marketing activity to lure the investors without holding a license is against the
Building Lots and Buildings Transaction Business Law. If your consultant or agent do not hold
the license, your contract is not completely protected by the said law.
It would be treated more under civil law. But if your broker is licensed, they are regulated by the government
and thus your contract is eligible for more protection under the conditions set forth by the said law.
Nonetheless, there are some rogue agents or consultants who are not licensed in Japan.
For example, such rogue agents put up advertisements for properties on which they have not been
instructed to promote in an attempt to get a cut of the fees.

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