Japan has numerous ongoing development projects, especially around the Tokyo area – continuously creating countless opportunities for finding a perfect, luxurious house in a great location. Japan is slowly opening its gates to the world, and in 2019 the number of foreigners in Japan rose to almost 2.7 million, accounting for over 4% of the population in Tokyo. However, if you are a foreigner planning to purchase a house, either for private use or as an investment, there are many factors to consider, including legal procedures, financing and cultural differences affecting successful real estate purchases in Japan.
The process of buying a property requires creating your own team of professionals – a broker, loan officer, judicial scrivener, and tax advisor. Once, you have made this team and have built a relationship, trading real estate will become much simpler.
Can a non-Japanese buy a property in Japan?
This is the first, fundamental question that needs to be answered. The answer is ‘yes’, as a foreigner, you can purchase both land and properties in Japan. No citizenship or residence visa is required. In fact, the process is much simpler than you might think and the exact same rules and legal procedures apply to both Japanese and non-Japanese buyers. This makes Japan quite unique compared to other Asian countries, where land and real estate ownership is more strictly regulated by the state.
Step-by-step Guide to Buying a House in Japan
Housing Japan experts have been supporting individuals seeking to buy real estate in Japan for years, allowing us to refine our experience into a step-by-step, best practice guide for purchasing a house in Japan.
1. Contacting a Realtor
With such a big decision as investing your money into a property, what you need is trusted guidance from local real estate professionals. There are many reasons for this, including:
- legal safety
- documentation translations
- professional advisory regarding prices and market trends
- property viewing assistance
- market standards and price advisory
- negotiations and formal processes with the seller
Your first step should always be to consult an agent and outline your preferred location, property requirements and budget. This will require signing either a commission agency agreement or broker agreement. The statutory brokerage commission in Japan is 3%.
2. Consult with A Bank Before Viewing
Here is a big mistake many buyers, that decided to buy a house in Japan do: they jump straight to viewing before securing their financing options. Financing is the egg that comes after the property chicken. Now, if you are planning to buy your new home with cash, that’s no problem, but we have heard of stories where potential buyers that find a luxury house in Tokyo, invest their time in evaluating and viewing the location just to find out they can’t get a loan from a Japanese bank.
Another reason to prioritize financing over property comparison and viewing is a verbal pre-approval. Japanese banks can unofficially pre-approve your loan request, which can be a very strong bargaining chip when talking to the seller. As a foreigner, you must be aware that Japanese society is heavily based on trust and even verbal approval from a bank can make a seller more confident and willing to close the deal.
3. Site Viewings
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4. Expressing Property Purchase Intent
After deciding on a house or an apartment, it’s time to officially express property purchase intention by submitting a Letter of Intent (for pre-owned properties) or an application to purchase (for newly built properties). From that moment onward you are considered a serious potential buyer. The Letter of Intent is treated on a first-come, first-served basis – another reason why having financing in place first so you can act faster than your competition.
5. Negotiations & Initial Payments
The following step is your agent negotiating (with the seller) details regarding purchase price, possible payment methods, payment timings, etc. This process can take anywhere from a week to a month as both parties draft legal documents, undergo final due diligence, and fulfill formalities. Also, if you plan to finance your purchase with a mortgage, this is the time to apply for a loan with a bank.
6. Executing the Contract
Your agent should provide an “Explanation of Important Matters Regarding the Property and Transaction”. This is a set of documents that includes owner title registration, ownership type, property legal description and any provisions in case of contract cancellation.
At this stage, a cash deposit should be paid to the seller (usually 10% of the property but can be less in some cases). This is often surprising for many foreigners as earnest money is usually paid to a third party such as an escrow. The idea behind this is that Japan is a trust-based society, and paying part of the cost up-front is a sign of commitment and solidifies trust. To be clear, even buyers purchasing a house in Japan via a mortgage need to pay the deposit in cash that’s been saved up.
7. Final Settlement
The final settlement usually takes place at the buyers’ bank and is handled by a judicial scrivener. The buyer will transfer the remaining balance to the sellers’ account and the title of the property will be transferred to the buyer. On completion, the seller delivers all the keys to the property and the transfer of ownership is complete.
Let the professionals take care of every step of the process.
Property Purchase Costs and Paperwork
|Real estate agency fee||3% + ¥60,000 + consumption tax|
|Earnest Money||Generally, 10% of the property price|
|Stamp tax / stamp duty||Starts from just ¥200 for properties under ¥0.1 million up to ¥480,000 if the property value is over ¥5 billion|
To get an estimate on your monthly loan payments in Japan, you can refer to our Yen Loan Calculator. Usually, Japanese banks will grant a loan if you cannot allocate a down payment of at least 20% of the property price, this, however, might vary by the lender.
Other costs might include property tax, registration fee or property management fees.
- If you live in Japan, a residence card, passport, and an Inkan (traditional Japanese seal for signing important documents)
- An Affidavit, if you live outside of Japan
Contact us for more specific details about sharing your balances and financial documents
Things to Keep in Mind When Buying a Property in Japan
For many foreigners planning to buy a house in Japan, it might be surprising that no lawyers are being involved in the legal property buying process. Licensed brokers in Japan are required to perform both brokerage and legal roles in every real estate trade they handle. Due to the difficulty of passing the real estate exam, one full time employed license holder can cover five sales staff according to law. This means that the license holder is taking responsibility not only for their own contracts but those of five other staff as well. This creates a situation where someone can be practising brokerage without a license for many productive years under the supervision of a license holder. When a license is finally achieved then the broker has a wealth of real-world experience to draw from in addition to being able to stamp their own contracts. That’s another reason why finding a trustworthy, professional agency is crucial when looking to buy a house in Japan.
Lastly, one more thing to be prepared for is that often all the documentation during the process will be solely in Japanese. Even though translations are provided depending on your agency, only the Japanese texts of the laws and regulations have legal effects, and the translations are to be used solely as reference materials to aid in the understanding of Japanese laws and regulations. Therefore, it is important to make sure the agency you choose not only has the experience and a reliable legal team.
Sources used for this blog:
Editor’s Note: Mori Nishimura is in the Sales Division at Housing Japan. With a keen eye for finding market gaps, Mori has successfully consulted both individuals and companies on how to land exclusive opportunities in the opaque Tokyo market. He began his career at a real estate startup and is an up-and-coming name in the Tokyo real estate industry.