Guide to Buying an Investment Property in Tokyo

The Case for Investing in Tokyo

• Tokyo remains the largest global city by GDP.
• The population in the Tokyo Greater Area, in excess of 37 million people, coupled with major corporations represented.
• Japan enjoyed a strong re-bound in tourism in 2023 – with an estimated 25 million visitors.
• Japan’s weakened yen, low-interest rate environment, domestic asset appreciation, and Japan’s renowned social and political stability.
• In spite of rate hikes by BoJ, spread between investment yields and debt financing remain wide.
• Given years of deflation, Tokyo prime property offers a more compelling value proposition in comparison to other major global cities.

In comparison to other countries, Japan has very few investment restrictions – you can purchase both land and properties in Japan.

Can Non-Residents Purchase Investment Real Estate in Japan?

Yes, if you are buying with cash.

However, if you are looking to use a bank loan, there are limited financing options available to non-residents.

Are Expat Residents Eligible for a Real Estate Investment Loan?

In general, if you have Permanent Resident status, stable employment over the past 3 years and annualized compensation in excess of JPY 7 million, you will be eligible for an investment loan.

Japan Real Estate Investing: Guide to Buying an Investment Property in Tokyo

1. Contact an Agent

Your first step should always be to consult with an agent and outline your real estate investment objectives.

You should consider, but not be limited to, the following points:

• Residential or commercial
• Budget
• Location preference
• Expected gross yield
• Is financing required?
• Expected time horizon of the investment (*)

(*) If the time horizon of your investment is short to medium term (i.e. 5-10 years), we would suggest your focus should be on capital appreciation. For long-term (10 years+) we would suggest your focus be on yield.

The agent will support you on your investment journey, providing guidance on the following key areas:

• Professional advisory regarding location, pricing, anticipated gross yields and market trends
• Legal, tax and documentation support
• Introduction to banks that provide investment loans
• Negotiations and formal processes with the seller

In addition, the agent will provide you with visibility to current investment opportunities and will also provide you with regular updates.

2. Consult with Banks to Seek Financing Options

If you require a bank loan to finance the investment property, it is very important that you understand the anticipated cash flows as this will help you determine your purchase budget and anticipated yield return.

Banks that provide real estate investment loans do provide a general matrix of their lending terms, in general, the loan value range will be 60% – 80% of the purchase price.

At Housing Japan we have contacts with banks that provide investment loans and would be more than happy to make the introduction.

3. Site Viewings

A very important point to keep in mind is that unless the investment property is vacant at the time of the enquiry, you will be unable to view inside the property whilst there is an existing tenant.

The investment agent will conduct due diligence on the property in addition to speaking with the seller’s agent to understand relevant details on the property.

We would encourage our clients to visit the location of the property to get a feel for the surrounding areas before purchasing the property.

4. Expressing Property Purchase Intent

If you are planning to use an investment loan, you should seek confirmation from the bank beforehand that they can provide financing on the said property.

After deciding on the investment property, it is time to officially express the purchase intention by submitting a Letter of Intent to the agent.

The Letter of Intent is treated on a first-come, first-served basis.

5. Negotiations & Initial Payment

If you are planning to use an investment loan, this is the time to officially apply for a loan with a bank.

The agent will negotiate (with the seller) the 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 fulfil formalities.

6. Executing the Contract

The agent should provide an “Explanation of Important Matters Regarding the Property and Transaction”. These are a set of documents that includes owner title registration, ownership type, property legal description and any provisions in case of contract cancellation.

7. Final Settlement

The final settlement usually takes place at the buyer’s 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 our agents guide you through the process

Tokyo Property Investment Purchase Costs and Paperwork

You should look to budget approximately 6% of the purchase price on fees.

The below table provides an indication of the costs involved.

Purchase Costs

Stamp duty:	JPY 15,000 – 60,000 (purchase price up to JPY 500,000,000)
Registration and license tax:	Total of 2% of the land valuation amount and 2% of building valuation as per local public office.
Real estate acquisition tax	1.5% of the valuation of the land and 3% of the valuation of the building as per the local public office. This is normally paid after completion of the property purchase. Note: these fees can be charged up to 6 months after the purchase completion.
Judicial scrivener fees:	Approx. JPY 150,000. Please note that fees can be variable.
Agent fee:	3% of purchase price + JPY 60,000 + Consumption Tax.
Bank handling fee:	0.5% – 1% of the loan amount.
Fire insurance policy:	Variable dependent upon the provider.

Ongoing Costs

Property and city planning tax:	These taxes are levied on 1st January. Property tax is 1.4% and city planning tax is 0.3%.
Building management fees / maintenance and repair fees:	These are monthly fees and vary. In general they depend on the age and condition of the building.
Property Management fees:	5%

The above is for reference only and may not reflect the actual costs when purchasing an investment property.

Please note that you will also need to consider a situation of tenant void and also incremental repairs.

To help you recognize the bank loan repayment obligation, please see our Yen Mortgage Calculator.

Important Documents

• If you live in Japan, the following items are required: a residence card, passport, an inkan (traditional Japanese seal for signing important documents) and the certification of the inkan.
• If you live outside of Japan, in addition to an affidavit, you will also be required to provide additional proof of identification, e.g. Driver’s Licence, Passport.

All documentation during the process will be solely in Japanese. The Japanese texts of the laws and regulations have legal effects, any translations provided are to be used solely as reference materials to aid in the understanding of Japanese laws and regulations.

Enquiries

For further information on Tokyo Real Estate Portfolio Investment opportunities and to speak with one of our specialists please complete the below enquiry form.