FAQ 1: What are the key parameters to investing in urban Japan?
The key variables to investing in property in Japan include:
- Value - a decision that requires balancing a combination of factors
- Location / access / distance to public transport
- Zoning / leasehold / freehold land
- What kind of building?
- What kind of return on investment?
FAQ 2: How do I make a quick analysis of properties?
When you enter your criteria into our investment property search engine, it returns a number of properties that meet your criteria. Here is an explanation for the fields, and how to analyze them.
This is the asking price by the owner. In the current market negotiating a better price is difficult, though cash and a quick sale can provide an added incentive. On top of the purchase price, allow approximately 5-10% for additional expenses. For more detailed information, ask our consultant.
Gross return/ net return:
Net return is calculated on gross return minus the management fee and repair fund. Generally speaking, the management fee and repair fund are higher in smaller apartment buildings where they are shared across a small number of apartments, while large complexes enjoy the economies of scale.
Location is a critical factor. The closer to the center of the city the higher the land price, which feeds into the overall price. So the value for money (especially for tenants) is higher as you go from the city center apartments. However, single working people who are the key tenants for entry-level apartments want to minimize travel by living close to their workplace, which generally means within 20 minutes of the Yamanote Line.
The second aspect of location is access to public transport. Most apartment tenants, especially inner city, don't have cars. So how far they are from the station, and which train lines they are close to are important - the decisive factors are total travel time and time to walk from the station at a regular pace. In the above example the apartment is a 7-minute walk from the nearest station. Bus routes are of secondary importance for public transport.
Specifies the type of property. For urban investors, the main categories are:
- Residential building
- Commercial building
- Mixed use (residential and commercial) building
- Vacant lot
Tenants in Japan tend to stay a long time, as the cost of moving is expensive. For this reason, most apartments and commerical buildings will be occupied at the time of purchase, and the tenant agreement transferred to the new owner. So the income stream will begin immediately you take title to the property. For unoccupied properties, we can help find tenants. This process can begin as soon as you take ownership.
Land size / Total floor area
For developers, there are limits placed on the total floor area that can be built and number of floors in relation to the size of the property, location and local by-laws. For investors buying an existing apartment or building this information is provided as a service, as no action is required.
On plans, the apartment size is usually measured from the center of the external walls. Government valuations are made on the internal size, so there is often some discrepancy between the two. Since tax is paid on the government valuations, there is a lot to like about it. The floor an apartment is on is always specified.
Building to land ratio/ Floor area ratio
For developers, there are limits placed on the ratio of land that a building can cover, and the total floor area in the building in relation to the size of the property, location and local by-laws. For investors buying an existing apartment or building this information is provided as a service, as no action is required.
When built /Building structure & floor:
The structure and age of the building is important. The dividing line for investors is the 1981 earthquake code. Post 1981, all new buildings completed after this date meet laws proscribing construction and earthquake proofing regulations, which contain more stringent requirements.
As a general rule, because of fire regulations in the dense urban environment, wooden buildings are rare, and are usually standalone homes.
RC: Reinforced Concrete
SRC: Steel Reinforced Concrete
Number of floors/basement level shows the total number of floors in the building.
Zoning is determined by CD planning law. For investment properties there are two main zoning classifications - residential and commerical. Commercial zones are usually closer to stations, and will feature a mixture of apartments, shops, and restaurants. The majority of international property investors find commerical zoning more appealing.
Residential zoning usually means a quieter neighbourhood, further away from railway stations, and often governed by additional by-laws such as height, sun and shading restrictions on developments.
This is a body corporate fee for apartment buildings, and covers the cost of cleaning and maintaining common use and public areas and elevators.
This is a body corporate fee for mantenance of apartment buildings, a fund and plan for long-term maintenance such as repairs, renovation and repainting of public areas and the exterior of the building.
This is the place we add any special features or conditions about the property you should know, both positive and negative.
FAQ 3: FAQ & A on investment properties
Of course, we are asked a lot of questions. Here are general answers that may give you the information you need. If you would like to know more, please email us.
Is it possible to negotiate price?
Sure, but it is a sellers market at the moment. In keeping with business practice in Japan, we can only begin negotiating the sale price with the owner once we have informed them who the client is, and they have expressed a serious interest in the property in the form of a written offer to purchase.
What additional costs are involved in purchase?
As a rule of thumb for buying a property is that you will incur 5 ~ 10% costs over and above the purchase price. We have broken these costs down in a separate FAQ. Please let us know if you would like to receive it.
What about tenants - how do I find them / do they stay very long?
Tenants in Japan tend to stay put for extended periods. There is good reason for this. Normal lease contracts are usually for 2 years, and as changing apartment costs about 5- 6 months rent all up when all costs are added in, most people renew. Because of this, you can anticipate very little tenant turnover and loss of income. However, tenants have the right to leave at any time after giving one month's notice, and no obligation to pay more than the final month's rent. If you ever need to find new tenants, we can always help.
Tenants and ownership change
When you buy a property with a current tenant, the tenant contract will continue to run for the full term of the contract, which will be changed to the new owner. With the completion of the 'Change of Property Ownership Contract', you will start receiving rental income straight away. However, even with the change of ownership, you can't see inside the property before or after you buy.
North facing or south facing apartments?
Generally tenants prefer south facing apartments for the natural light and winter sun. However in central Tokyo, even if an apartment is south facing, there are often buildings right next to it, so the advantages are minimal. So it depends on each property.
What floor is good?
What floor you or your tenant likes is a personal and individual preference. Some people like being on the ground to be close to the ground and feeling of a garden or outdoors. Others like to be higher for a feeling of privacy or to enjoy the views. Generally speaking, the higher in a building you are, the higher the rent.
What does maintenance involve?
Many Asian investors are surprised at the high quality of older apartments and buildings in Japan. As part of the ownership contract in apartment buildings, management fees and a repair fund are built into the on-going costs of ownership, and this money is used for both short-term cleaning, repair and maintenance programs, and long-term maintenance programs such as redecorating and refitting the exterior and public areas of the building.
How much should I budget for the maintenance of the flat?
For individual apartments, tenants must make a deposit that is held for the life of the tenant's contract against any excessive damage. It is standard practice when a tenant moves out to clean and refresh an apartment, including flooring and wallcoverings, so that apartments are well looked after. When moving out, the tenant is responsible for the cleaning of the apartment, while the owner pays for refurbishment. For a small one-person apartment this refurbishment of walls and floors costs approximately ¥100,000.
Viewing in person or buying unseen?
We always recommend viewing properties in person, to understand the market and the quality of the buildings you are interested in. In the buying process, even if you delegate power of attorney, we have to meet in person one time. So when you are committed to investing making a site visit is an appropriate time. Please note, under Japanese law you cannot look inside an apartment under any circumstances if it is occupied by a tenant, before or after taking ownership.