Purchasing real estate in Japan

Japan's property market is fully accessible to foreigners:
Unlike most Asian countries, the real estate market in Japan remains wide open to foreign direct investors. You can own land and buildings outright; titled to your name or a corporation. Your right to property is the same as a Japanese national, even if you're a non-resident or plan to own property through a foreign corporate entity.

Hiring your real estate agent:
The easiest way to search property in Japan, is to hire an English speaking real estate agent. Let them do all of the hassle work for you, including negotiations.

Real Estate Agent Fee:
You will pay commission for your agent. That is standard practice in Japan. The benefit of this system is that it becomes very clear who the agent represents.

The fee is equivalent to 3% of the purchase price, plus consumption tax (currently 5%). If you don't obtain a result, you absolutely have no obligation to pay the agent anything.

New Development:
Most new property development projects sell off plan, which means that they are sold during the pre-construction phase. Buyers typically must wait 1-2 years to move-in. Popular projects, built in great locations by reputable developers, sell very fast. Buyers practically have no chance to buy such popular real estate unless purchased early. Some developers offer in-house real estate agent services in English, and they refuse to work with agents outside their company. In most cases, they will not charge a fee for the service. The only issue you need to be aware of is that the agent represents the property developer. So prepare to negotiate effectively on your own behalf and make sure all conditions are acceptable.

Some original early buyers of new developments tend to sell their property immediately after project completion. Sometimes it is to gain profit and sometimes it is for financial reasons. In such cases, your agent can easily work with you to purchase what you see, rather than buying off plan.

Entering a contract:
The standard procedures for entering into a purchase contract are:

1. Make an offer
Once you find a property that you like, submit an offer (called Kaitsuke). It is the policy of some sellers to not accept a loan contingency, which allows for contract cancellation if you cannot obtain adequate financing to purchase the property, thus releasing you from contractual obligations. We recommend that you obtain pre-approved bank financing to make your offer attractive to more sellers.

2. Negotiation
Your agent will negotiate the details with the seller or the seller's agent.

3. Signing the contract
The signing of the purchase contract takes place when both the seller and buyer agree upon all conditions. We recommend that you obtain translation from your agent prior to signing the contract, to clearly understand all conditions. Until you sign the contract, you have no legal obligation to anyone. However once signed the situation changes. Usually, 10% of the purchase price is required at the time of signing the contract. That amount is non-refundable unless there are special conditions in the contract or the seller fails to meet conditions in the contract.

4. Closing the deal
Closing the deal means the buyer pays the appropriate amount of money and the seller then transfers the property title to the buyer. Japan fundamentally goes about it the same way as in other countries, however the style might be a bit different than the way to which you are accustomed. For example, Japan does not have an escrow system like in the US, and legal professionals do not handle your payments. You might say the style is old fashion. All people involved in the transaction must come together for a meeting to exchange documents and payments in order to conclude the deal. So if you have someone you can trust in Japan, that person can be assigned to handle your purchase payment(s) and represent you, in the event that your deal is ready to be completed, even if you are not in Japan. Otherwise you need to be there.

Fees for legal professional (Shihoshoshi) service to register real estate:
The legal fee charged depends upon the amount of the property (assessed value) and the amount of the mortgage (charged using industry guidelines), however, they can also charge for other appellations, such as document handling, investigation, their presence at the closing meeting, etc. Prior to proceeding, you can ask for an estimate from the Shihoshoshi in order to compare and decide who you wish to hire. Professional real estate agents typically have a good relationship with a Shihoshoshi, who can provide suitable service at a reasonable price.

In an effort to provide a general guideline, legal fees for 50 million to 100 million yen residential properties typically fall within the following price range: 100,000 - 200,000 yen.

Other costs:
You need to pay registration and acquisition taxes
1. Registration tax for land and improvement: 2% of the total assessed value. You need to pay this tax when the title transfers (registration of land and improvement are separate).
2. Accession tax for land and improvement: 3% of the assessed value. This bill will be issued after registration, which usually takes 3-6 months.
* In most cases the assessed tax value is lower than the market value.

Who pays for what costs:
Standard practice in Japan is that buyer's pay all legal costs, including the registration tax, while seller's only pay for necessary costs to assure that the property title is clean, such as paying for removal of any encumbrances, liens or outstanding mortgage obligations.

About the legal profession in Japan
In Japan, there are different names and licenses for various legal professionals. It depends on the specialty. The term lawyer (Bengoshi), refers to a professional who handles general legal matters, including court cases. A professional who mostly handles real estate and company registration, is called Shihoshoshi. Benrishi is the term for the legal specialist who mostly handles patents and trade marks, while Gyoseishoshi is the term for the professional who mostly handles matters of immigration, etc. So make sure that you do not knock on the door of a lawyer (Bengoshi) for matters pertaining to real estate registration, unless you are in trouble.

As for licensed lawyers from foreign countries in Japan, they are only allowed to handle international cases. For example, a lawyer from the US can only handle legal issues related to matters between the US and Japan, and/or other (3rd) countries. The lawyer can not handle Japanese domestic legal matters, including court cases, unless he/she works with a Japanese lawyer.

Costs to hold property
1. Property tax
A. Property tax for land: 1.4% x 1/6 of the assessed value (assessed annually).
B. Property tax for improvements: 1.4% x 1/2 of the assessed value (assessed annually).
2. Home owners association fee (called "body corporation" in UK, AU, etc.)
This fee is only for sub-division properties, like condominiums (a condo is called a Mansion in Japan). The fee is usually charged on a monthly basis, including a retained amount reserved for maintenance and repairs.
3. Parking rental
Most condos do not include a parking space in the purchase price. So a monthly parking rental fee is applied, based on a separate contract.
4. Utilities
In most cases, electricity, gas, water and sewage have separate meters linked to each condominium unit. Other obligatory ownership costs include electric lines for telephone, CATV, internet connection, etc..
5. Insurance (optional)