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Tokyo Real Estate Information ~東京不動産情報~

Japanese Real Estate Purchasing Guide.

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外国人向け不動産購入手引き第二弾!!

Greetings

To Customers:

Greetings to all.
I am Shu-jen Higashida from NEWCOM Co. Ltd. located in Takadanobaba Shinjuku-ku in Japan. Since foundation we have been specializing in businesses supporting foreign nationals expanding our lines to international telecommunications services publishing and real estate. After entering the real estate operation in 1994 we have been blessed with numerous opportunities of introducing real estate property to our customers.

In recent years internationalization has increased and individual investors from overseas are showing a growing interest in investment to Japanese real estate. Similarly the number of those seeking for condominiums or one-unit homes for their own residence is on the rise. Despite such background there is virtually no provision of real estate purchasing guidance for foreign nationals. This guide has been created as a reference for foreign investors purchasing investment properties in Japan especially in Tokyo. Moreover we believe it will serve as a reference guide for individuals searching real estate for their own residence or usage. A real estate purchasing guide for foreign investors is already available for those in Taiwan and Hong Kong. We advise you to refer to them as necessary.
                                                                                     Thank you.
Dies Faustus August 2009
Shu-jen Higashida
President of NEWCOM Co. Ltd.

東京不動産情報

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Current State of Real Estate in Tokyo etc.  

---Current State of Real Estate in Tokyo etc---
Japan was not an exceptional case in the global depression outset by the American subprime loans. As result the present real estate price in Japan is on a downward trend. The upturn of sectional property price in Tokyo central areas several years ago has become a thing in the past. Due to this financial institutions have grown increasingly severe in their stances for real estate loans. A couple of years ago an individual investor purchasing investment property was able to take out a loan with more or less 10% of the full amount of purchase price (excluding contract cost) as down payment. Now it seems that 40% of down payment or encumbering existing owned property with a mortgage is required. Having said that this situation is for Japanese investors and it is difficult for foreign investors to get financing. Exceptionally for some nationals such as for Taiwanese individuals loans are available at Tokyo offices of institutions with head offices located in their own country (including cases for own residence or usage). Loan is also available from Japanese financial institutions when seeking residential property for those residing in japan and capable of conversing in and understanding Japanese. Approximately 20% or less depending on institutions and conditions. of down payment is considered to be necessary. (Evaluation required)
How has the investment climate been impacted by the decline of real estate price? It has brought about a rise in investment yield. It is a fact that rents are falling along with property prices due to this unprecedented recession. However the range of drop is commonly smaller than for real estates hence producing an increase in investment yield.

<Investment Yield>
In this section we would like to provide you an explanation of investment yield. The following describes how it is normally calculated.

Investment Yield = (Rent + Management Fee + Consumption Tax) ×12 months ÷ Property Price × 100
*This indicates an yearly income rate to property price.
*Management fee is to be paid to the management association board so owners will not ultimately keep them.
*When leasing non-residential properties (office/shop) consumption tax is imposed to rent and management fee. Liability of consumption tax in induced when amount of taxable sales is over 10 million yen.
*This is the rate of return before deducting income tax management fees etc. and is called “coupon yield.”
*If income is gained with parking space fees or advertisement fees it will be injected as earning at investment yield calculation.
*Defined is the rate of yield assumed when tenant has continued to reside for one year. If the tenant moves out before one year and room becomes vacant yield rate will drop from initially expected rate.
*This earnings yield is considered for cases where rooms are fully occupied and all tenants have continued to reside for one year. Thus this does not apply when rooms are vacant. Additionally this is an assumption for purchasing vacant studios etc.
*Due to economic circumstances aging of buildings occurring disproportional market rate from neighbors rent may decline and cause the yield rate drop from the initially estimated rate. Also this rate is not guaranteed throughout the future.
*Broadly speaking the older the property the higher the investment yield.

-Yield rate desired by investors-
Next we would like to take a look at the rate of return sought by investors. Many Japanese investors seem to consider 8% yield rate as standard. Since last autumn such properties became prevalent although until several years ago there were hardly any newly-built or recently-built properties available at this earning yield. All in all the major reason for this is the decline in property prices. Nevertheless there are only few cases of such properties. The relationship between number of years after being built and yield rate is basically as follows:

General relationship of building age and yearly yield (as of 30 July 2009)
・Newly-built ~ More or less 5 years after being built・・・3~5.5%
・More or less 10 years after being built・・・6.0%~7.0%
・More or less 15~20 years after being built・・・7.5%~8.5%
・More or less 25 years after being built・・・8.5%~10.0%
*Yield rate indicated here is “coupon yield.”
If land is leased yield rate may become higher. For leaseholds it is wise to understand the advantages and
disadvantages when considering purchase.

Advantages
1. Property price is lower than owned property and investment yield tends to become higher.
2. Fixed asset tax for the land portion is not imposed etc.
*Fixed asset tax refers to local tax imposed to property owners dated 1 January every year.

Disadvantages
1. Purchasing with loan is difficult.
2. Requires payment of leased land tenancy rent every month etc.

Next we would like to illustrate some important factors in real estate investment. Firstly the most critical aspect in property selection is “location.” There are properties advertised as 15% or 20% of yield rate but actually with mostly vacant rooms. As mentioned previously this is an assumed rate. When examining purchasing not only the supposed but also the yield rate of the current state needs to be confirmed. For reference it should be considered that there are no properties over 15% of yield rate within the 23 wards of Tokyo. Regarding “location” for example for buildings or offices a relatively stabilized leasing demand can be prospected on a mid to long-term basis for the 5 wards in city center (Chiyoda-ku Chuoh-ku Minato-ku Shibuya-ku Shinjuku-ku). In addition properties enabling residents’ access to stations used by a number of train lines is preferred.
Distance from the station is certainly crucial. This can be expressed by the minutes it takes on foot from the station. But distance favored by residents are dissimilar according to property types and station size. For instance the same “15-minute walk” from “JR Shinjuku” station the number 1 terminal station in Japan holds different significance to that from its neighboring station “JR Takadanobaba.”Likewise in case of residential condominiums studio types and family types should be recognized as separate matters.For one-room types convenience is more of a concern and a 5-minute walking distance from the nearest station is requested. On the other hand for family types leasing demand can be expected even when it takes 20 minutes on foot. As an aside it is more difficult to ask residents of family types than of one-room types to move out when rent is delayed. Also fairly a high turn-over rate of residents applies to one-room types whereas family types tend to show long-term residency.How about the impact of building age? As stated before investment yield is apt to be higher for properties with longer years after being built. In this regard the more the age the more repairing of building is required. Typically a large scale renovation work (drainage etc. ) is unavoidable after 10~15 years of being built. Put simply a large fee is necessary. Furthermore uildings are “living things.” Until about 15 years after construction building’s falls rapidly and thereafter it is said that the declining speed of price becomes milder.Lastly we would like to remind you of an essential aspect of the investor him/herself. It is to have a clear investment stance. This is to say whether you are aiming for a capital gain (profit on sale due to price rise) or an income gain (rent income) by owning. Even when pursuing income gain it is inevitable to examine the duration of ownership.

Taking these considerations into account please set your sight on an investment which works for you. Items described in this guide depict our point of views based on ainstream ideas. Naturally investment judgments need to made by customers themselves- you yourselves are responsible for the investment.

---Fees at Purchasing---
In this section we indicate the required fees when buying real estate in Japan. Please use this as reference at purchase.

1. Registration and License Tax
National tax imposed when purchasing real estate and conducting ownership transfer mortgage placing etc.

・Tax Amount
At ownership transfer: 2% of assessed value of fixed asset
At mortgage placing: 0.4% of loan size or limit amount
・Payment Timing
At ownership transfer. Paid to judicial scrivener performing registration together with judicial scrivener fees and the judicial scrivener makes the payment.

2. Real Estate Acquisition Tax
Local tax imposed approximately 3 months after acquiring the real estate. In case of Tokyo payment is made to the metropolitan tax office. Statement of payment is sent to specified location after determination of taxation. Some properties may be exceptional and immune to such taxation.

・Tax Amount
4% of assessed value of fixed asset
・Payment Timing
At about 3 months after real estate acquisition.

3. Stamp Duty
Fee for stamp affixed to sales contract. Ordinarily the seller and buyer will split the burden in half. Conventionally the mediating real estate company is to prepare the stamp by paying on behalf in advance and individuals will pay their own share to the real estate company.

・Tax Amount
Trading Value
Over 10 million yen ~ 50 million yen・・・・・20000 yen
Over 50 million yen ~ 100 million yen ・・・60000 yen
Over 100 million yen ~ 500 million yen ・・100000 yen
Over 500 million yen ~ 1 billion yen・・・・・200000 yen
Over 1 billion yen ~ 5 billion yen ・・・・・・・400000 yen
Over 5 billion yen ・・・・・・・・・・・・・・・・・・・・・600000 yen
・Payment Timing
At property handover.

4. Fixed Asset Tax City Planning Tax
Local tax imposed to owners dated 1 January every year. On a pro-rate basis the seller pays until the day prior to property handover date and the buyer is charged from handover date to 31 December.

・Tax Amount
Fixed Asset Tax: 1.4% of assessed value of fixed asset
City Planning Tax: 0.3% of assessed value of fixed asset

Taxation rate may differ depending on city town or village. A conventional tax rate is indicated here and detailed
calculation formula is omitted.
・Payment Timing
At property handover. The buyer pays his/her share to the seller.

5. Management Fee Reserve Fund Fee for Building Repairs
Management fee and building repair reserve fund fee for the month of property handover date is calculated on a pro-rate basis. The seller pays until the day prior to property handover date whereas the buyer from handover date to the end of the current month. The buyer pays his/her share to the seller.

・Payment Amount
Varies depending on the property
・Payment Timing
At property handover.

6. Judicial Scrivener Commission
Commission charges for the judicial scrivener a professional in ownership transfer and mortgage placings.

・Payment Amount
Varies depending on the circumstances of mortgage placing of property bank etc. Quotation is issued from judicial scrivener before contract conclusion.
・Payment Timing
At property handover.

7. Loan-related Fees
Required when taking out a loan. Included are bank administration fees guarantee charges fire insurance paymentsetc.

・Payment Amount
Varies depending on the circumstances of mortgage placing of property bank etc. Quotation is issued from corresponding financial institution before contract conclusion.
・Payment Timing
At property handover.

8. Agency Fee
Commission paid to the real estate company.

・Payment Amount
3.15% of property price after consumption tax deduction + 63000 yen
Only applies to cases where property price is more than 4 million yen.
・Payment Timing
At property handover.

Mentioned above are the fees considered to be required at real estate purchase. Please note that actual costs may differ as this is based on what is advised as customarily necessary. Perhaps you should keep in mind that it is roughly 10% of property price at maximum.

Note
Fees indicated here are as of 30 July 2009 and are capable of changing due to future legal revisions etc. In like manner situation varies for each property and there are exceptional nontaxable or tax reduction cases. On the contrary fees other than the stated above may be charged for newly-built properties. Please use these indicated items as reference material. At NEWCOM we provide quotation of required fess to our customers in advance.

---After Purchasing---
Purchasing the real estate is not the end of the goal. Various problems occur between purchasing and when selling the property. As a result it is desirable to request the management of the property to a real estate company when purchasing property for investment. Usually the overall building is managed by the management company.
Management companies will conduct cleaning and maintenance of shared areas such as hallways and collection of management fees/reserve fund fees for building repairs. It does not however undertake handling of complaints from tenants recruitment of residents and contract renewal processings. Consequently these tasks are commissioned to real estate agents who carry out such work. With most small scale apartment cases management companies are not arranged and the real estate company commissioned for management cleans/ maintains the building as a whole. In this case the owner him/herself needs to accumulate the reserve fund for building repairs.

Outsourcing the management of a property incurs charges. The standard amount of management charges which may be attracting your attention are as follows:

Standard Amount of Management Charge: 5% and Consumption Tax of Rent + Management Fee
*If fees exist for parking space or advertisement it will be 5% and consumption tax of the amount including such fees.
* For cases which require particular fees such as replacement of light bulb in hallways etc. the owner will be separately liable for the induced cost.
                        
We at NEWCOM also conduct property management by receiving this standard amount of management charge. Many of the residents are Japanese. If on the other hand the owner is a foreign national communication with residents are extremely difficult. We are staffed with foreign individuals fluent in various languages enabling operation support in English Chinese Hindi Vietnamese Indonesia Thai etc. By this we are able to help enhance the link and communication between owners and residents.

Along with property management a significant process after purchasing is the payment of tax and various others matters. There is a broad array of tax payments which follow a property purchase. About 3 months after purchasing real estate acquisition tax is imposed. In addition from the following year of purchase fixed asset tax and city planning tax is imposed every June (In Tokyo’s case). Statement of tax payment is sent out to owners but in principle it will not be sent to overseas. As result there is a need to specify and report a domestic residing person as “tax manager.” At the same time filing of tax return by 15 March every year is a prerequisite declaring one year’s earning/expense and paying income tax. This equally requires specification of a tax manager. If these processes are not carried out appropriately delinquency in tax payment will develop leading to a foreclosure and depending on the situation a foreclosure sale of the long-awaited purchased property.
Explaining briefly of other inevitable incurring payments for instance house cleaning arrangements and payments are necessary after tenants move out. Contractors are mostly Japanese so property management all in all should be entrusted to real estate agencies.
From the aforementioned section you must have been able to recognize how substantially important property management is. Inadequate management of the property will lower the occupancy rate. Repeatedly speaking handling of real estate does not finish at purchasing.

---2011/Jan/11 In addition---
For the residents of Singapore Australia and Hong Kong

Home loan facility offered by foreign financial institutions in Japan is now available to non-Japanese residents not only applying to properties to live-in but with possiblity to those for investment purpose.

General requirements are as follows.

Purpose of loan: Opt to purchase either newly-built or used apartments (regardless self live-in or investment properties)
Loan amount: 10 million – 500million Japanese yen (financing as per 100000 yen)
Loan amount is calculated as 60% of either the property appresial amount or the purchase price whichever that is lower.
Financial period: 1 year – 20 years
Guarantor or Guarantor company: not required (in general)

Eligibilities to apply:
Residents living in Singapore Australia or Hong Kong regardless the nationalities.
Ability to provide English written document of payable income tax and receivable income in Singapore Australia or Hong Kong.
Age between 20 to 60 years old and not reaching 70 years old upon completion of financial period.
Employee or Self-employee
Able to establish bank account with the financial institution from which the loan is raised
Able to communicate in English

Care for the high Japanese yen effect? Here is the good news!!
Provided financing against foreign currency security it is possible to borrow Japanese yen paying out for the deposit of purchase price as well as part or full amount of the expenses associated with the property purchase. Moreover it can be seen as a merit towards the chances reducing the risk of losing currency value due to currency exchange at the present Japanese yen height.

Nevertheless please note the circumstance of not having the home loan or financing against foreign currency granted as per result of the loan assessment may be also incurred.

For further information please feel free to be in contact with us. English Chinese and Japanese speaking is available upon requests.






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Closing

We hope this guide has contributed in increasing your understanding of real estate purchasing in Tokyo.
NEWCOM was established in April 1994 and accumulated various know-how with real estate operations specializing in overseas investors and foreign national customers residing in Japan. As previously stated handling of real estate is a never ending process. Even when purchasing property for own
residency or usage processing becomes necessary for moving-in setup of lifelines such as electricity gas and waterreporting residency to the management association board of condominium internet connection setup etc. Please rest assured that we are capable of helping you with matters including these issues.

We are a real estate firm with our license issued from the Tokyo Metropolitan Governor as below.

Registration No. Tokyo Metropolitan Governor (5) No. 72656

Our website (http://1911.jp) provides a limited range of information for properties with permitted postings.
Accordingly there is real estate information available but not indicated on the website. Please contact us under separate cover if information of property you request is not listed etc.

I would like to conclude by wishing you all a long and prosperous success.
Thank you for your time and support in advance.

本記事の著作権は株式会社ニューコムが所有しております。
無断複製転載禁止。

Dies Faustus August 2009
Shu-jen Higashida
President of NEWCOM Co. Ltd.

東京不動産情報
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