Articles Property Buyer Guide Guidelines for Buying Properties in Japan

Guidelines for Buying Properties in Japan

Here are some guidelines when buying properties as a foreigner in one of the most developed countries in the world: Japan.

According to the World Economic Forum's Global Competitiveness Report for 2019, Japan is the sixth most competitive country in the world out of 140 countries.

Purchasing real estate in Japan means investing in one of the world's most densely populated and developed countries. Japan's most outstanding business characteristics include its large market size, business sophistication, high quality of local suppliers, and strong international distribution controls.

Japan is also known for its internal stability and is regarded as one of the world's most politically stable countries. As a result, there is a greater likelihood of good investments growing in Japan, including investments in real estate properties.

Buying property in another country can be perceived as a difficult and intimidating process. Before investing in real estate, find a real estate company and agent to help you through the process. The guidelines will put investors at ease and keep them informed about the purchasing process.

Some key aspects of purchasing property in Japan:

Can a foreigner buy property in Japan?

A foreign resident or non-resident can buy property in Japan if the necessary documentation and funds are available.

a. Residenta person who lives or has lived in Japan for at least a year

b. Non-residentsomeone who lives outside of Japan

What kind of property is available in Japan?

Foreign investors can buy almost all kinds of properties, including condominiums, house, offices, retail, industrial, warehouse, and land, except for farmland which requires a specific license.

In Tokyo, properties from a micro-sized old condo at around USD 100,000 to a luxury penthouse in a high-rise residential tower at more than USD 3,000,000, or even high-rise office buildings are available for foreign investors to purchase.

View of the Japanese neighborhood.

Now, let us focus on the purchaser’s ownership rights. Property ownership rights in Japan are divided into two categories; freehold rights and leasehold rights.

Freehold – known as 所有権 (Shoyuken) in Japanese

➤ This means that the buyer owns both the land and the building. The condominium owner owns an applicable fraction of the land on which the building is built in the case of apartments and condominiums.

Leasehold – known as 借地権 / shakuchiken in Japanese

➤ This is a situation in which ownership is limited to the building and the land on which the property is located is subject to a lease payment.

Individual preferences govern which ownership rights are preferred. It may appear that owning both the land and the building (freehold) is advantageous, but the value of both is not guaranteed. The land's value may rise, but the building's value may fall. Because the land is not owned, a leasehold property is less expensive to purchase, but it also avoids the taxes associated with land ownership. Furthermore, leasehold agreements usually have a term at the end of which the rights to any building on the land revert to the land owner unless a new lease is signed.

What are the taxes and costs involved in purchasing a property?

As mentioned above for leasehold, the property and the land are separate and the rights to each are reflected in the applicable taxes.

Consumption Tax

➤ (It is currently 10%.) This is a one-time tax on the sale of a building (not the land). The tax on old property may be relatively low. It is also common for the purchaser to pay the consumption tax.

Stamp Tax/Duty

➤ This tax is calculated on a sliding scale, with the lowest rate being JP¥ 200 for contracts under JP¥ 1 million and the highest rate being JP¥ 200,000 for contracts over JP¥ 1 billion.

Registration and License Tax

➤ This is a tax that ranges between 0.4% and 2% (and in most cases 2%), depending on the type of transaction and the assessed value of the property, which is usually lower than the actual market price. This is a one-time payment at registration.  The applicable tax is calculated by the judicial scrivener (Shiho Shoshi), who handles the property registration at the time of purchase. The judicial scrivener fee shall be borne by the buyer.

Real Estate Acquisition Tax

➤ This is a 3% tax that is imposed on the assessed value of the property only once when land or properties are purchased. The buyer pays the tax within several months based on an invoice from the local government.

Broker Fee

➤ A rate or fee charged via way of means of broking for executing trades or offering expert offerings on behalf of a client. Brokers rate brokerage costs for offerings inclusive of buying, selling, consulting, negotiating, and shipping. Broker fee is normally 3.3%(including consumption tax) of the property value and charged to each of the seller and the buyer.