Intro to Home Buying in Japan

The 101 of how to get started and what the process looks like

Photo by Stefan Lehner on Unsplash

The Search

In central Tokyo, (unlike SF Bay Area) do not expect agents to be very knowledgeable about specific areas and buildings. Agents cover the major Tokyo areas which is huge, hence specific expert knowledge isn’t feasible. What this means is — do your own search and due diligence.

Another dynamic is that many seller agents do not advertise nor even register on the central databases (REINS / Suumo) which means not everything on the market is easily found.

A few ideas given these dynamics:

• Use Suumo (https://suumo.jp/) — this is the public US MLS equiv, but not all properties show up here(*)
• Use multiple agents to help you search, but their main job will be sharing info on properties you find on Suumo
• Walk the neighborhood and look at the ads posted at local real estate agents (esp tiny shops) as well as “for sale” signs
• (For the aggressive), talk to people and ask about available properties in the area — esp the nosy old folk hanging around

The Find

Once you find a property it goes like this

• Contact your agent to get the exact address — they usually aren’t listed on the websites and paper ads. Most will not give you the address, they will want to go with you to see the property
• Do a tour and get a sense if it works for you. Many properties listings online have bad photos and limited info, so it is common for the visit to be a waste of time
• If interested, ask the agent to do some digging (sales history, why it is for sale, any issues, any problems, etc). It is common for agents to do zero research about the property when they do the initial tour
• If still interested ask for a 2nd visit in lieu of an offer — you can hire a building inspector, but it is not very common in Japan and will cost you 100,000–200,000 JPY and the seller may not agree to this before entering into a sales contract. The alternative is to bring a builder, architect, or inspector unofficially on a 2nd tour

At this point, you may want to make an offer. Agents in Japan aren’t the best at giving opinions on whether the property is “good or bad” — they are mostly there to open doors and do paperwork. However, I give them kudos, they work very hard running around town to complete the paperwork!

The Offer

This often starts w/ a verbal soft offer thru agents. Written offers are rudimentary and submitted with just a signature and indication of financing (cash or loan — at this point a pre-approval letter isn’t needed but doesn’t hurt if you have time). It may be rejected or accepted, or a new price suggested. Once accepted, a contract signing date is set.

Note on backing out: In theory, you can still back out at the “offer accepted” stage with no cash at stake. However, unlike most of the USA, backing out of the deal at this point is highly frowned upon and likely your agent and the seller agent will not work with you again. Ie, do not make frivolous offers.

After the offer is accepted, you will get some documentation such as official property maps, floorplan, and most importantly the “Explanation of Important Matters” which is the official disclosure doc.

Loan Approval

Best to have a Bank already engaged and all your paperwork ready to avoid a mad dash. More on loans in this article. Your offer should mention financing terms. You need to get a loan pre-approval before the contract signing, which include a contingency date — giving you a certain amount of time to confirm the loan with the bank. Once the bank confirms, it will be funded on the closing date. Take note many single-family homes that are priced low do not qualify for loans. New condo builds usually have a lender aligned and is the easiest way by far to secure financing.

Home Mortgages in Japan

Purchase Contract Signing

This is usually done at one of the Agents’ offices. Often the buyer and seller do this separately, but sometimes they meet at the same office to go thru the contracts together. Buyer will have to put in a hefty and often CASH deposit which is not refundable (and not even in an escrow). Hence any inspections or key questions should be done, asked, and answered before the signing date. You will be bound to the closing date at this point, so the dates of loan approval and any other contingencies like inspections should be set carefully.

Closing

Your agent will tell you what to bring. Usually, it is your Ward registered Hanko and Hanko certificate, ID, and Bank transfer materials (bank book, card, etc). Unlike the USA, there is no escrow to securely hold your funds. Instead one typically brings some amount of cash for the commissions and fees, and the rest is expected to be Furikome/Bank Transferred manually (online, at the Bank, or via Phone to the banker). If you have a loan, the loan officer is usually on standby and will send the funds to YOU the same day/hour to you, then you transfer it to the seller DIRECTLY. Note the seller is almost always present at closing.

TLDR; Other steps to expect at closing:

• Don’t be late, this is an official business meeting and people even dress up in business attire!
• A licensed real estate broker reads thru the entire sales contract and important matters and you must listen, grunt and nod (supposedly you should be required to understand them, but real estate is a dodgy business so they don’t really care)
• You sign your name, address and Hanko many many documents — suggest practicing your Kanji address beforehand
• The scrivener (lawyer) verifies them all you proceed to pay the fees, and seller balance via cash + transfers
• Once the money transfers are confirmed, the scrivener issues receipts and says the title/deed will be mailed to you in a week or two
• The owner will hand you keys and usually many binders of housing documents, plans, and instructions manuals for ovens, etc (plans, instructions, etc may not exist depending on how old the property is)

That is it, you are now the owner!!

Quick bits on Closing Costs, Taxes, and Insurance

• Closing costs can be 5-6% of purchase. 3% + 60k yen for sales commission, a portion of property taxes, scrivener fees, insurance, and other registration fees
• Insurance is usually bundled in by the Bank if financing. I found insurance to be relatively cheap — 75,000 yen on 30,000,000 building value per year including 50% earthquake coverage
• Property taxes are also quite low esp compared to the SF Bay area — on a 1oku property, as low as 150,000 JPY
• You will get a one-time acquisition tax which is sent to you 3–12 months later and is shocking to get initially. This can be 1–3% of the purchase price

Loans and Financing

Suggest reading the Loan article, but quick key things

• In general, you need to have at least 1 yr of tax returns proving income to qualify
• Your max loan amount will be your Japan income (as per tax return only) multiplied by 7–10x (-minus other loan obligations globally)
• Your equity position has no bearing on loan approval — ie, they don’t care about your $50m in Tesla stock, unfortunately…

Considerations if you leave Japan…

• The low-interest Japanese Jyuutaku (home) loans are specifically designated for primary residence only. This means if you move, technically you need to surrender the loan (sell or refinance)
• If you leave Japan, current FSA banking law interpretations have resulted in most banks forcing the closure of your bank accounts after you move and regularly checking on your Visa status (even with PR). This makes it extremely difficult to pay the loan or even taxes on the property

Happy Hunting!