If you’ve found your way to this corner of the internet, I’m assuming it means you’re genuinely interested in buying property in Japan. Firstly, congratulations on this exciting new chapter in your life, and secondly – buckle up, because you’re in for a wild ride.
Property purchase in any country is a long and arduous process – from saving your down payment to working out what kind of house you actually want, to the bidding wars, to the hidden legal fees, to the heartbreak of a sale falling through – it’s hard not to emerge on the other side with mild PTSD. Throw in the challenge of a new country with different laws and purchasing culture, and you’ve pretty much got a recipe for a migraine. Don’t let that put you off buying in Japan though – approach the process with logic, knowledge, and a healthy amount of emotional detachment and you will secure your happy ending.
The Japanese property market has a number of quirks – from the free abandoned houses in the countryside to the bustling Tokyo bubble. Let’s navigate through them all on a whistle-stop tour, and hopefully, you’ll be left with a clearer idea of where (or indeed, whether) you should purchase in Japan.
Buying A House In Japan’s Countryside
We’ve all seen the headlines by now – you know, the sensationalist ones that are claiming that you can buy a house for pocket change in Japan’s countryside. So is there any truth behind these claims?
Actually, yes. Japan has a rapidly aging population, and most of the youngsters are flocking to lively urban areas for work. This has meant that there are suddenly rural towns with virtually no population – and amenities like schools are closing down as a result. Far from ideal.
Schemes have been introduced to incentivize young families to move to these areas, and the pull is very much in the price. Certain prefectures (including Okutama, which is a little over 2 hours away from central Tokyo on the train line) have been building fancy new family homes and accepting applications to live there for little or no money.
The schemes offered allow families to pay a token amount of rent for their house for approximately twenty years (the exact timeframe varies by town), at which point ownership of the property will then be fully transferred to them. This encourages young families to stay loyal to the community and to raise their children there – necessitating amenities like schools and shops to stay open.
Most schemes will only accept young couples with children. Many have conditions in place whereby the rent decreases with every additional child in a family – incentivizing couples to continue adding to their brood. In all my research, I have not been able to find any stipulation ruling out a foreigner from applying for these schemes – however, logically it seems that you would be unlikely to be selected without some sort of permanent residency agreement. These towns are looking for people that can commit to staying there for the long haul, after all.
Unfortunately, these conditions rule many of us out of the running for the countryside home ownership scheme – but never fear, there are other ways to live like royalty for very little in the Japanese countryside. This brings us nicely onto our next section – buying an abandoned house in Japan.
Buying Abandoned Houses in Japan
Housing culture is a little bit different in Japan from what we would see in the West. For one thing, you’d never in a million years just walk away from your home in the Western world! Even if you were completely disenchanted with your house or it fell into a major state of disrepair, you would still be hopeful to get some sort of financial payment for transferring it to a new owner.
In Japan, houses are generally seen as depreciating assets. They aren’t built to be passed down from generation to generation, and many people will demolish or sell their house for literally nothing when it’s time to move on – in other words, they are disposable. The land holds value, but the house generally does not.
You might be surprised to learn that in 2013, one in seven houses in Japan was considered “akiya”, or an abandoned house. This number is only growing. There are a number of reasons behind this – including the effects of depopulation on rural towns (see above section) and the preference for newer builds. In addition, Japanese law states that a tax must be paid on all the properties a person owns, and as such many properties end up being abandoned to save a hefty tax bill.
You can buy an abandoned Japanese house for very little money or technically for free. Don’t make the mistake of doing this flippantly – purchasing an akiya has a number of hidden fees that you might not have considered when you got excited about the price tag. You will need to pay property tax, registration fees, and other legal costs that will most likely come to a few thousand dollars.
If you’re planning on making an akiya your home, it will need some substantial updating – particularly if you’re used to the Western standard of accommodation. These houses are generally poorly insulated and cosmetically outdated. Grants are available for renovating akiya in some prefectures, but you’ll still have to put up a decent sum of cash yourself.
Foreigners can purchase an akiya, but be sure to check the terms and conditions of your purchase. Some contracts will require that you live there for a certain amount of time, and others will require maintenance of the land, some will even require that you take up full-time work as a farmer. Even if you speak reasonable Japanese, have a native-speaking friend go through your contract with a fine-tooth comb to ensure there’s nothing in it that you can’t commit to.
Living in the countryside in Japan is also extremely different from living in a Japanese city – it might not be a lifestyle that suits you. To get more of an insight into what it might be like, check out this article.
If none of this has put you off and you’re still hankering after the Japanese countryside dream, check out this site to find your ideal home.
Buying a House in Japan
Full disclosure – I do not own property in Japan, so I have not gone through the process of buying a house in Japan myself. However, I have gone through the process of buying property elsewhere, and somewhere in the midst of my tenth pile of paperwork, I remember thinking that I wish someone would have walked me through this whole complicated debacle step by step.
Bearing this in mind, I’m going to try my very best to walk you through the Japanese house buying process step by step from my research and talking to those who have purchased a piece of property in Japan. It’s important to note that there are two different house buying processes in Japan – one if you are buying a new build, and another if you’re buying a pre-owned house.
1. Registering Interest
If you’re buying a new build, you must fill out the developer’s application form. A lot of people might be competing for the same new build property, so it could come down to a lottery system – be prepared to be disappointed if you’re trying to buy in a high-demand area. Along with your application form, you’ll submit an application fee – if you don’t get selected, this fee will be returned to you in full. If you are selected, it will be used towards the balance of the property.
If you’re buying a pre-owned home, you will submit a letter of intent to the seller rather than an application form. This is basically your way of saying that you are serious about pursuing the sale – it is not legally binding, but serves as a point of starting the negotiations between both parties. Your realtor will be able to advise you on what to include in your letter of intent for the property you are interested in.
2. Sorting Finances
Okay, now assuming your application or letter of intent was accepted, you’re now onto the next stage of buying a house in Japan. From here on out, the process is the same regardless of whether you’re purchasing new or pre-owned. You will put down your cash deposit for the property, which will be an agreed figure of somewhere between 5-10% of the total purchase price. In Japan, this is called “earnest money”. This proves to the seller that you are serious about going through with the purchase and have the funds to back it up – but it does not legally guarantee you the property. You aren’t on the home stretch just yet.
If you haven’t done so already, you’ll want to look at mortgage approval at this point. Skip to the housing loan in Japan section below for more details on getting a mortgage in Japan. Of course, if you’re a cash buyer this won’t be relevant – but you may still need to provide proof of funds to the seller via bank statement.
3. Explanation of Important Matters
Next, you’ll receive a document called an Explanation of Important Matters. This is basically a detailed survey of the property you intend to purchase, and it can be up to 100 pages long. A copy will be provided to you in Japanese, and the main findings will also be verbally explained to you. Don’t ignore this – it’s given to you so that you can make an informed decision on whether you want to go through with the purchase or not. Read it carefully with your practical hat on – it’s well and good to be in love with an old Japanese property, but will you have the skills to handle a chronic mold issue, or shifting foundations? Many a sale has fallen through at this point because the potential buyer realizes the house was too good to be true, so don’t be scared to walk away if this document throws up something unexpected.
4. Agree Purchase
Okay, let’s assume you’re happy to proceed with the purchase having reviewed the Explanation of Important Matters. You will now officially sign your purchase agreement – which creates the first legal link between you and this property.
If you walk away from the property at this point, you will be doing so without your deposit and most likely with some serious bad feeling between you and the seller. Likewise, they cannot gazump you by accepting another offer at this point – so both parties can breathe a sigh of relief that the horribly uncertain part of the process is over. That means no more driving past the house every night to check if there are sneaky viewings going on – or maybe I’m the only one crazy enough to do this.
In Japan, a simple signature is not sufficient – you will need to source a stamp with your name in Japanese characters to officially seal your approval, as it were. You’ll also need to sort out the property tax with your seller – if they’ve already paid the yearly fee, you will need to put up some cash to cover your contribution to that from the point of moving in onwards.
5. Pay Up
At this point, you’ll need to link in with your bank to check all is good to go with your mortgage. Let them know that the purchase agreements have been signed, and you’re waiting for the go-ahead from your seller about when to drawdown. Your solicitor may handle this communication for you, which is especially handy if you aren’t confident in your language skills.
In terms of timeframe, the mortgage isn’t going to be processed overnight – be prepared to wait around eight weeks for everything to go through. It’s a pain, but it will give you plenty of time to shop around for home décor.
When the bank has done everything on their end, you’ll be called in to sign the final documents for the loan. At this point, you’ll also need to do a final check of the house before the funds are transferred to the seller – this allows you a chance to confirm that everything is as stated in the Explanation of Important Matters and request any changes that might be necessary.
6. Transfer Ownership
You will have a meeting with the seller and a representative of your mortgage company. At this meeting, you will arrange for the funds to be transferred to the seller.
A legal scrivener will be present to change the registration of the property into your name. Once that’s done, it’s yours!
Once you have the keys, make sure you do all the fun new homeowner stuff – it’s the same in every country. Eat sushi on the floor because you lack a table or furniture, invite your friends over and trick them into painting… they’re incredible memories.
However, you need to make sure you also do the serious adult thing of filing Japanese taxes the year after buying your home. This is important because you’ll be able to claim back tax relief against your mortgage as a homeowner, and trust me – every penny will help. Enjoy!
How Much is a House in Japan in US Dollars
This question is the property equivalent of how long is a piece of string. In 2019, an apartment in central Tokyo was averaging at approximately $10,000 per square meters. When you consider that the average size of a Tokyo apartment is 63.24 square meters, you’re looking at paying roughly $632,000 for a property. Eek.
Then you have to consider what we talked about in the section above – you could literally get a whole house in the Japanese countryside for just the legal transfer fees of about $3000 dollars, but it might be way too remote to be practical.
Buying a House in Tokyo
The housing market in Tokyo is dramatically different from the housing market in rural Japan, which we’ve already discussed. Tokyo’s population is steadily growing as more and more people have to move to the city in order to secure profitable employment. It’s fiercely competitive, prices are high due to demand, properties are small due to limited space, and you’re very unlikely to secure a house – high-rise apartment living is the norm in Tokyo.
In terms of investment though, Tokyo may be a good long term choice for a foreigner unsure about their future plans. Tokyo is extremely unlikely to depopulate at any stage in the foreseeable future, and as such there will always be a demand for property. Securing an apartment in Tokyo, even if you leave Japan yourself, will provide you with a steady rental income from your tenants. Just be very aware – you won’t be getting one of the famous free Japanese houses in Tokyo!
Housing Loans in Japan
Foreigners can apply for a mortgage in Japan, but guidelines are tight. Eligibility criteria will vary by lender, but generally, you will need to be 20-65 years old. There will be a minimum income requirement – this again varies by lender, but the lowest you would usually see is 2,000,000 yen (approximately $19,000). You’ll need to submit various documents – these usually include your identification, a health certificate, and your tax returns.
You will usually need to have a continuous work history in Japan of approximately 2-3 years, and will need to take out life and property insurance policies. Please note also, while Japanese mortgage rates tend to be favorable when compared with the rest of the world, you may not be eligible for the most competitive rates when applying as a foreigner. While locals may be able to shop around for good value from mortgage providers, foreigners may need to take what they can get in terms of mortgage offers.
Please note at this point, banks generally lend to foreigners who are living in Japan or are married to a Japanese person. If you’re a foreigner living abroad and hoping to purchase in Japan, you’re going to have a very difficult time getting mortgage approval – but it’s not impossible. Linking in with a Japanese financial advisor to explore the options is probably your best bet – it is a very difficult market to navigate on your own from overseas.
Another option, particularly if you’re buying an abandoned property, is to pay for the property from your savings and take out a loan for home improvement work. This is a far less complicated process than the mortgage – if need be, you can even go through a bank in your home country to secure this cash.
Should I Buy a House in Japan?
As touched upon earlier in the article, homeownership is viewed differently in Japan than in other countries. Many foreigners dream of owning homes – but it’s important to go into it with your eyes wide open when in Japan. Let me play devil’s advocate here for a second and show you an article I wrote advocating for why you absolutely shouldn’t buy a property in Japan – you can find it here.
At the end of the day, you have to make your own informed decision on whether property ownership in Japan is the right decision for you.