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Property Buying Guide – Introduction to the Japanese Real Estate process

Buying property can be seen as a complicated and intimidating process, especially if it’s in a foreign country. Century 21 SKY Realty aims to make the process more comfortable and informed by helping clients navigate the purchase process.

To this end we have created this guide to explain the key aspects of purchasing property in Japan. It is meant as an information resource but as your property search criteria are individual to you we do encourage potential purchasers to contact us so we can tailor information and advice accordingly.

One question that non-Japanese purchasers ask is a simple one – Can a foreigner buy property in Japan?

A foreign resident or non-resident can purchase property in Japan so long as the required documentation and funds can be provided.

  • Resident – a person who resides in Japan or has been in Japan for at least a year.
  • Non-resident – a person who resides outside of Japan

The next typical question is – What kind of property is available in Japan?

This is not meant in terms of whether the property is a house, condominium, etc, rather what ownership rights does the purchaser have. For this guide we are focusing on Freehold and Leasehold rights.

Freehold – known as 所有権 (shoyuken) in Japanese

This means the purchaser has full ownership of both the land and property built upon it. Where the property is subdivided, in the case of apartments and condominiums, an applicable fraction of the land the building is on is owned by the condominium owner.

Leasehold – known as 借地権 / shakuchiken in Japanese

This is where ownership is only for the building and a lease payment is required for the land the property is on.

Which ownership rights are preferred depends on the individual needs. It may be seen as beneficial to own both the land and the building (freehold) but the value of both is not guaranteed. Land value may increase but the building’s value may depreciate. A leasehold property may be less expensive to purchase but the land is not owned, but also the taxes related to the land ownership are avoided. Also leasehold agreements usually have a specific term after which the rights to any building on the land revert to the land owner unless a new leasehold agreement can be negotiated.

This leads to the question – 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 taxes that are applicable.

Consumption Tax(currently 10%) – this is a tax that is applicable only to the sale of the building (not the land). For properties that have depreciated the tax payable can be relatively low. It is also typical for the purchaser to pay the consumption tax although it’s actually the legal responsibility of the seller.
Stamp Tax/DutyThis tax is calculated on a sliding scale starting at JP¥ 200 for contracts less than JP¥ 1 million and rising to JP¥ 200,000 for contracts over JP¥ 1 billion.
Registration and License TaxThis is a tax between 0.4% and 2% and is dependent on the type of transaction and the value.
Real Estate Acquisition TaxThis a 3% tax that is imposed only once when land or properties are purchased.
Property Tax and City Planning TaxThese taxes are levied on 1st January. Property tax is 1.4% and City planning tax is 0.3%. This tax is based on an assessed value by the tax office – that is usually much less than the market price or value.

At the time of purchase or sale the applicable taxes are calculated by the lawyer, or shiho shoshi or legal scrivener, that is handling the property registration and divided as appropriate between the two parties.

Following the property purchase process can be straightforward but an area where foreigners can face challenges is in securing finance.

What does a foreigner need to be aware of regarding loans for property?

  • Although Japanese banks may have loan documentation in English, the actual legal contracts will be in Japanese.
  • Loan terms and eligibility vary between banks.
  • Many banks require the foreign loan applicant to be either a permanent resident of Japan, have a Japanese spouse, or to demonstrate they will be staying long-term in Japan with, for example a work visa.
  • Banks may require to see evidence of working in Japan for at least 3 years.
  • There is a limit to how much a foreigner can borrow, typically up to JP¥ 100 million and banks may impose their own minimum loan amounts and/or percentage of the property value that can be applied for.

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