What should I know about buying a house in Japan?

March 2, 2008 3:03 AM

Calling all Japan MeFites as well as you real estate mavens...I'm thinking of buying a house here in Tokyo, and I need some advice.

The nutshell: I've lived in Tokyo for about 4 years, and just married (a Japanese woman) last October. We live in a rental apartment close to Shinjuku, but it's both teeny-tiny and old, so we want to move.

We're paying Y90,000 right now in rent each month, so we figure we can invest in a house instead, pay roughly the same amount each month in mortgage payments, and have an asset to show for it.

We plan on moving back to the U.S. eventually, maybe 2 or 3 years from now. Here's my biggest worry--will I be able to SELL this house with no problem down the road? Of course, making a profit from that sale would be ideal, but at least breaking even is important.

Are there any pitfalls, traps, or general unpleasantness involved with buying a house in Japan? What's the best way to ensure a loan approval? (I'm American, btw)

Lastly, my wife and I looked at a really nice house today, priced at Y29,000,000. What questions should I be asking?

posted by zardoz to home & garden (6 comments total)

Opinions seem to be mixed as to the outlook for real estate in Tokyo. Prices have risen during the last few years, but they may take a hit from fallout from America's subprime market. So there may be risk involved in a sale 2 or 3 years from now.

Lastly, my wife and I looked at a really nice house today, priced at Y29,000,000

Hmm, nice, inexpensive-sounding price. Is the house within the 23 Tokyo wards? What's the nearest subway stop? Any pictures?
posted by Gordion Knott at 4:07 AM on March 2, 2008

Some thoughts...

Loan approval is easier with a permanent residency visa (although Shinsei Bank is the exception to this I believe).

Houses are not really worth as much as actual land - and depending on the age of the house might be tricky to resell (Japanese houses don't have a particularly long life span).

There will possibly be some drama on the you being a foreigner front.

Might be an idea to look at an apartment instead of a house right away - especially if you are thinking about moving in 2-3 years.
posted by gomichild at 4:08 AM on March 2, 2008

"Here's my biggest worry--will I be able to SELL this house with no problem down the road? Of course, making a profit from that sale would be ideal, but at least breaking even is important."

Long term American ex-pat here (London, eleven years); with that time frame I'd suggest you tread carefully. The IRS has very complicated rules regarding foreign ownership of real estate by Americans. Effectively (and this is very detailed area), exchange rate fluctuations aren't going to deny the IRS their share of the profit, even if US/Yen has changed, causing you to realise a paper loss (in dollar terms).

Also there are special depreciation schedules applying to foreign properties owned by Americans. Once again we get the short end, as these rules provide longer useful lives than those allowed for domestic properties, effectively reducing the yearly depreciation allowance.

There are loads of special cases and rules that you will probably want to research - either formally (i.e., professional advice) or informally by talking to other US ex-pats who might have bought in Japan.

Just to show you how crazy the world is sometimes for Americas living outside the United States - Americans of Greek origin (one parent will do the trick nicely) in Greece who purchase real estate can be called up for Greek military service.

Finally, you're doing this the right way by asking questions and researching things upfront. In my own case I wish I would have purchased my flat here in London via an off shore trust or Controlled Foreign Corporation; this would have reduced my mortgage payments by 40% as funds using for my monthly payments would have avoided British taxation (they are closing this loophole now).

Professional advise might help you find a similar structure in Japan.
posted by Mutant at 4:17 AM on March 2, 2008

Houses are not really worth as much as actual land - and depending on the age of the house might be tricky to resell (Japanese houses don't have a particularly long life span).

This is true even where I live, which is a new city with new houses and relatively available land. It must be doubly (or more) true in Tokyo.
posted by whatzit at 4:48 AM on March 2, 2008

One thing you should know if you don't already -- and gomichild alluded to it -- is that in Japan you're not so much buying the house as you are the land it comes with. Residential single-family dwellings are usually not built to as high a standard as they are in the United States, for example. Although there are plenty of older houses all over Japan, the tendency is to rebuild a house after twenty or thirty years.

To be honest, if you're not intending to stay in Japan for more than three years, then renting is by far the best option. Owning land is a long-term investment, and you stand to lose on your investment if land prices decrease over the short-term. Also, I'm not aware of where you're looking for property, but there are plenty of apartments within the 23 wards where you can live in more space for less money (Nerima, Itabashi, Kita, Adachi, Katsushika, and Edogawa wards are to the northwest, north, and east of central Tokyo and are usually much cheaper than Shinjuku, Minato, Shibuya or Setagaya wards).
posted by armage at 5:24 AM on March 2, 2008

If you really can service a mortgage for around the same as you can rent the same property, you may be better off taking a medium to long term position on the property.

If you can get someone else to make your mortgage payments (after you return to US) and you have some capital growth, you could find yourself making some money. I have no idea how likely capital growth is in Japan.

Definitely get advice regarding the Tax implications of what you are considering.
posted by dantodd at 12:26 PM on March 2, 2008