Sunday, August 17, 2014

Property investment in Tokyo (and Japan): Some "good to know-s"


The wife and I were at a Japan real estate seminar organized by Sumitomo Realty and Development Co., Ltd yesterday.
 
 

Sumitomo Realty is one of the largest developer in Japan with over 400 years of history behind them. They are responsible for the first condominium development in Japan back in 1964 and had built more than 5,000 condo unit in 2013.  

Sumitomo is also one of the first Japanese developer that has started engaging foreign buyers. The wife and I always liken them as the "Far East Organisation" of Japan, both in terms of profile and pricing. 

Below are some "takeaways" from the seminar: 

Some useful information about buying a property in Japan 

  1. All residential properties in Japan are of freehold tenure. 

  1. Contrary to popular belief, there are no restriction on foreign purchases of residential properties. 

  1. Prices of apartments are based on nett usage area - you do not have to pay for the balcony and PES spaces. 

  1. Japan is still pretty much a non-speculative market - depending on how you look at it, this either mean better price stability or big potential upside in capital gains as more foreign participations enter the market. 

  1. Demand for apartments are increasing due to the growing population in the cities. More elderly, for example, are moving to live in the cities due to better access to amenities and healthcare. 

  1.  The Japanese are known for their strict building codes and standards, primarily because of the country's susceptibility to earthquakes.  

  1. Facilities (i.e. swimming pool, gym and sometimes even car-park lots) are uncommon in Japanese condominiums. 

  1. The toilets and bathrooms in a Japanese condo unit are mostly always separate. And a typical unit usually come with just one or maximum two toilets and only one bathroom. This is the case even for big units. 

  1. The "sinking fund" system is adopted by most condominiums. This is different and separate from the monthly maintenance payment, and involves an initial lump-sum payment (for new properties) plus a monthly payment subsequently. 

  1. The purchase of properties in Japan typically do not require the involvement of a lawyer. 

  1. Commission is payable by BOTH the buyer and seller to an agent for purchase of resale properties in Japan. The typical commission rate is 3% each.

Specifically for Tokyo

1.       Potential buyers are typically interested in properties within the 23 major wards. And the most prestigious (also = expensive) residential land are found in the Chyoda and Minato areas within Tokyo.

2.       Toyko currently has a population of about 13 million, which is approximately 10% of the total population in Japan.

3.       The number of foreigners living in Tokyo has increased from about 306,000 in 2001 to 390,000 in 2012.

4.       The Japanese government has designated special zones for Asian headquarters in various area within Tokyo. Generous incentives are provided to attract Asian companies to setup shop in these zones. The special zones are located in          

·         Area around Shinjuku Station

·         Area around Shibuya Station

·         Area around Shinagawa

·         Central Tokyo/Waterfront area

       So residential properties within these zones are especially in demand.

The different type of taxes applicable for property ownership

  1. Property Tax - This is approximately 1.7% of the "Appraisal Price" annually. The "Appraisal Price" is different from the purchase price  and much lower (i.e. similar to our "Annual Value").

  1. Acquisition Tax - This is similar to our stamp duty, calculated at 3% of the Appraisal Price. 

  1. Inheritance Tax - This is typically 10 - 15% of the total inheritance value, minus some basic deductions. Inheritance tax may not be applicable for most foreign purchases. 

  1. Capital Gains Tax (for non residents) - This is a hefty 30% of the total profit  for property sold within 5 years of purchase and reduced to 15% for property sold at/after 5 years of ownership. 

  1. Income Tax - As per Singapore, the income tax system is progressive in nature and starts at 5%. Rental derived are taxable as income even for non-residents.
General Note

  1. The main documents (S&P etc) that one needs to sign on are typically in Japanese. But the developer/marketing agent will provide translated copy for one to understand what he/she is signing for. 

  1. Payment for purchase is done in Japanese Yen. 

  1. It is mandatory to set up a bank account in Japan after purchase of property. This is to facilitate payment of maintenance and other fees, which will be deducted monthly from this account. 

  1. Registration of property is necessary for one to maintain all rights to the purchased property. 

  1. All relevant taxes must be paid else hefty penalties may be imposed.
 
 
The wife and I have been looking at the Tokyo residential market for the past year or so. Unlike UK or Australia, the Japanese private home market is still considered the "new kid on the block" when comes to foreign purchases and investments. Matter of fact, it is only up till recently that some of our local banks are willing to provide mortgage loans for foreign property purchases in Japan. The current financing quantum is up to 70% with loan tenor of up to 30 years. The current interest rate is slightly above 3%. 

Here are our takes on the "plus and minuses" of investing in a property in Tokyo (or Japan):

Plus

  1. The rental market is strong and stable - we were told that tenants generally prefer to stay put when they have found their "ideal rental home". And it is fairly easy to find tenants especially in the major wards. 

  1. The Yen is currently very low against the S$ - it was about 59 Yen to the S$ in 2012 and the exchange rate is currently at around 82! Many currency analysts are putting their monies on a Yen rebound in the near future. So it is probably a good time to buy, with a potentially high upside for forex gains when you sell the property in future.
     The wife and I only fully appreciate the extent of such gains when we started
     investing overseas - a 1 cent appreciation on S$ against another foreign currency
     for a S$100K sum automatically translates to an additional gain of S$1K!
 

  1. As long as the project is developed by one of the top-tier developers, the investment is generally safe. Investors are also protected by the local legal system in case of contract disputes.  

Minus

  1. We are not overly "excited" about the capital gain potential of Japanese properties. We were told that the real estate market especially in the Tokyo area have experienced strong revival over the past few years, but we are concerned about whether such recovery is sustainable and for how long. This is especially when we are seeing a deluge of new developments coming up all over Tokyo. So those seeking huge capital gains within say, 12 - 24 months, may not find the Japanese market too sexy. 

  1. Rental yields is currently a tad shy of 5% (gross) and around 3.5% (net). While stable, the yield is on the low side especially compared to Australia or UK 

  1. The capital gains tax, even at 15% should one decides to hold on to the property for 5 years, is rather prohibitive.  

  1. The lack of Mainland Chinese interests in Japanese residential properties, due to political stand-off, may continue to stifle resale gains. Whether one choose to subscribe to the notion, it is generally true (at present) that wherever the Chinese buyers flock in doves, property prices there will generally shoot through the roof.

An for those who are interested, Sumitomo conduct regular property viewing tours of their new projects in Tokyo. The next tour is scheduled for September 12, 2014 (Friday). You will have to get to Tokyo at your own expense (of course). Sumitomo will designate a meeting point in the morning and bring you around to their various new properties. You will have to RSVP by Sep 3, 2014 to confirm a place for the Sep 12 tour. Do drop us an email if you require the necessary contact.
 
The wife and I hope the information above may be useful to those who are considering to purchase into the Japanese property market.
 
 
 
Details of properties that may feature in the tour:
 
 

3 comments:

Anonymous said...

Can also reap some of the hot rays from Fukushima radiation.......get irradiated...

The Folks @SG PropTalk said...

Hi Anonymous (18/8/14, 9:39AM),

In that case, you wouldn't need to switch on the lights at night since you probably be glowing in the dark.

Think about all the saving on electricity! :-)

Anonymous said...

Not all residential properties are Freehold. There are leasehold too.

Also, did they mention that you cannot sell the property before completion if it is under construction? So no 'flipping'.

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