Purchasing Property in Tokyo

A How-To Guide From Own Experience

Living in Tokyo – rent or buy?

Like probably most other foreigners coming to live in Japan for the first time, I was renting a place for the longest time. Even after getting married, we continued to rent for another eight years, first several different apartments, then a detached house in Tokyo.

There were several reasons for us not to buy property immediately. Firstly, in the beginning we were not sure at all for how long we would actually be living in Tokyo, or in Japan for that matter. And indeed we ended up moving to my home country Germany after a little more than four years in Tokyo, not knowing yet at the time that a few years later we would be moving back to Japan, this time for good.

As soon as we had made the decision to stay in Japan for good, we were determined to finally purchase our own place. However, we ended up yet again renting another apartment, mostly due to a lack of time for properly searching for a suitable place that we were actually ready to invest in long term. Another reason was our lack of experience with such a large investment, especially regarding our own financial readiness; in other words, how much of our financial resources we were actually able to invest. In addition, the 2020 Tokyo Olympics were approaching (at the time we could not know yet that they would finally be postponed to 2021 due to the arrival of the COVID-19 pandemic), and at the time property prices in Tokyo seemed to display a slow yet constant upward trend. As a result we kept monitoring the local market, but decided to postpone any purchase until after the Olympics.

Even after the games were postponed to 2021, we were surprised to learn that although the work-from-home concept (or telework as it is often referred to in Japan) was on the rise even in Japan, many people seemed to have set their eyes on purchasing property in central Tokyo, in spite of the average property prices having gone up.

One basic lesson we took away from all this is that there is never a perfect time for purchasing property in Tokyo, or probably any other city for that matter, especially since the demand for housing in the metropolitan area never really seems to significantly decrease. As a consequence, for the time being we decided to focus on working on our own financial readiness, rather than giving too much thought to the property market conditions.

Azabudai Hills, a newly developed area in central Tokyo

Some people would probably ask 'why purchase at all?' or 'why not just keep on renting?' Especially in my home country Germany the ratio of people renting instead of owning is still rather high, e.g. compared to the US or Japan. As a consequence, I too grew up with a mindset where purchasing property was never really a pressing issue for me.

Our decision to purchase property, instead of continuing to rent, was backed by an analysis we had done by an independent financial planner. Although we already anticipated this in advance, having our financial situation analyzed by an independent expert once again made it very clear to us that if we kept renting for a similar amount as we were spending on monthly rent at the time, we would be much better off purchasing property, even if it would be slightly above what we considered to be our available budget. What is more, in Japan there are a number of additional fees to be considered on top of the regular monthly rent, e.g. a usually bi-annual so-called 'renewal fee' that is required for extending an already existing rental agreement, 'key money', 'deposit' etc..

Of course there are pros and cons in both scenarios – what if I would lose my job and be unable to repay the loan? –, and any related risks are certainly being perceived with varying levels of urgency by different people, depending on their individual circumstances and financial situation.

For us though it was clear that especially in the long run we would be better off purchasing property. In addition, we do not have children, so we did not have to factor in any educational expenses, and at the time we were considering to purchase we did not have any other financial obligations, such as other loans that would need to be repaid.

House or apartment?

When you decide to purchase property, one of the most fundamental things to consider is of course whether to buy a house or an apartment (or manshon as they are referred to in Japan). At first we were looking at both options. There are of course pros and cons for both, and many of these certainly vary depending on one's personal preferences, household size, etc.

We had been renting a number of apartments over the years, but then suddenly were presented with an option to rent a detached house, which turned out to be a good decision, since it enabled us to find out about the advantages as well as disadvantages compared to an apartment. For me personally there were several upsides to renting a house. These included having no immediate, i.e. wall-to-wall neighbors, and therefore less noise. Another reason why I preferred a detached house was having windows on all four sides, however small, With apartment units this is mostly not the case, since they are part of a larger building and therefore having at least one, if not two or even three walls facing adjacent apartments instead of being an exterior wall. Last but not least, after having lived in apartments for my entire life, the idea of literally having my 'own four walls' seemed more and more appealing to me.

On the downside we had to anticipate higher utility expenses, e.g. for higher heating costs due to all walls facing the exterior, instead of neighboring apartments, and a somewhat notorious lack of sufficient insulation in most Japanese houses even today. Some initial installations, e.g. for air conditioners or even an internet connection, also turned out to be slightly more expensive than for an apartment, where one usually profits from economies of scale, or some of the equipment is already pre-installed and included in the rent.

Apartments also usually come with a comparatively high monthly maintenance fee (for regular building maintenance work, etc.) on top of the actual purchase price, while in case of a house the owner is obviously responsible for any incurred fees himself. It is generally said that on average every ten to fifteen years a house requires maintenance and repair work, e.g. for the roof, siding, insulation, etc. For us it seemed more acceptable to be able to determine ourselves when exactly we would have any maintenance carried out, being able to consider our financial situation at that particular time, and how exactly to save up for the required repairs instead of being charged a monthly fee by default on top of an apartment's purchase price.

All in all, having been able to rent a detached house for two years was a good experience for us, and even considering the potential cons we were soon convinced that we would be better off buying a detached house instead of an apartment. Now all that was left for us to do was to actually find one – but where to start looking?

Real estate agents

Our first go-to address were different real estate agents. One issue that bothered us was the fact that obviously any real estate agent's primary objective is to sell something out of their own property portfolio. We therefore felt that often the information and advice given to us may not always be entirely trustworthy.

In case of looking at purchasing land first (i.e. in case of an order-made house) and when going through a real estate agent, there may be another issue to consider. A piece of land introduced by real estate agents usually comes with a somewhat additional price tag for the buyer, since real estate agents obviously want to profit from the land sale, but the house-builder also wants to make his own profit, and is indeed entitled to a separate 'handling fee' as well. Therefore often the person purchasing land may end up paying slightly more than intended – especially when compared to purchasing a ready-built house that comes as 'a set' with the land –, and as a consequence ultimately having to make budget cuts when it comes to the house itself.

Independent counseling

For the aforementioned reasons, and since we found real estate agents' advice regarding our loan options somewhat deceptive, we started looking for some sort of independent counseling. We found what we were looking for in an organization called Housquare, located in Yokohama.

Housquare combines an exterior housing exhibition space with representative offices of different house building and renovation companies, as well as several forms of counseling related to the purchase of property, including land as well as houses. To us it was a major advantage that the counseling desk was not associated to any particular real estage agent and could therefore be considered somewhat independent and unbiased.

At the time we consulted our counselor we were still considering to first purchase land and then have an order-made house built according to our specifications. For this purpose the counseling desk offered a time-limited and customer-exclusive access to an online database showing land property in Tokyo, including information on the approximate price and location. This information would be published prior to it being shared with real estate agents; one major advantage when zeroing in on a particular property in a highly competitive and time-sensitive market such as Tokyo.

While our counselor would ultimately also receive his margin, we felt this to be a much better investment than for a real estate agent due to his impartiality. In addition, he was able to often provide us with detailed background information related to property that would help us make an informative decision – often against a purchase –; information that we would certainly not have received by going through a real estate agent. Our counselor turned out to be a valuable asset in our endeavor to purchase a house, including valuable advice even extending to the securing of a loan; more on that in one of the following chapters.

Financing

Unless you have enough wealth to simply pay in full for any property purchase – a situation that certainly did not apply to us – you will be bound to acquire a bank loan. In a first step we researched the different types of property loans that are available. While in general the loans offered by various banks do not differ too greatly, minor variations in the conditions can be decisive.

In case of purchasing a plot of land first and then building an order-made house, consider that you will have to acquire two different loans from the bank of your choice – one for the land, and the other one for the house itself. This is obviously an additional financial burden that we had not not considered.

What is my budget?

If you consult a real estate agent about property loans, they will obviously give you a comparatively high number that you can supposedly afford to invest, since their foremost interest is in selling their own property; regardless of whether or not you will actually be able to repay the loan. And with every new house that we looked at, we found our expectations going up, which would obviously drive up the price.

Here again the aforementioned financial planner helped us to get a good grasp of what we could actually and realistically afford without having to give up our current lifestyle, and taking into consideration all sorts of potential future expenditures.

After we had initially disclosed to real estate agents what we be believed to be our actual budget, we changed our game plan and instead gave a somewhat lower number on purpose. This way we could be sure to later have some leverage for covering any unexpected additional expenditures – and there always will be some, no matter how carefully one tries to consider everything in advance –, and to be a little more flexible when starting to plan the actual house, including some extras here and there. A ready-built house may be offered for a minimum price tag, but we learned that it is always safer to add another five to ten percent of the total cost to get a more realistic number. It is also important to keep in mind that this is just for the property, not yet considering any advance payments or contract-related transaction fees – more on that a little later.

Finding the right area

Where do you feel at home? What sort of neighborhood do you favor – rather quiet and suburban, or near some shopping street, or closer to the city center? When you have kids, you might obviously want to consider the proximity to educational institutions. And how far is the next supermarket?

Street corner in a Tokyo suburb with a plot of vacant land.
This plot would later accommodate three detached houses

When looking at different areas, our counselor stated that many of his clients would often end up settling for an entirely different area than they first looked at, since e.g. it may be more affordable, or the property there simply offered a better view. It is obvious that there is no right or wrong decision, but it is important to find out for yourself which is more important to you – your 'dream house' in a location that may be somewhat of a compromise, or a house that does not exactly meet all of your requirements but is located in your preferred area? Without any budget constraints this conundrum can of course be easily alleviated, but I would like to believe that when considering to purchase property in Tokyo – or any other city for that matter – almost anyone has to make some sort of compromise.

Considering natural hazards

Something else strongly recommended, especially in a city like Tokyo, is to carefully study hazard maps. Japan is prone to a variety of natural hazards, from earthquakes and volcanic eruptions to typhoons and related floodings or landslides, so it is advisable to check whether or not the property you are looking at may be located near a waterway or any nearby cliffs which may be prone to landslides triggered by heavy rains or earthquakes.

Studying the latest available hazard maps – e.g. provided by the Tokyo Metropolitan Government and other municipal government offices – should help you to properly assess any potential risks. It goes without saying that any property which is located in an area more prone to certain natural hazards is likely also somewhat more affordable, but at the end of the day it comes down to the question of how much you are willing to invest into long term safety, or if it is more important to you to have that unobstructed view of the river, even with a certain likelihood of your area being flooded sometime. We initially considered several properties just for their appealing location ourselves, but ultimately decided against all of them, instead favoring a minimum level of safety and peace of mind over that perfect view.

Ready-built house or order-made?

This was also a tough one. Once we had made the decision to purchase property, we were mostly looking at houses, and focusing on newly built property, or shinchiku bukken in Japanese. The most affordable ones within that group are built-for-sale houses (tateuri bukken) of comparatively affordable and standardized construction as well as usually medium to low quality standards (as opposed to order-made houses).

Notice board announcing construction details on a vacant plot of land in Tokyo

In addition to the somewhat lower quality, the layout and design of most of the ready-built houses that we looked at also did not convince us. However, as expected most order-made houses we were looking at were way above our budget. This is when we decided to also consider building from scratch, i.e. finding a piece of land first, and then select our preferred house builder (read: a house builder that we could afford) that would be a balanced fit for our expectations towards acceptable quality, appeal, and last but not least affordability.

Finding the right house builder

At first we were not very particular about finding an appropriate house builder. We mostly looked at various houses and would simply point out the ones we liked in terms of design, etc. However, after various discussions with our counselor and researching several house builders online, we quickly learned that – similar to almost everything else – there is a multitude of house builders to choose from, ranging from larger and well known corporations that also build larger infrastructural facilities to smaller, niche-type house builders, each of them with their particular areas of expertise and often focusing on one or a certain number of geographical areas. Some seem to be more focused on issues of design, while others – especially in recent years – offer higher-quality insulation and equipment with a focus on energy efficiency, cost-saving, and an orientation towards a sustainable interior living environment. After an initial and extensive discussion with our counselor we were introduced three different house builders, so we could get an impression of the varying types of design, quality, and price tags. In the process we learned that most house builders would offer houses of a distinct design type (on subsequent strolls through the city we would often guess the housebuilding companies behind certain houses we would pass), and the areas on which they would focus also seemed to vary quite a bit – while one house builder focused on earthquake resistance and construction quality, another one was known for their advanced air circulation and heating installations; yet another one would be known for a distinct set of design elements.

A typical two-story detached, wood frame house in Tokyo, ca. two months into construction

As a result of our consultation, we were introduced three different house builders in order to help us getting a good overview of what is available. At Housquare we checked out their model houses. Our primary focus was on energy efficiency and safety/durability, especially with regard to potential earthquake damage, followed by design aspects. We requested a draft plan from the house builder of our choice for a plot of land that we had just come across. This turned out to be a quite sobering experience in various aspects. Firstly, the plan soon fell apart due to several unexpected issues with the property itself that we had set our eyes on. One of the most urgent ones was the fact that the water and sewage piping not just for any new house to be built here, but also for three other neighboring houses passed from the main street underneath the plot that we had set our eyes on; something quite common for houses built some time in the past. This was not necessarily a no-go, but our counselor advised us to reconsider, since there would be some uncertainty regarding the legal responsibility for any potential future maintenance of the piping. Secondly, although we were aware that the plan presented to us by the house builder could only be a first draft, none of our even basic requirements were reflected in that first draft. As a result our counselor introduced us to a different house builder for the next property that we would find.

Coming away from this experience we reconsidered our strategy and started looking again at ready-built houses. Whenever we added up all the potential costs of building a house from scratch, the total amount almost always ended up being higher compared to a ready-built house instead. Developers that purchase vacant lots of land – and usually in many different areas – and build a set of houses there under similar conditions obviously have far more leverage and are consequently able to offer units for a lower price tag than we would ever be able to build for.

After many more weeks (or was it months?) of searching, one property finally caught our eye; a ready-built house that was still located more or less in our preferred neighborhood. At the time we found the property online, the concrete foundation had already been laid, but there was only a conceptual drawing of the house itself and its architectural layout. However, after having looked at quite a large number of plots of land as well as various houses already, we felt that this object was pretty close to our set of requirements, and – most importantly – it was within our budget; the only uncertainty was the quality of the house as well as the interior design, but we decided to consider the conceptual drawings trustworthy enough in that regard to go ahead and submit our application, which put us first in line. As a consequence we were now obliged to provide proof of a secured loan contract within a certain time frame in order to be able to proceed with the actual purchase; more about the loan application process further below.

Loans and contracts

Before we even started looking for property, I had applied for permanent residency status in Japan. This is something I had planned to do regardless of our intention to purchase property, but especially if one considers purchasing property it is strongly advised to get that out of the way first, since most banks only offer loans to either national citizens or foreigners with permanent residency status. There are some exceptions, but in those cases the loan conditions – above all the interest rate – are usually less favorable. At first we were not even sure if we would be considered eligible for a loan by any of the available banks due to our age – at the time we were 45 and 47 respectively. However most real estate agents as well as our counselor soon reassured us that this would not be an issue, since in general many people nowadays get a loan much later than used to be the case in the past, and even in our case we would still be looking at a 30-plus year loan.

For a housing loan there are generally two options: fixed versus variable interest rate. After some research and consultation with friends who had already purchased property in Japan, we decided to opt for a variable interest rate. While both rate types have their advantages as well as disadvantages, the advantages of a variable interest rate in our opinion outweighed the potential disadvantages. A variable interest rate would enable us to start with a considerably lower rate, and it had not dramatically increased in the recent past. With changing economic conditions there is of course always a chance of the variable interest rate going up, but as part of our overall budget planning we had also factored in a bit of a buffer to provide for such an eventuality. Other buyers might of course prefer a fixed interest rate from the start, with the initial rate being higher, but also with the assurance that this rate will remain the same and never go up. In general it can be said that both interest rate types have remained considerably low over the past years in Japan.

A typical housing loan application form – just one of a multitude of documents
one has to deal with on the journey towards one's own property in Japan

In a next step we selected a number of banks – focusing on those that we already had an account with – and requested a pre-screening (karishinsa) in order to find out if we would be potentially eligible for a loan, for how much, and what the conditions would be (most banks offer this via an online simulation tool). As a result – and somewhat to our surprise – we soon learned that our favored bank would not lend us a loan, so we had to focus on the remaining candidates.

Unfortunately, in our case several other banks also ended up rejecting our loan application. The reason was mostly related to a mandatory health insurance, as part of the overall 'loan package'. In our case the issue was the disclosure of pre-existing health conditions (which is legally mandatory), and although the banks would never clearly state their reason for the rejection, we had to assume that the health insurer – not the bank itself – rejected us based on these pre-existing conditions. Some banks offer loans without such a mandatory health insurance, and consequently for a slightly lower interest rate. It is generally advised though to make use of this combined loan-insurance offer, since often the loan repayment would actually stop in case of the contractor being diagnosed with any of the diseases considered to be the major cause of deaths in Japan (sandai shippei, or 'three major diseases', including cancer, heart disease, and cerebrovascular disease, e.g. stroke).

In the worst case of no bank offering a housing loan, there is still the default option of taking up a so-called Flat 35 loan provided by the Japan Housing Finance Agency in collaboration with private financial institutions, with a default runtime of 35 years (hence the name). The upside is that it is much easier to obtain this loan in the first place. The downside is that it comes with a fixed interest rate that is generally higher than those offered by most private banks. After initially having been rejected by a number of banks of our choice, our counselor advised us to also file an application for a Flat 35 loan just in case, but we were lucky enough to finally find a bank that gave us a loan for an agreeable interest rate as well as including the standard insurance package.

When screening for housing loans, it is also worth checking for any special loan-related offers. These might range from generally more favorable conditions, especially when one already has an account with the bank, credit card offers with lower or no annual fees, cashback system, etc.

Examples of loan approval notifications from different financial institutions

The purchase

Signing the real estate sales contract

The signing of the real estate sales contract is carried out in a long, procedural meeting that involves the joint review of all contractual documents together with the property owner, and in our case also attended by our counselor. The signing of all documents takes place under the assumption that a bank loan can be secured within a defined timeframe, usually within several weeks. In the unexpected case that a loan cannot be secured, the advance payment will be reimbursed, and the property will be made available on the market again. It is therefore strongly advised to start both processes in parallel – looking for property while requesting a pre-screening for a housing loan, ideally from multiple banks – in order to be set up and ready when the time comes.

Signing the loan contract

Last but not least we made an appointment with the bank to sign all necessary contractual documents – of which there are a lot. As a consequence, this meeting too lasted quite a bit. Prior to the appointment we needed to prepare the following set of documentation, or copies thereof (some documents may vary from bank to bank, but generally all banks require ta similar set of documentation):

• Housing loan application form (see example above)
• Document related to the opening of a bank account (unless of course you already have an account with that bank)
• Personal identification, incl. insurance notification/health insurance card, resident record (juuminhyou), family register (kosekitohon)
• Salary documentation, e.g. certificate of income/withholding slip (gensenchoushuuhyou)
• Property-related documentation, incl.
• Real estate sales contract/basic sale and purchase agreement (fudousannbaibaikeiyakusho)
• Property disclosure statement of important issues (juuyoujikousetsumeisho)
• Construction work contract (kenchikukoujiukeoisho)
• Construction confirmation application form (kenchikukakuninshinseisho)
• Construction confirmation certificate (kenchikukakuninzumisho)
• Certificate of inspection (kensazumisho)
• Registered land map/cadastral map (tochi no kouzu)
• Architectural drawing (tatemonozumen)
• Real estate register (fudousantoukibo)
• Property/housing map (juutakuchizu/bukkenannaizu)
• Medical certificate for group credit life insurance application

Banks usually provide a list of all documents that are required for a loan application online, such as the following:

Example of a list of required documents for a loan application

Some more things to consider

House inspection

Having a house inspection carried out is by no means mandatory, but we decided to make use of this option in order to get some additional 'peace of mind'. House inspections can be ordered for around EUR 500 to 600 and usually take a few hours, depending on the scope. In some cases the property owner who you are buying from may have reservations about the hiring of a house inspection prior to the sale, but is legally required to accept such an inspection; just be aware that this may be a somewhat delicate topic.

In our case we were lucky enough to obtain a positive inspection report without any noteworthy issues, which was of course also positively received by the property owner. The inspection report usually comes with photo documentation, and indicating all items where additional maintenance or at least future monitoring may be advised. Since it is generally said that a newly built detached house in Japan requires overall maintenance after ten to fifteen years, such an inspection report certainly comes in handy for assessing the property's condition, and to determine when exactly maintenance should be considered.

Useful hints

Everyone's journey toward their own property will certainly take a different course, but there are some things that all of these journeys will likely have in common:

• As a foreign resident in Japan, make sure to obtain permanent residency status to facilitate your property search. Although some banks do make an exception, most of them will require you to have permanent residency status, and in any case it will guarantee for generally more favorable loan conditions.
• Make sure you know your budget, and how much of your financial assets and income you are willing to spend on your property loan, especially since it will probably be the longest investment you are about to commit to.
• Be ready to compromise – unless you have an endless budget at your disposal, it is very likely that none of the properties you will come across contains everything that may be on your 'wish list'. Be sure about what is really important to you (having a large balcony? two-story house instead of three?), and what you can possibly do without. Stick to your list whenever you look at some property and find yourself having difficulties whether to decided for or against it.
• There might be special offers from the particular city or ward in which you are buying, e.g. tax reductions or other incentives, in case your property fulfills certain environmental or other building code standards. These incentives sometimes might not look like much, but it is worth looking out for them since they can help save a considerable amount of money.
• Trust your gut feeling – however frustrating it may be at times, you should step back from a property whenever you have even the slightest concern. We have been at this point quite a few times, but in the end we always were convinced that it was the right decision to wait and keep searching.
• Last but not least: enjoy the process! This is not meant ironically – although it will often be frustrating and time-consuming, there is a tremendous amount of fulfillment involved when this long process finally leads you to finding your future home. All the best!