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?

Tokyo

Tokyo - A City of Hills

Purchasing Property in Tokyo