Foreclosed property in Japan

[Shouganai]

Its interesting that many people dont seem to be aware of the opportunities to buy foreclosed property in Japan. For many foreigners and Japanese alike, there are great opportunities. I've bought foreclosed properties in Japan & the Philippines. The benefits of Japan are:
1. Great savings - you can buy a house for as little as 10% of the replacement value, or 30% of the market value, with particular savings in rural areas. Why? Depopulation, and 'no long stay holiday' culture. Its more competitive in the city. The amount of property available is amazing.
2. Polite society - Japanese people are 'good sports'. They dont curse and blow your house up when you move into their foreclosed property. The prior owner in our case gave us some advice on how to maintain it.
3. No talk: Japanese people are ashamed to talk about it, so neighbours, who are likely buyers, don't know the property is for sale, so don't tell them.
4. Good yields: You can buy a property offering yields as high as 13% (in our case), and thats before you leverage it, so if 70% bank debt, you can pay the property off in a few years, and buy another in the meantime.
5. Great infrastructure for fixing up a property. I had no experience for fixing up a home. I found the staff at Cainz Home very helpful, but its mostly common sense and building materials are cheap in Japan. Fixing up my place was one of the most gratifying things I have done. I paid Y2.8mil for my place 1hr from Tokyo. Cheaper if you go further into the country, but I wanted access to a large city (Tokyo) for drinking.

Its not all good news. There is no property bubble on the horizon, no govt reform agenda, but it will come eventually, and the lack of population growth means that there is no real growth. But yields are exceptional, and of you are living in Japan, or want to retire here (using Japan Rail pass as well), I can think of few better places. Maybe Philippines, which also has foreclosed property. Anyway you can Google 'foreclosed Japan' for more info.

[Dundas]

Hello shouganai,

I’m interested in buying a foreclosed property in Japan in the future as an investment. I’m thinking about a condo for less than 10million yen. I think a condo would be best since I don’t have to worry about maintenance as much as a house would.

I was wondering how did you buy your property in Japan? Did you make your bid at the court yourself? Since I’ve been checking out some places at foreclosedjapan.com and if I were to buy a property from them they said this would be the fees:

Properties under 10 million yen:
(bid amount + debt, if any) + 6% + 630,000 yen

Properties over JPY10M:
(bid amount + debt, if any) + 12%

The above will cover all closing costs - acquisition/registration taxes
and costs, our fees, and court charges.

I was wondering if there commission is really expensive for the services they provide?

[Shouganai]

Hello shouganai,
I’m interested in buying a foreclosed property in Japan in the future as an investment. I’m thinking about a condo for less than 10million yen. I think a condo would be best since I don’t have to worry about maintenance as much as a house would.
Search Google for a book you can buy on this topic. The big problem with a condo is the management fees on condos in Japan are very high. I'd buy a house.

I was wondering how did you buy your property in Japan? Did you make your bid at the court yourself?

I had the assistance of my Japanese speaking GF. If you dont speak Japanese you would need to find a court office who is prepared to help you speak in English, and help you fill out the documentation.

Since I’ve been checking out some places at foreclosedjapan.com and if I were to buy a property from them they said this would be the fees:
Properties under 10 million yen:
(bid amount + debt, if any) + 6% + 630,000 yen
Properties over JPY10M:
(bid amount + debt, if any) + 12%
The above will cover all closing costs - acquisition/registration taxes
and costs, our fees, and court charges.
I was wondering if there commission is really expensive for the services they provide?
We bid directly through the courts. I don't know from memory how ForeclosedJapan.com structure their costs, but based on your info YES. These costs are rather high. I guess you mean 'x 6%'. Particularly high given you don't pay any agent fees (2 agents x 3%) buying foreclosed properties. They do however need to cover the cost of failed bids, so I would also be worried about the conflict of interest they have in that respect if they don't charge for a non-successful purchase, and of course its expensive if you have a succession of failed bids. Its nice to think we would win the bid every time. Frankly all agents are expensive given what they do, which is another reason to buy foreclosed property. :)

[Dogen Z]

I hope you don't mind but I have some stupid questions to ask. How can yields be excellent when demand is drying up due to the decreasing population? Isn't this what caused the foreclosures in the 1st place? If it's a buyer's market for property owners, isn't it also a wide open market for renters? In that case, where does the income come from? When will the gov't adopt reforms to spur growth in outlying areas when even Tokyo has problems with declining property values?

I've read that a lot of real estate companies in Japan have gone belly up because of their investing in developments during the tiny bubble over the past couple of years. This bubble collapsed when foreign investors started to pull out at the end of last year. Even large real estate companies like Mitsui and Mitsubishi are having problems selling their new developments in Tokyo. As you said, it's a good market to buy property to live on but otherwise, especially with the strong yen, I think I would look at places like Bangkok or Kuala Lumpur for investment property in Asia. LA and San Francisco also should have some good buys right now.

[Shouganai]

How can yields be excellent when demand is drying up due to the decreasing population? Isn't this what caused the foreclosures in the 1st place? If it's a buyer's market for property owners, isn't it also a wide open market for renters? In that case, where does the income come from?
There is always demand, its just a case of price and which market segment. Young people move to city, so cities are growing, rural areas are experiencing declining population. There is intra-prefectural migration as well, as some regional cities are retaining some population. Normally these is an inverse relationship between growth vs yields, unless there is a paradigm shift. Yes, renters have a choice, so you buy where they will rent. eg. Nice surroundings, close to station, modern property. You have to weigh this up against demand for different properties.

When will the gov't adopt reforms to spur growth in outlying areas when even Tokyo has problems with declining property values?
Lack of reform is just one reason why Japanese property has stalled. Slow credit growth is also a factor. Banks aren't lending.

I've read that a lot of real estate companies in Japan have gone belly up because of their investing in developments during the tiny bubble over the past couple of years. This bubble collapsed when foreign investors started to pull out at the end of last year. Even large real estate companies like Mitsui and Mitsubishi are having problems selling their new developments in Tokyo. As you said, it's a good market to buy property to live on but otherwise, especially with the strong yen, I think I would look at places like Bangkok or Kuala Lumpur for investment property in Asia. LA and San Francisco also should have some good buys right now.
I agree. Well actually there is a report on Philippines (foreclosed) property, and I think that is the best country if you are looking for a growth market scenario. Usually the laggard, the Philippines will be better than most going forward. But Japan is a yield, not a growth proposition really, as long as population growth is subdued (nationally) and reform stagnant.

[Dogen Z]

So in other words, an investor must be as intimately knowledgeable about the prospective market as the property he/she is purchasing. And he/she must also be prepared to take an active interest in managing the property after purchase. This makes sense--sounds like something Trump would approve.

For those who don't want to work so hard, you can invest in real estate investment trusts (REITs). These are the pros who do all the work for you and you just collect the income from their investments. However, they are dying in Japan because of diminishing income and high debt levels.

I would stict to buying property for my own use--like a villa in Kamakura or a summer home in Karuizawa. I don't know anything about the Phillipines, so I can't comment on that, but California might be very interesting. How about beachfront property on the North Shore of Oahu or on Maui--does anyone know about any good deals there?

[Dundas]

I wanted to know how much income tax do you pay on your properties?

I found this website and it says;

RENTAL INCOME TAX

Non-resident individuals earning rental income from Japanese property are taxed at 10%. Taxable income is gross rent less income-generating expenses and depreciation.

Just wondering if it's true.