First Home Buyer
Focus
Here at Japan-Investments.com we focus on the purchase and ownership of investment real estate in Japan. We do not normally work on the purchase of ones first home. Having said this we receive enough enquiries from foreigners in Japan wanting advice on purchasing a home here in Japan to warrant a few words on the subject. Additionally we are here to help anyone who wants to invest in real estate in Japan so if you like what we write and it's a home you’re after feel free to contact and we will point you in the right direction.
Foreign ownership.
The initial question we field is can foreigners actually own real estate in Japan. The answer is a very simple, yes, that then being the case why don't more foreigners own homes in Japan? The answer to this question is usually a mix of a lack of information, lack of experienced guidance or finance. Therefore quite simply we believe that if you can find yourself an experienced guide and get your finance you will soon be in your own home and stop wasting money on rent.
Real estate packages.
Now that we are 100% sure that as a foreigner we can legally own real estate in Japan we need to know how we go about a bit about the kinds of financial models we can expect. When we think family homes in Japan we can basically split them into two main packages a) apartments or b) homes built on a block of land. We can then split into new or pre-owned. We will touch on new apartments however as they are not really high on our recommendation list we will look more at homes built on land. Pre-owned can become quite complex and so we will only speak of new homes here and zoom in on a typical finance package for a new home built on a decent piece of land.
New apartments.
You can expect to see a price somewhere between JPY25, 000,000 and JPY70, 000,000. This will normally break down to a price per square meter of between JPY450,000 a square meter and JPY700,000 per square meter. Anything more than this may be considered luxury. Most family apartments will fall between these numbers. Many apartment developers will offer their own finance package. These packages will usually be more expensive than a standard bank loan however they may well also be easier to access as the seller is motivated to get you in. He also has a higher level of confidence than a bank in reselling apartments taken back due to non-payment of loan.
New Homes.
The choices of location become important and so for the purpose of this discussiosn we will stick to the Kansai area for my examples here. In 2005 we see a very standard shape being offered by the large developers to new home-buyers. This shape is most likely positioned to appeal to a both that banks and population that have together just endured 14 years of deflation and are understandably still a bit cautious in major purchases. These new family homes often range in land size from 99 square meters to 165 square meters. The dwelling built on the land will usually be between 80% and 100% the size of the land. So at 100% we see a 99 square meter two level home built on a 99 square meter block of land. These homes will be built anything from 10 minutes to up to an hour from a major city in Kansai. They will usually be made of top quality materials and be sporting some very nice electronic creature comforts. Land prices will fall within range of JPY135, 000 per square meter out to JPY220, 000 per square meter. The dwelling will cost between JPY150,000 a square meter and JPY210,000 a square meter. These packages therefore give us a combined land and home cost of between JPY285,000 and JPY430,000.
Typical Finance package.
Finance for these "standard homes" homes is most often provided by Japanese banks. In the year 2005 we see some Japanese banks beginning to open the doors wider to foreign buyers. AS a buyer you will need to prepare yourself to talk to the bank. Discussion with two Japanese banks in Osaka that know us well and talked very openly shows us the following base bank preferences. Carry in a cash deposit of 20%. Ask to borrow an amount that can be repaid from 30% of your gross income. Be able to prove three years steady income with the same employer. Let's take a look at a real calculation. Your gross (before tax and deductions) salary is JPY4.400.000 a year. You have been earning this for three years. You have permanent residency in Japan. You find a house that costs 37,500,000. You have saved JPY7,500,000 yen for your deposit. You need to borrow JPY30,000,000. You ask the bank for a thirty-year loan at an interest rate of 2%. Your repayments will be 110.885 per month or JPY1.330.620 a year. JPY1.330.620 is just under 30% of your annual gross pay. You’re inside the norm and stand a very good chance at getting a bank finance. If you would like to know which banks are happy to support foreigners drop us a line.
The deposit.
The above outlined finance package demonstrates a need for a 20% deposit. This is a level of deposit that we know many banks will accept as being safe. If we checked all home loan applications in Japan there will of course be cases where 100% finance has been approved by Japanese banks. The question therefore is why would we suggest a deposit of 20%. Four main reasons really, 1. Companies that offer 100% finance may well include cost of insuring your loan with large underwriters within the price of your home. 2. Both your negotiating power and choice of vendor improve as your deposit increases. 3. A 20% deposit will offer you a buffer against reasonable increases in interest rates. 4. We are an investment group and as such would like you to start building collateral within your real estate profile. Having your first home set up with a nice deposit and paying it off as quickly as you can will lead to you being able to include you home as an asset rather than a liability on your balance sheet. We are not saying you need to put your home up as collateral for investment loans however banks will view your overall financial health as being more solid with a decent chunk of ownership in your own home in preference to a 100% debt. Putting up that 20% deposit is wise, gives you negotiating strength and will help keep you safe.
Summary.
As we stated the purchase of homes is not our main business. It also serves well to note we do not advise first home buyers to borrow more than 80% of the price of the home. We are dead against 100% finance. Having said these things we would be happy to offer any advise we can regarding the sensible purchase of your first home in Japan. Please feel free to contact us, we welcome your initiative.
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