We have a treat for you today: a guest post from Jon detailing his thought process leading up to buying a home here in Japan.
Here at RetireJapan we’ve always maintained that buying a home is essentially an emotional decision, and most people will probably choose the option that they think will make them and their family happy in the long run.
However, before doing that it is important to be aware of the financial implications of each choice, even if you then end up going with the more expensive option. I think Jon did a great job of listing out some of those factors in this post -many of them were things I considered before buying our manshon.
Thinking about buying a home in Japan
In January 2019, I bought a new-build 4LDK house in Arakawa-ku for a little under JPY 50 million, paid for with a bank loan. This was the result of a lot of thinking about whether to buy a house, what kind of place to buy etc. I thought it might be useful to note these down for other Retire Japan readers who are in similar situations. I am in no way an expert, and you might find some of my reasoning illogical or ill-thought through; in that case, you can learn from my mistakes!
Background
In around mid-2018, my wife was pregnant with our second child. The flat we lived in at the time, a UR manshon, was 1LDK. It was fine for one child, but two would have been difficult. So, we needed to move – the question then was whether to continue to rent a larger UR manshon, or buy a house. I had received my permanent residency the same year, so buying a house was a realistic option. The UR manshon was in Arakawa-ku, and we wanted to stay in the same area. The rent on the manshon was about 14 man per month, and I didn’t want to pay more than around 15 man per month in the new place, either in terms of rent or mortgage.
Considerations
My thought processes were as follows:
1) should we buy, or rent?
2) if we buy, should we buy a house or a flat?
The factors supporting each option are set out in more detail below.
1) Should we buy a house or continue to rent?
| BUY | RENT |
| Not just “throwing away money” as with rent. While of course houses in Japan depreciate, it seems unlikely we would not get anything back if we decided to sell a property in, say, 10-20 years | No insurance costs |
| Some tax advantages to buying, allowing offset of mortgage costs against taxable income | In an earthquake/flood/other natural disaster, we would not bear the sole cost for rebuilding. |
| Greater feeling of being “settled” in the community | More flexibility – it is much easier to move from a rental than a purchased house. |
| Value for money – it seems that to rent or buy an approximately similar house or flat, the rent is higher than the monthly repayment of a similar mortgage. | No fixed asset tax |
| Can do what you like internally without having to consult the landlord or losing your deposit | No ownership of a depreciating asset. |
| No renewal fees or guarantors | No transaction fees |
In the end, we decided that buying was the best option. I understand that a house or flat is a depreciating asset, but a depreciating asset feels like a better deal than paying rent. I also felt that the various risks (natural disasters, not being able to work in the event of illness etc.) could be mitigated to an acceptable level e.g. with insurance. I may also have been swayed by an inbuilt notion that “house ownership is good”, based on the prevailing wisdom in the UK.
I wasn’t that worried about being tied down by a purchase, as I’m not a huge fan of moving and we wanted to find somewhere we could stay for the foreseeable future. The tax advantage of buying a house appear offset by having to pay the fixed asset tax, so tax considerations don’t really favour one option or the other.
Having made that decision, the next question was whether to buy a house or a manshon. The pros and cons of each are set out below.
| House | Manshon |
| We own the land, which should not depreciate over the lifetime of the house. Even if the value of the house depreciates to zero, we should still be able to realize the value of the land if we came to sell, which is around 75% of the purchase price | Lower repair fees (due to being covered by the monthly maintenance fees/sinking fund) |
| No management fees or sinking fund payments. A particular worry with a flat is that if the block isn’t popular the fees are shared round fewer houses, and could rise significantly. | Possibly safer in the event of natural disasters. I must admit I don’t know who is responsible for e.g. rebuilding if you own a flat and the block is severely damaged in a natural disaster, but I imagine you aren’t in quite as much difficulty as if you were in a house. |
| No neighbours with connecting walls. We have small children so not having to worry about the noise they are making is a big plus. Conversely, we are not bothered by the noise anyone else makes | No stairs – in a mansion, with everything on the same level, you feel like you have more space |
| Don’t have to pay management fees and sinking fund contributions. | Natural light – much easier to get a flat with plenty of natural light than a house. |
| Lower depreciation on a flat, particularly compared to a new house. |
As with the decision of whether to buy or rent, the option we went for is actually the one with the fewer pros. However, one thing that really swayed me in favour of a house was the lack of management or sinking fund fees. I understand our house will need various renovations over time, but at least I will only pay for them when required and not every month regardless of need. The fees for manshons were between 25,000-50,000 per month, and I think repair costs in the first decade or so we own the house will come to significantly less than that.
In addition, some of the factors in favour of buying a flat, we were able to realise in the house we bought – for example, it has a decent amount of natural light. Also, it really is great being able to let the kids run around and not have to worry about annoying the neighbours.
Things I didn’t consider important
- Not being able to move because of depreciation
As noted above, even if the house we live in depreciates to zero, the land should retain its value. Combined with income from my job, which I intend to have for the foreseeable future, I think we could move if we wanted to (though of course in buying the house you hope that won’t be necessary due to the high fees!). Also, in reasonably central Tokyo (Arakawa-ku), I feel we are less at risk of depopulation or significant falls in land values than out in the countryside. - The opportunity cost of paying the various fees associated with buying the house
I could have invested the various outgoings related to the house in an index tracker. However, the mortgage I got covered both the cost of the house and the cost of the various fees. In the end, I had to pay around JPY 1 million myself that wasn’t covered by the mortgage. While of course this is a significant sum, a 2% downpayment on a house is absurdly low compared to the UK, where I’m from, and it didn’t feel large enough to worry about the opportunity cost. - Distance from the station
My brother-in-law, an estate agent, told me that the most important thing to consider when buying a house was distance from a station, as this is the biggest factor in how well it will keep its value. However, I bought with the intention of staying for a long time (an intention reinforced by the experience of trying to move house with two children under 3!). I’m not that worried about the resale value of the house, and I don’t mind walking to the station in the morning (indeed, as it’s often the only exercise I get, the longer the better). The house we have is 12 minutes from the nearest station, but I don’t mind in the least.
Any regrets?
I know it would have been financially more sensible to buy a second-hand place rather than a new one. But, a new one was available in the area we wanted for a price we could afford, so in the end we went for it. I suppose while financially it might not have been the best decision, it was right for the family and for the time we wanted to move.
Unexpected benefits
One upside of the house that I hadn’t considered is the people around us. We live on a new development of family homes, so there are a lot of kids around the same age as mine. They play together and its altogether more social than living in a rented flat, where we barely knew our neighbours.
Conclusion
Unfortunately it’s too early to say whether we made the right decision financially. If there is a big typhoon next year, and the Arakawa river bursts its banks, I may be ruing the day I signed the contract. But for now, we have a house we enjoy living in, in a nice area, which we can afford, and from which I have a commute to work which only involves 15 minutes on the train. I think we made the right decision. At this early stage that seems about the best you can hope for.
Thanks for sharing your thoughts with us, Jon 🙂
There are a couple of complementary blog posts on the site: housing options in Japan, and rent or buy.
How about you? Are you thinking about your living situation? Why did you decide to choose your current place?
Thanks for sharing. We bought our house in 2001 in central Tokyo and I would agree with just about everything you mentioned as considerations. I might add the following based on our experience since then:
1. When we were comparing houses to manshons in the area we wanted to live, we actually found that the purchase price per tsubo of living space was a little lower for the houses, even though they came with land, when compared to a brand new manshon. We were told that was because of the inconvenience of going up and down stairs (we have a 3 story, 140 square meter home).
2. There’s some rule about the seller/builder being liable for defects found during the first 10 years for a new home. (In fact one of my neighbors made their seller/builder replace their roof.) Maybe for that reason we received a nice food gift at the end of each year and the company we bought the home from helpfully fixed the small problems that happened (a pump died, etc.) for free during those first 10 years. After the tenth year we stopped getting presents.
3. Besides those 10 years of free maintenance, we have probably spent less than a total of 100,000 yen total on home repairs during our 18+ years of ownership. Our utility fees are probably higher than for a manshon because the house gets colder in winter than do units in an apartment building but the running expenses for our home are now almost nothing since the mortgage was paid.
4. We have a few piano and violin players in the family so having the house turns out to have been important to avoiding complaints from the neighbors.
5. I don’t know if it’s made any difference for re-sale value, but the neighborhood has definitely become physically nicer (it was always socially nice) over these almost 20 years. Each time a neighbor’s house has been purchase the new owner has completely torn it down and replaced with a much nicer building. That also happened to a small apartment building just down the street. If we’d bought a manshon any meaningful improvements would have had to be funded by our management fees.
I’m sure it was in the background, since you stayed in the same area. But in addition to distance from a station, another factor for families with kids is the distance to schools (and whether that’s walkable–traffic, roads, etc). Suumo typically includes distance to schools (and daycare).
Hopefully Jon is near high ground or a sufficiently tall evacuation center, and has made preparations to evacuate. Much of that part of Tokyo is low-lying, as shown in Arakawa-ku’s hazard map: https://www.city.arakawa.tokyo.jp/kurashi/bosaibohan/suigaisonae/suigaimap.html. This shows that much of it is at high risk for flooding.
There are many examples of what this level of flooding looks like, such as what happened last October in Nagano City.
This is a very good point that I probably didn’t give enough thought to! It was one of those things I filed away under the heading of “it probably won’t happen”, but during typhoon Hagibis last year when the level of the Arakawa river was something like 6 metres higher than normal, it really got quite worrying. According to the hazard map the area we are in will be up to 5 metres deep if there is a flood, so I think on the top floor of our house we will be ok, assuming it stays standing in that situation. I only half jokingly suggested to my wife keeping an inflatable boat on the roof terrace just in case…
Anyway, the local hazard maps are certainly something to consider when you’re buying a house!
Jon
Even with permanent residence, I’ve found many people (myself included) are still unsure about how long we’re going to stay in Japan, which obviously plays heavy on the buy vs. rent decision.
If there is one thing I could recommend to those unsure how long they’ll actually be in Japan, the best way to mitigate the risk is to get a property with solid resale or rental value. This usually means paying a bit more for something with the right “specs”, or something with a selling “hook” of some sort. If you ever need to bail on Japan, the last thing you want us to be holding the bag on a difficult-to-sell/difficult-to-rent property. Once this biggest of risks is mitigated, I think buying becomes the obvious way to go.
My experience:
– In 2006 bought a 3 stories 4-LDK terrace house , 120 m^2. Terrace house means townhouse with condo style land ownership. Our part of the land is 176 m^2.
– concrete house made in 1979 (old by JP standards but the complex is kept in a very good condition and concrete does not age easily…)
– large open space and terrace on 3rd floor, nice for hobbies, laundering, and flowers
– Nisshin city, 40 min to downtown Nagoya by bus and subway. The bus part is cycling actually, I hate buses.
– three big parks very near, that was the buying trigger for me
– paid 15 million yen + 6 million for repairs (wallpaper, wood flooring replacing the old carpet in living room and tatamis in the bedrooms, new water heating system, enlarging the bathroom (was ridiculously small).
– we pay 10,000 yen/month for the common repair fund (but this covered serious roof repairs and exterior painting back in 2010).
– after 14 years of ownership: I think it was a very good decision, although I could have made more money if I had invested the 20 million in the stock market. I probably have lost two times more money. Yes, but I don’t think this is extremely important. The area is nice, becoming really popular with young people, very green, etc. I can relax at home and I can think where to invest my surplus money 🙂
Just wondering if you could detail the extra costs associated with purchase price of your JPY 50 million home.
What are the extras in respect of taxes, transaction, administrative fees etc.
Many thanks for your very informative article.
Good question! I was sure I had a sheet from the house builder breaking down all the fees, but sods law says I can’t find it now. What I can remember is that the estate agent fees were 0.7 million yen (bargained them down by 50% so originally was meant to be 1.4 million yen), legal fees 0.45 million yen, real estate tax 0.2 million yen (i think this was lower than it would have been because it was a new house; I must admit I don’t remember the details), loan arrangement fees 0.7 million yen. Some of the ongoing tax costs haven’t yet come through because I believe you only pay fixed asset tax from the year after acquisition (so I will pay this year), but the tax office came round and evaluated the tax; it will be 85,000 JPY each year for the first 3 years, then double that for the following years.
I may have forgotten some of the fees as the total of the above seems quite low. But I think there were various reductions for it being a new house and certain temporary reliefs were in place. We also bargained quite hard, e.g. on the estate agent fees. Sorry for not being able to provide more information! In the end I felt it was a bit like getting married – people keep coming and asking you to pay various large sums of money for services you are not entirely sure of the nature of, but you’re so inured to spending by that point out that you just sign the cheques!
Very helpful info thank you Jon!
My experience was like Jon’s. There were a lot of charges and fees that popped up along the way, costing much more than I’ve heard from friends stateside. The home builder factored the fees into their estimate, so I had enough set aside to pay them off.