I own a flat now
Finally finished buying our flat. I’m planning to write something longer about this in the future, but for now a few thoughts on the process.
1. It was relatively painless, mainly because I knew and trusted the estate agent. With him looking out for me I felt better about stamping random pieces of paper.
2. There is a huge amount to understand. For example, I learned that I should go to the prefectural tax office to apply to have my buyer’s tax reduced. I didn’t even know there was a buyers tax 😉
3. I also learned you can get a tax rebate on real estate loans for properties older than 25 years old, but only if you have some kind of earthquake-proofing certificate. I’m going to see if I can get hold of one (our flat is 26 years old).
4. The bank ended up lending me an extra 300,000 yen, because their estimates of the costs, while accurate, were thrown off by me not wanting any optional insurance (-100,000 yen) and the estate agent giving us a discount (-200,000 yen). I was expecting them to ask for the extra back, but they haven’t yet.
5. The fire and earthquake insurance they initially recommended seems like a complete rip-off. We’re buying a 3rd-floor flat, essentially a concrete tube in a building, but the insurance covers lightning strikes and cars driving into the building. The suggested plan was 140,000 yen for ten years, the bare minimum I ended up taking out was 40,000.
6. Variable mortgage payments at my bank seem to be a very client-friendly system. Monthly payments are set for five years, regardless of what the interest rates do. After each 5-year period the monthly payments can be changed by up to 25%.
Our mortgage is a variable 30-year loan at 0.5%, so for now our mortgage payments will be just under 30,000 yen a month.
Anything I should know about as a new property owner?
​
Well done! I have learned something here. Your mortgage and interest rates are tax deductible, so it may or may not be in your best interest to pay it off quickly. I didn’t think about it for the first few years, but once I did… I finished the loan last summer. Saving money in the long run, plus now I have more time to do other things rather than working for coins.
Hi Steve
I hate being in debt, but borrowing at 0.5% and investing at 3-7% makes it a no-brainer for us to borrow as much as possible.
That might change in the future if interest rates go up, but if interest rates go up the Japanese government won’t be able to pay the interest on its debt, so I am guessing they won’t go up 🙂
Still, adding the mortgage to our ‘net worth’ spreadsheet wasn’t much fun (especially as I am not going to add the value of the flat, as I can’t really predict what it will be in the future).
I’d be super interested to see if you’ve done the math in terms of costs of home ownership vs renting in Japan. We’ll be facing the same choice soon when we get back to Japan and I’ll have to seriously think about it.
Out of curiosity, how much does your place cost? (about $100’000 based on a quick math… wow, our condo in Tokyo suburbs cost 42’000’000 yen, roughly 4 times more, and it was so small…)
Hi SB
Ours is not a typical case. We bought the flat 68m2, 3LDK, well-build residential (not rental) mansion for 9m. I think the market value is around 13.5 (a similar flat on the 5th floor sold for that much last month).
We got a great deal because the owner is a friend of my wife’s, we’ve been living here for five years, and he wanted to get rid of it and wasn’t too bothered about money.
We borrowed 9.9 million, and I was pleasantly surprised to be able to invest 300,000 of it (put it in VGK).
As for costs, I am not sure exactly what we’ll be paying.
Mortgage: just under 30,000 yen a month
Mansion fees: 22,000 yen a month
Property tax: just under 80,000 yen a year
Barring unpleasant surprises I’m guessing we’ll be paying 60,000 yen a month to live here. The rent on something similar in the area would be 80-90,000, so it makes a lot of sense.
I’m pretty confident we’ll be able to sell for at least what we paid for it, if not more, in 5-10 years time.
Now, if we had bought at market prices those numbers would be a lot closer, and given the transaction costs seem to be around 10%, it probably isn’t worth buying under normal circumstances.
The main reasons to buy that I can see:
1. you want to customise your home
2. you plan to live there for 30 years
If there is a chance you’ll move I would be inclined to rent, but it can be difficult to do so (the nicest places won’t rent to foreigners or require a company to rent it), so that can also be a factor.
Personally I don’t like the idea of owning expensive immobile fragile assets, but the numbers on this particular flat just worked (and I like it very much for the location, lack of problem neighbours, and local amenities).
I’ll keep you posted with regards to unexpected costs in the future 🙂
Regarding the main reason to buy “plan to live there for 30 years”, with your monthly mortgage at 60,000 yen versus renting at 80-90,000, wouldn’t it still make more sense to buy even if you have no plans to live there for 30 years? Or are there other downsides?
Well, we got an unusually good deal.
If we had paid market rates (13.5m instead of 9m), then the mortgage and monthly fees would have been 70,000 yen, plus the cost of repairs/maintenance.
Given that transaction costs for real estate here seem to be around 10% (that is more or less how much it cost us to buy, and it will cost a similar amount when we sell), our current plan to move in 5-10 years would be more expensive than renting.
The only reason this works is because we got the flat so cheaply.
The other things to take into account are:
a) flexibility -you could move next month if you wanted/needed to when you are a renter
b) emotional -getting that perfect home for your family
I think the security of not being responsible for the building or unexpected costs is worth something too.
A huge amount to think about when buying real estate to live in -would love to hear what others think too.
Even if you own you could still move out anytime you like if you can find renters. This point actually helps me to sleep better at night because even if I lost my job we could still move somewhere very cheap and get renters to pay our mortgage instead.
By the way, we recently remortgaged our flat with Sony online bank and my monthly payments have dropped by over 30,000 yen per month.
Hi TS
Unfortunately, the numbers for that don’t work so well for us either…
Our original plan was to rent the mansion out once we moved to create another source of income. But looking at the numbers it would barely put us in the black.
For our case it would be much better to sell and invest the money elsewhere.
I am really skittish about being stuck with a flat I can’t sell as the monthly fees get higher and higher.
Eventually they’ll want to demolish the building and get all the owners to pay for it 😉
I think there are differences between buying a house and a flat, too. When we bought our house, the actual house itself was very cheap and most of the price was in the land. The house will continue to depreciate in value but the land should hold its own. So, when you consider what you would pay in rent over what you pay for the actual house (if it is second-hand and quite old) buying may very well make sense. Of course there are property taxes, maintenance costs etc and a lot to consider, but I definitely don’t think buying in Japan should automatically be written off as a bad idea.
Oh, absolutely! I completely agree with you.
Buying real estate in Japan may be a good or bad idea (see what I did there?) but it is very important to run the numbers to see which one it is for you…
I just want to make sure that no-one thinks buying is automatically a good idea either 🙂
Definitely not always a good idea and certainly very different from buying property in, say, UK. The main reason I bought was so that I had complete control over the place I ran my business from. No being forced to move, freedom to mess about with the building etc. Investment-wise, probably wasn’t the best move, but don’t regret it.
Definitely hear you on the school thing. Our landlord could destroy our school by not renewing the lease at the moment, as I’m not sure we’d be able to find suitable premises nearby…
I think the most important thing is to focus on peace of mind rather than optimizing investments. Makes for a more relaxed life!
Also as with any real estate, location is everything. In our area, which lies in central Tokyo within the catchment area for two prestigious national junior and senior high schools, really old apartments seem to hold their value. If we ever had to sell and we could break even that would be enough for me.
What makes you confident you would be able to sell at a similar price in ten years time? Land prices are stable in Japan, second hand condo prices are not at all. Buildings depreciate over time and many twenty five year old houses are valued at zero.
Well, I’m not 100% confident as I don’t trust property here 😉
The condo is worth 13.5m now (another unit sold for that much last month), so I’m hoping with the decent location and transport links well get something like 9m for it in 5-10 years time.
Not counting on it, just hoping.