Buying a house that cannot be rebuilt

[reggie_f]

I found a property I really like. The size and the location is just right and the price is unusually low.

I spoke to the realtor and found out that because of the slope behind the house it is essentially impossible to rebuild. The land isn't in a hazard zone. The house itself is old (built in 1980) but liveable. Without some kind of compromise I wouldn't be able to afford to buy in this area. With such a discount the mortgage works out to be the same as my rent.

So, questions. How much reform can be done on an old house like this? Would it end up being a money pit? I could live for another 40 or 50 years, so I'm planning for the long term.

Would the tax end up being higher because it is in an expensive area where (in general) the land is worth a lot more?

If I had to sell it in the future, is it likely to be very difficult to sell?

[mighty58]

I found a property I really like. The size and the location is just right and the price is unusually low.

I spoke to the realtor and found out that because of the slope behind the house it is essentially impossible to rebuild. The land isn't in a hazard zone. The house itself is old (built in 1980) but liveable.

A slope being the issue is a new one to my ears... usually non-rebuildable houses (再建築不可) houses are designated as such because they don't have sufficient road access, ie. those properties you often seen tucked in behind other properties. If it does have road access (and by extension a parking spot), it's actually quite good then as far as these types of properties go.

With such a discount the mortgage works out to be the same as my rent.

Banks are often wary of providing mortagages for such properties due to the lack of collateral value and the difficulty of reselling. If your agent knows of a place that is willing to lend for this, then all good, but if you are just assuming you can get a mortgage and haven't actually checked yet, then keep in mind banks might balk.

How much reform can be done on an old house like this? Would it end up being a money pit? I could live for another 40 or 50 years, so I'm planning for the long term.

A surprisingly large amount of reform can be done. Some sources say that as long as you keep the original foundation, or a single pillar, it's not considered a re-build. So you can essentially construct a whole new house. Talk to you agent about the nuances and vagaries of this, as it's a bit of a grey-zone. However, there are numerous people on the net professing they "rebuilt" their un-rebuildable houses.

Would the tax end up being higher because it is in an expensive area where (in general) the land is worth a lot more?

Tax is based purely on the assessed value of the land. Comparative to your neighbours in the expensive area, it would likely be significantly lower due to the non-rebuild clause. Your agent will be able to give you an exact figure for what was paid last year.

If I had to sell it in the future, is it likely to be very difficult to sell?

Yes, liquidity is far less than a typical real estate purchase, due to the restrictions and difficulty for buyers to secure mortgages. However, if the area is as desirable as you describe, there may be some latent demand from people (like yourself) looking for a good deal.


Finally, if you are living there a long time, maintain a relationship with your neighbours and keep your ears open for any sign they might be selling, and be ready to make an offer. The only way to free the plot of land from its rebuild restrictions is to combine it with a neighbouring lot (which doesn't have rebuild restrictions). If you can succesfully pull that off, you can recoup a lot more money than you paid when selling.

[Tkydon]

I found a property I really like. The size and the location is just right and the price is unusually low.

I spoke to the realtor and found out that because of the slope behind the house it is essentially impossible to rebuild. The land isn't in a hazard zone. The house itself is old (built in 1980) but liveable. Without some kind of compromise I wouldn't be able to afford to buy in this area. With such a discount the mortgage works out to be the same as my rent.

So, questions. How much reform can be done on an old house like this? Would it end up being a money pit? I could live for another 40 or 50 years, so I'm planning for the long term.

Would the tax end up being higher because it is in an expensive area where (in general) the land is worth a lot more?

If I had to sell it in the future, is it likely to be very difficult to sell?

My thoughts.

The reason the price is low, is the limitation you mention.

There are lot's of properties all over the place that essentially could not be rebuilt under new building regulations. This hit many properties that were demolished by the Kobe Earthquake, that had been built out of code, and the land would not support rebuilding under the new strict enforcement of existing and new code. Also, many places have set-back orders that mean a new build would have to give up a strip of land across the front of the plot for road widening, reducing the size of the buildable land, and so on... On many such properties, built out of code, you would not be able to get a bank to make a loan. Therefore, if you are able to get a loan, that is a good sign...

The questions would be:
What happens if the property was demolished in an earthquake?, and
Is there any possibility that the slope behind the house could slip?
Could you get Earthquake Insurance on the property?
The answer to these questions would be a good indicator of how Insurance Companies would assess the risk.

You can reform as much as you like. If you like the general layout, then you can change out the bathroom, kitchen, wall paper, flooring, etc., insulation for energy efficiency (tax break available), under-floor or central heating, etc.. You could do the remodeling before moving in, or over a period of time (a little more difficult and disruptive). Depending on the amount of work you decided to do, maybe your budget would be something between Y2,000,000 and Y10,000,000, but that should put you into a home you like for the next 20 years. Maybe less if you enjoy DIY and do much of the work yourself.
(If this was an investment property, you could depreciate the improvements over 15 years.)
If you can get a loan, you may well be able to get the bank to make a loan including the renovation budget.

If the property is a Timber Framed Structure, then the structure would be depreciated over 22 years, and the interior over 15 years, so you are essentially just paying for the price of the land.
Obviously not your case, but many would consider demolishing a fully depreciated structure and building new, which might cost you something between Y20,000,000 and Y30,000,000 on top of the price for the land, so refurbishment might be a very reasonable option.

On Property Tax, you can ask how much the current owner is already paying for the Property Tax Kotei Shisan Zei 固定資産税, and you probably wouldn't expect that to change too much if you just renovate the existing structure...

You probably want to get it inspected by a Surveyor, with particular focus on the foundation and core structure, especially under-floor and main pillars, (Foundation or ground movement?, and all the pillars in contact with the ground / foundation?, termite damage 白蟻, etc.) , and the roof, and the registration and classification of the land plot. If that passes, it removes concerns about the property that might be a money trap in the future.

You probably want to talk with a renovation company to get a better idea of the potential budget for the kinds of improvements you would want to make.

Given the restriction you mentioned, this will also influence future potential buyers, if you ever wanted to sell, but if you intend to live there 'for ever', then is that really a problem? After another 15 to 20 years, the improvements you have made have effectively been fully depreciated, and so the selling price would again essentially be just the price of the land, which you would hope would appreciate over time at the rate of inflation...

And, how much of a premium do you think it is worth to you if you really like it?

[RetireJapan]

My in-laws' place is exactly like this. It is near a slope, so current laws do not allow a new building to be built on their plot of land.

We did a lot of looking into it, and eventually gave up on trying to get permission for a new house. Instead, we did a full renovation of the existing house. Basically stripped it down to the skeleton, put in new walls, windows, insulation, mechanical heat exchange ventilation, underfloor heating, etc.

It is now a stealth house, in that the outside looks the same but the inside is basically a new building.

Cost us 25m yen in the end, but that was making very few compromises. A similar sized new house would have cost slightly more.