To buy or not to buy, that is my question.

[Tomthumb16]

Hi Everyone and Happy New Year,
My wife and I are both expats living in Tokyo for 10+ years. We decided to move back home in the next 7-10 years for various reasons, closer to family with our young family being the main one.
My question is would you go thru the mountains of paperwork to buy a property here with a mortgage and live in it until you leave then sell it at a (more than likely)loss? We would be buying the real estate only not the land underneath it.
The flip side is, if we stay for 10 more years paying rent, renewal fees , real estate agent fees, deposits..when we leave we will leave with absolutely nothing.

I know this a vague question with no numbers to really crunch, but we would be looking at buying a place for around ¥45-¥55million, or continue paying rent at our current rate of ¥180,000 per month.

Thanks in advance.

[mighty58]

You need to start with the assumption that you will be out-of-pocket after 10 years either way, and thus the question becomes which path costs less? With your numbers, you'd need a very steep decline in the resell price 10 years down the road before buying gets more expensive than renting. This steep decline in resell price becomes your primary risk, but it can be mitigated by doing your homework and selecting a property that is desirable and that will retain, more or less, most of its value. As such, I would lean towards "buy" if you've got a 10yr horizon, with the (big) caveat that you need to buy a good, resellable property. Choose a crappy property and it could easily end up costing you more than renting would have. Of course there are other risks I'm ignoring, like earthquakes, but there's not too much you can do about that.

We would be buying the real estate only not the land underneath it.

From the above quote, am I correct in assuming you're looking at a 借地権 property? This is worrisome though, as these can be much harder to resell than a normal property... the potential pool of buyers willing to pay for such a property is very limited, while many financial institutions won't provide mortgages for such properties, so you could be left holding the bag for a long time waiting for a buyer to come along. Real estate is illiquid in the best of times, but these are super illiquid. Not to mention you would be subject to the whims of the land owner, who would need to approve any sale of your rights. These factors make it much more difficult to assess whether or not you can expect a decent resell price/return when it's time to move on. As such, a normal property (with land) is the much safer option. I personally wouldn't touch a 借地権 with a 10-foot pole, and never understood the appeal, but I do understand that they can sometimes offer a cheaper way to live in a great location.

[Jake]

We would be buying the real estate only not the land underneath it.

In my opinion, which occasionally isn't worth much..

Not all properties are created equal of course but there is a house about 50m away from mine in a very nice area, I saw online for sale and nearly crapped myself. It was so cheap (13mill) I almost got my cheque book out. If only they accepted cheques here...

Then I read the small print, it was lease hold, which is basically what you are talking about. The monthly land rent was too much in my opinion and not long after, the selling price reduced to 9 million but even then it wasn't a good investment, if you don't own the land, someone else owns your bo**ox. 18 months later, the occupants are still there and I can't find the house online for sale....

Our house was in a similar situation. Previous owner paid a lot for the house but leased the land. Before anyone would buy it he had to buy the land, then incorporate the house and land documents.

At the numbers you mentioned and with a leasehold, I hope you have a supportive god.....

[Roger Van Zant]

I think it's only worth buying a house in Japan if you intend to retire here and basically die in it.
I won't have much money in retirement, so my main aim in buying was to make my UK and Japanese pensions go further, as I will have paid off the mortgage by 58.
I also wanted lots of land, so buying up in the mountains was very appealing to me. I got an acre and a four-bedroom house for under 14 million yen.

[Tomthumb16]

You need to start with the assumption that you will be out-of-pocket after 10 years either way, and thus the question becomes which path costs less? With your numbers, you'd need a very steep decline in the resell price 10 years down the road before buying gets more expensive than renting. This steep decline in resell price becomes your primary risk, but it can be mitigated by doing your homework and selecting a property that is desirable and that will retain, more or less, most of its value. As such, I would lean towards "buy" if you've got a 10yr horizon, with the (big) caveat that you need to buy a good, resellable property. Choose a crappy property and it could easily end up costing you more than renting would have. Of course there are other risks I'm ignoring, like earthquakes, but there's not too much you can do about that.

We would be buying the real estate only not the land underneath it.

From the above quote, am I correct in assuming you're looking at a 借地権 property? This is worrisome though, as these can be much harder to resell than a normal property... the potential pool of buyers willing to pay for such a property is very limited, while many financial institutions won't provide mortgages for such properties, so you could be left holding the bag for a long time waiting for a buyer to come along. Real estate is illiquid in the best of times, but these are super illiquid. Not to mention you would be subject to the whims of the land owner, who would need to approve any sale of your rights. These factors make it much more difficult to assess whether or not you can expect a decent resell price/return when it's time to move on. As such, a normal property (with land) is the much safer option. I personally wouldn't touch a 借地権 with a 10-foot pole, and never understood the appeal, but I do understand that they can sometimes offer a cheaper way to live in a great location.

This is why I love this forum. That's great information, thank you. I didn't know trying to sell property without the land would be such a deterrent. I can understand now why it would be, but to be completely honest I don't think we could afford the down payment on land and real estate while saving up for a property back home at the same time. Maybe a nice apartment or manshoon with owning a % of the land underneath might be a more feasible option.

[Tomthumb16]

We would be buying the real estate only not the land underneath it.

In my opinion, which occasionally isn't worth much..

Not all properties are created equal of course but there is a house about 50m away from mine in a very nice area, I saw online for sale and nearly crapped myself. It was so cheap (13mill) I almost got my cheque book out. If only they accepted cheques here...

Then I read the small print, it was lease hold, which is basically what you are talking about. The monthly land rent was too much in my opinion and not long after, the selling price reduced to 9 million but even then it wasn't a good investment, if you don't own the land, someone else owns your bo**ox. 18 months later, the occupants are still there and I can't find the house online for sale....
I hear what you are saying but from what i have heard from friends of mine in a similar position the owner of the land can`t just turn around one day and kick me out. Tenants have alot more rights here than we have back i the UK. I agree with you on the investment side tho..does not seem worth it. Thanks.
Our house was in a similar situation. Previous owner paid a lot for the house but leased the land. Before anyone would buy it he had to buy the land, then incorporate the house and land documents.

At the numbers you mentioned and with a leasehold, I hope you have a supportive god.....

[Tomthumb16]

I think it's only worth buying a house in Japan if you intend to retire here and basically die in it.
I won't have much money in retirement, so my main aim in buying was to make my UK and Japanese pensions go further, as I will have paid off the mortgage by 58.
I also wanted lots of land, so buying up in the mountains was very appealing to me. I got an acre and a four-bedroom house for under 14 million yen.

Sounds good.The stress free, lazy side of me leans towards that side too. However, I still find it hard to comprehend paying rent, renewal fees etc for 10 more years and leaving with nothing.

[RetireJapan]

However, I still find it hard to comprehend paying rent, renewal fees etc for 10 more years and leaving with nothing.

There's a good chance you could end up paying fees, a mortgage, tax, repairs, doing lots of paperwork and end up selling for much less than you bought for. The flexibility of renting has a lot going for it I think, especially in the short- to medium-term.

[Moneymatters]

Maybe a nice apartment or manshoon with owning a % of the land underneath might be a more feasible option.

If I had a dollar for every Japanese person I know that lost significant money on an apartment when selling to move to a house or relocate I'd have enough for a Starbucks coffee at least. Basically I know several people.

The exceptions are rare and everyone knows "someone" that made out like a bandit.
I know precisely one such person.
The apartment was a short walk for a popular station and on the top floor.
Even then I think they only got what they paid for it after about 10? years.
And buying those kind of places, new or used, is obviously highly competitive.

I think it's been mentioned but for either a house or apartment, new or pre-owned, the initial fees in Japan are on the high side.
The web says to budget 6-8% of the purchase price.
Much is taken with the 3% real estate agent fee. Even if you keep that down you should see the price of decent curtains here!!
Let's say you manage it at 6% for a 50mil place that 3mil and you've not spent a night there yet..

[mighty58]

Well, we can quickly run the OP’s numbers, throw in a couple assumptions, and do a simple comparison:

Buying: (house w/property)
50m + 10% (5m) for fees/curtains/etc. = 55m
Let’s assume 20万/yr for taxes, and 20万/yr for maintenance & insurance, x 10yrs = 4m
Total buying cost = 59m

Renting:
18万/mth x 120mths (10yrs) = 21.6m
Let’s assume this 18万 includes everything (管理費、修繕積立金、parking)
Total renting cost = 21.6m

Therefore, the question is: how much does he need to recoup on his purchase to do better than negative 21.6m?

The answer: The property price can decline to 40m (20%) before renting becomes the better deal. (i.e. -59m + 40m – (40m*6%) = negative 21.4m after 10years. (the 6% is assumed selling costs)

A 20% property value decline over 10 years is certainly more than possible, actually, it's probably something that is close to average, anecdotally speaking. But, you can mitigate this by selecting a good property... and all the factors that make real estate desirable in any country also apply here (location, building quality, neighbourhood amenities, location, the view, safety … did I mention location?) Conversely, buy an overpriced (i.e. brand new) place that has not yet depreciated, on the ground floor, up 20min up a hill from a minor station that's in semi-rural Saitama, with no stores about ... and you can probably expect trouble recouping enough money when selling.

Finally two more considerations:
- Cash flow: A down payment of some sort will likely be required at the time of purchasing, but depending on how you structure your mortgage, your monthly payments can be cheaper than rent, freeing up cash.
- Asset ownership: After 10 years, if you own, you have the option to keep your property and rent it out to produce income. You may come to consider the rental cash flow generated as more valuable in the long term than selling. If you rent, obviously that option is not there.