Machiya: Tax Advantages/Disadvantages, Assessed Value

[dave]

We’re thinking about buying a Kyo-machiya as a 2nd home and reforming it. The current assessed value is basically the land. After the reform, do you know how the assessed value will change – if at all? We would like a “livable” investment (that I could possibly stay in during the week/weekend) and if we find it is not for us, we believe Kyoto is a desirable (in demand) destination if we want to sell (so won’t lose a lot of value). Your honest thoughts about strengths and weaknesses and considerations are appreciated.

For context, I am American and my wife is Japanese. I work in Kyoto and we will keep our paid-off home in the Kyoto suburbs but need to be nearby an aging parent. Yet, the commute can be long/tiring.

[mighty58]

There are several factors at play in assessing reselling value and limiting loss. One is desirability of location, how in-demand will it be, really? Machiya's often lack parking spots, so proximity to stations/amenities/tourist sites will be important when it comes time to resell. Buyers in this market are often looking for short-term rentability (AirBnb's), so consider the desirability from that angle as well. Another is to what extent it will need to be renovated, or to ask another way, how much money will you spend for the reno? I've seen absolutely beautiful machiya renos (and you'll be competing against those when reselling), and they're not cheap, likely in the 1,000-2,000man range (or more) for the work, depending on the current state, the materials you choose, and the size of the place. And finally, how cheaply can you buy in the first place? Keeping costs here as low as possible will be key, and remember the assessed value (for tax purposes) and the market value are often quite different.

So if recouping money/limiting loss is the primary concern, focus on location. This is probably a good time to be in the market actually, as a lot of AirBnb owners are probably hurting right now, and you might be able to get a decent (already renovated) property at a reasonable price. But this is Japan at the end of the day, and you'll more than likely lose money if selling outright.
Therefore, as an alternative exit path, rather than reselling right away, you might want to consider putting it on the AirBnb market yourself, and have the property generate money for you, if and when the tourists ever return. Kyoto is a competitive AirBnb market, so again, location will be important.

[dave]

Thanks for your thoughtful and comprehensive reply! D