RetireJapan

Hi all,

I've been reading the posts here for a while, but this is the first time I write to ask. I can answer basically any complex technical question about computers, but I'm useless in everything related to finance.

My situation is this: I'm living by myself in a nice rented apartment in central Tokyo. The rent is high (170k yen/month), so I've decided to move before renewing the rental contract again next year. I'm in my 40s already (44, to be exact), so I'm thinking that maybe it's time now to buy a house somewhere between Tokyo and Yokohama. After reading this forum for a while I've realized that there's so much that I don't know, so hopefully someone here can help me a bit or give me some advice.

Some of the things that keep me awake at night:

- Should I buy a new home, or buy a used one and rebuild? What are the pros and cons of each, in terms of taxes or other expenses?

- How do I know whether the land the house is built on is good? What factors affect the quality of a plot?

- What bank(s) would you recommend for the loan and why?

- If I decide to build a home, how do I find a company to design and build it?

- What costs are associated with home ownership, and how much (roughly) should I set aside for those?

Other details that may influence the options I have:

- I've been living in Japan for 17 years and I got my permanent residence around 6 years ago and I'm not planning to move back to my country.

- My Japanese is good enough to understand and speak it just fine, but not at the level required to understand real estate articles, even less loan documentation.

- I have a decent job with a good salary, but almost no savings yet (less than a month's salary).

Sorry for asking so much, but as I said before I know very little because until recently I haven't started giving much though to my finances and future.

Thanks in advance,

Some of my own thoughts and experiences:

Buy a new house. You can part-design it if it isn’t already under construction and choose everything down to the kitchen, door handles etc.

Good land is expensive. Poor land is cheap. I refer to both the quality of the land and it’s location. If the land is soft it will need piling.

All-electric houses are cheaper and much cheaper to insure.

Local banks can be more flexible and often have a good relationship with the house builder.

Check around your local area. The big national companies are everywhere but each region has lots of local companies who advertise extensively.

Salary and length of employment is the key decider for the bank. Savings not such an issue for them - but will be for you as you’ll need to buy things for the house. I reckon at least ¥2m and ideally you’d want several more ¥m as a deposit to keep the loan-to-value ratio down. Banks like deposits as it shows a commitment from you and reduces their risk. 100% loans are possible, though. Excessive consumer credit/debt is a bad indicator, although a clean credit history (there are three main Japanese credit reference agencies) will do no harm.

There is an annual land and house tax which you will need to budget for, in addition to the loan repayments and other occupancy costs.

Some banks provide translations of documentation in English. Most don’t. Take someone with you who is proficient in Japanese.

You’ll need a registered (with city hall) inkan.

You’ll need a guarantor. Japanese is best and either your spouse or a relative or a trusted local professional.

I think ricardo covered a lot of the main points there

Finding a company to build a house for you is easy. Choosing one, on the other hand... You can visit model home parks where you can see the products available and talk to the companies (many companies in one place). This will take a long time and I recommend only giving them your email address. If they have your mail address they will send you tons of crap and even come round unannounced (happened to a friend of mine)!

However, have you also considered a manshon (used or new)? That may also meet your needs.

Personally I find 10-15 year old houses can be good value, but maybe less so in Tokyo. I personally found the build process (going through and deciding/choosing everything) quite stressful, so buying an existing house can reduce that significantly

Local banks (regardless of where they are based -they all have offices in Tokyo) can be better value and more flexible. I got a 110% loan easily with PR and stable employment. I also didn't need a guarantor.

In some ways buying a property can be easier than renting, as you seldom run into fussy owners who don't want to rent to certain types of people...

JaviLM wrote: ↑Fri May 17, 2019 7:13 pm - I have a decent job with a good salary, but almost no savings yet (less than a month's salary).

How much of your income do you put aside for retirement? It sounds like almost nothing. It could be that an overhaul of your finances is in order before you consider buying a house.

A good first step is to work out your monthly living expenses, and then start to save up at least six months of that as a financial safety buffer. This is also a good motivational tool to help you reduce your expenses, and build up good savings habits.

JaviLM wrote: ↑Fri May 17, 2019 7:13 pm...
- I have a decent job with a good salary, but almost no savings yet (less than a month's salary).
...

I'll be blunt--get an emergency cushion set up first (six months salary, or at least six months of expenses).

Then start accumulating/saving for a down payment.

I've just gone through the house buying process myself, so I can try and give my opinion for some, but not all of your questions.

First off though, one of the others posters said you would need a guarantor. This is not true. Even for Japanese people, most banks nowadays prefer you to pay for a "guarantee fee", which covers the bank in case you default. The banks consider a guarantor company much more reliable than an individual guarantor. I got my mortgage this way, and all the banks I talked to were the same. Nobody asked me if I had a personal guarantor.

- Should I buy a new home, or buy a used one and rebuild? What are the pros and cons of each, in terms of taxes or other expenses?

New builds are either custom built or pre-built (aka tateuri). Obviously, if building your own house, the big pro is customization, the con is the higher cost.

If you buy used, you want to look for a custom built house, rather than a tateuri (tateuri's are the ones that give Japanese homes the reputation for shoddiness). There are plenty of used custom-built homes out there, where the original owner put a lot of care (and money) into ensuring it was built to a high-quality standard. This is where deals can be had. When you find one with potential, you will need to be willing to pay for a professional inspection, in order to assess the condition and to understand what maintenance work needs to be done. The inspection will cost you 10-12man-yen, and you will need to be willing to part with that money and walk away if the inspector finds too many issues. On the flip side, no used house will be perfect, there will always be some issues, and you can those as negotiation cards to get a better price.

There are tax breaks to be had on the mortgage for up to ten years. Most new builds will qualify, while used builds may qualify but will need to meet certain age (within 25yrs) and quality conditions. The tax break works out to a max of about 400man spread over 10 yrs. While this is not an insignificant amount, in my opinion it is not large enough to automatically disqualify older properties that are not eligible... because the premium you pay for a new build will often be much more than 400man.

As for the land, it's the same as anywhere else, location location location. Pick what's best for you.

What bank(s) would you recommend for the loan and why?

The bank you should go with is the bank that offers you the best deal. That's it. Your real estate agent can act as a go-between as you do several pre-approval applications. I did about 6-7. Apply for the Flat 35 as well. Make all the applications the same so you can compare apples to apples, and then take the best deal, considering interest rates and other fees, as well as options such as insurance.
One of the banks I applied for was Shinsei, because they can do everything in English. I found, however, their interest rates were not competitive compared with other banks, and they were also the only bank that declined to lend me the full amount I was asking for, so I went elsewhere.

- If I decide to build a home, how do I find a company to design and build it?

Two primary ways. If you want the bigger "name" places, visit your local 住宅展示場, where several house makers will all have beautiful model homes set up in the same area, and you can freely walk in and check them out. The other way is to find an independent 工務店 to build your house for you. These you need to find yourself, and as such you will have to do your own research about their reputation, but the price will be much better.
Note that many of the big house makers often end up subcontracting the build out to a smaller 工務店 anyway... so the same guys might build yoru house either way, but what you pay for with the big companies is the "reputation", and the aftersales care that comes with a big name. Different people value that in different ways.


One final note, on the issue of manshon vs. house. For comparison's sake, assuming you get a 100% mortgage, fixed interest over 35 yrs, and assuming 50,000yen in fees (kanri-hi, shuuzentsumitatke-kin, and parking) for your typical manshon in the Tokyo/Yokohama area, those added fees are the equivalent to almost 2,000man in the house price. In other words, the annual cost of the mortgage + fees on a 4,000man manshon will be the same as what you pay on the mortgage of a 6,000man-yen house. For me, as the latter choice allows you to own land, and the fact that I could buy much more house for 6,000man yen than for 4,000man in the manshon market, the choice was obvious.

mighty58 wrote: ↑Sat May 18, 2019 3:52 pm One final note, on the issue of manshon vs. house. For comparison's sake, assuming you get a 100% mortgage, fixed interest over 35 yrs, and assuming 50,000yen in fees (kanri-hi, shuuzentsumitatke-kin, and parking) for your typical manshon in the Tokyo/Yokohama area, those added fees are the equivalent to almost 2,000man in the house price. In other words, the annual cost of the mortgage + fees on a 4,000man manshon will be the same as what you pay on the mortgage of a 6,000man-yen house. For me, as the latter choice allows you to own land, and the fact that I could buy much more house for 6,000man yen than for 4,000man in the manshon market, the choice was obvious.

That is a really excellent point, and worth calculating before making a decision. Thanks

I own a house on land in Tokyo and my experience differed a little from some of what is posted above. For what it's worth:

1) I did not need a 実印 (an inkan registered with city hall) for the purchase but did need a form which attested that my signature was my signature. In fact, colleagues recommended that I never register an inkan officially at city hall because it effectively becomes the ultimate method for identity theft and I still do not have one.

2) I did have trouble getting a mortgage (my company initially served as guarantor) but was allowed to become the sole guarantor of my 15-year mortgage after about 3 years.

3) I share the bias mentioned above to own land instead of a manshon and at the time I was shopping (in 2001 just before the 9/11 terrorist attacks) found I could actually get more floor space in a new home on land in central Tokyo as compared to a nice, new manshon but the home on land would be 3 stories (always going up-and-down) for 100 sq meters while the manshon would be all on one, convenient level. I'm still glad I bought the home on land instead of the manshon (but see below).

4) I was paying rent of around 350,000 yen month with very hefty contract renewals every 2 years when I chose to buy a home in a much nicer neighborhood than that rental. After 18 years that home (or mostly the land) has either appreciated about 40% or is about the same value as when I purchased (depending on which appraisal value I believe). If instead I had put the money the home cost in a US S&P 500 index fund over that period the appreciation would have been 274% which would have more than covered all that rent and resulted in a higher return (again, the neighborhood did change). I think Japanese real estate is generally a pretty poor investment, especially when comparing Tokyo to other major cities like NYC or London.

5) I am impressed with how inexpensive a home RetireJapan has been able to buy. If you get a great deal like he did, where you are saving substantially compare to rent it might make sense, but I don't think you should plan on the home being an appreciating investment.

6) The tax breaks are income based and will not apply to you above certain income levels.

7) Your property tax will increase substantially after about 4 years (but still be low compared to property tax my US friends pay in most states).

TokyoWart wrote: ↑Sun May 19, 2019 2:24 pm 5) I am impressed with how inexpensive a home RetireJapan has been able to buy. If you get a great deal like he did, where you are saving substantially compare to rent it might make sense, but I don't think you should plan on the home being an appreciating investment.

Yeah, we were very lucky. Buying an old manshon outside of Tokyo from a friend probably helped

I expect to maybe get our money back if we sell in the next few years, or to lose money if we hold onto the property for longer.

One thing about the manshon fees -they are somewhat offset by the fact that owners of houses will have to pay for maintenance and repairs, a lot of which is covered by the communal repair fund in a manshon. Ours just replaced all the water pipes, for example, and upgraded the exterior lighting to LEDs at no extra cost to us. They also fixed all the damage from the earthquake in 2011 (cracks, etc.). So the numbers are perhaps not quite as compelling as they seem to be in mighty58's post.

Yes, you're right ... I should account more for expected maintenance costs for a house for the purposes of a comparison.

On the flip side, I feel people often underestimate the cost of maintaining a manshon. Manshon fees only cover the communal areas... the interior is entirely out of pocket, same as a house.

Also, despite the monthly collection, many new manshons will ask for an 一時金 payment to pad the account when brand new, and fairly large one-off payments when something major needs to be done (anywhere from 20-30man upwards, depending on the state of the accounts and the work required).
Sometimes these one-off payments are justified, but they're often just a ruse to keep the monthly fee low (which is understandable as it helps resale value and is often easier for people to stomach).

I know the benefits of living in manshons... garbage disposal anytime, security, cleaning, play room for the kids, and conveniences like a front desk that handles dry cleaning and takkyubin are top of my list... but all of that is paid for via the fees, and if you don't use the services, it's not an efficient allocation of your money.

Maybe using the example figures I provided, 1,000-1,500man would be a better estimate than 2,000man? Still compelling, no?