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To rent or to own a property in Japan?

25 Comments

Many people, particularly expats living and working in Japan, have gone through the pros and cons of renting or owning a property. Most of them believe that renting a house would help them save more money – that’s because most of them are blinded by the fact that seeing the figures themselves means they’re able to keep something extra. Add the fact that they don’t want to risk everything in a country that is considered to have a high standard of living.

A typical conversation between two colleagues involves, aside from snippets about their personal lives, the status of their business and the changing economy. Add several complaints on budget and paying the rent, it’s sure to be a lengthy conversation. One businessman shares his encounter with a former colleague, who, after all these years of working and doing business in Japan, still pays his rent and doesn’t have his own property. Through his curiosity, concern and knowledge, this person was able to help his colleague realize the advantages of owning a property.

After treading lightly on knowing his colleague’s cash reserves during their last conversation, he found details regarding the place he’s living. He found out that he lives in a 2DK which he estimated would be between 40 and 50m2. His colleague has 15 million yen stuck in the bank earning no interest and lives about 12 minutes from the closest station and paying 105,000 yen per month on rent alone.

Having all that information, he found out, using this online tool the following information: since November 2011 in Tokyo's 23 wards alone, 43 apartments have been sold for less than 1.3 million yen, which were between 40 and 5m2 and the average selling price has been 8.9 million yen. These apartments had an average floor area of 46m2 and were 9 minutes away from a station. He also found out that if his rent is 105,000 yen a month allowing 12% expenses, his colleague would be able to pay himself back in over 10.9 years of paying rent and have an asset at the end of it, rent out if he decides to leave. But spending this amount on rent alone, he convinces his colleague that there’s no reason not to get decisive and buy a property instead.

To rent or to own? That’s actually not the question for some. Having discussed all these, however, his colleague pointed out that it still boils down to whether it’s the best time to buy or not, especially in Japan. Earthquake and the effects of the March 2011 disaster is one of the factors that affected the decision of property buyers to carry on with their plans to make purchases.

Let’s face it: renting is just dead money – at least, for a tenant. While that may be okay if you are a transient international, what happens if you end up staying where you were once merely visiting? A number of foreign residents showed interest in buying property in Japan, because they have ended up marrying here and want to settle down, others because they see it as just a plain good investment. And while you may have thought the overly active earth beneath you is reason enough not to buy in this earthquake-prone land, consider this: Japan has one of the lowest housing interest rates in the world, and the market has most definitely bottomed out. With a little extra money in the bank, and a perfectly good reason to stay here for another 5 or 6 years, people could help themselves with a little bit of research.

© Japan Today

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25 Comments
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When you pay rent, the money just goes away and you don't get anything back. When you buy, you put your money into the property and over time, it becomes yours.

But... when you factor in that most of the time you can never sell at a profit, or sell at all or even rent it out, while the HOA fees keep piling up, renting suddenly looks like a much more attractive option. Life doesn't stay still, and real estate in Japan often becomes a boat anchor that is hard to get rid of. Buyer Beware :)

5 ( +6 / -1 )

I have never owned property in 40 years mainly because I didn't want the problem of selling when I wanted to move, which was frequent. Too many countires to remember, but many of my friends back home have negative mortgages and here Japan the price of property is too high unless you want to buy from a bankruptcy? Many Japanese don't like "second hand property" and will buy a broken down house just for the land, knock it down and build a new house. In apartments or at least in the nice ones, the service charge is high.

I have no wish to be a property owner here or anywhere.

I rent a very nice, very large house with gardens for less rent than a one room thing in Tokyo, and certainly less than one fifth of what a mortgage would be.

0 ( +5 / -5 )

Throwing money away for comfort and ease comes easy for most since many are transient (love that word) residents. There is no point to buy - especially apartments (mansions). Land is substantial. Yet, this article fails to mention the pains for the foreign buyer in acquiring said land. Foreigners owning land are few and far between. It is blatantly frowned upon by our hosts. Now if you are the spouse of national, then the path is a lot clearer. You become owner out of consequence - buying or inheriting. Yet, how much legal claim the foreign spouse has to that land remains a mystery. Buyer/spouse beware indeed.

1 ( +2 / -1 )

Taxes, maintenance and upkeep are expensive. Renting out the place means involving a real estate agent that takes a cut. Mansions have common fees as well as maintenance funds and other mandatory contributions, plus you are fully on the hook if the roof, plumbing, electricity or other things need major work over the 10-30 years you would expect to "own" the place.

Also, for the rent-vs-buy comparison, you need to include the transaction fees. It is expensive to buy and to sell. There are loan origination fees, there are probably real estate agent commissions to cover at both ends. I don't know what they are in Japan, but in the US, these are 3% each time, so even if the property appreciates, you have to subtract 6% for the parasite agents that "helped" you out. People say "the seller pays the fees" but that is silly, since it's part of the price you pay. The seller has no other pocket from which he kindly covers this cost 100% at his own expense.

Finally, the rent-vs-buy calculation should always include that renters do something productive with their cash pile rather than locking it up in an illiquid down-payment or equity on real estate. The unwitting "colleague" described in the article is making a mistake by doing nothing with his 15 million in cash. He might as well be hiding it under his mattress. The type of investment is up to each person to decide based on their personal circumstances and risk profile. For example, if the colleague is from the USA, he could flick his 15 million into dollars at the currently amazing exchange rate of 79 yen and keep it in an interest-bearing savings account over there. If the yen falls as it one day must, then he could buy yen and make a profit. Or he could keep the funds in the US, and invest in fairly conservative mutual funds for a decent return. There are easy returns of 3%, 5%, and even 7% in corporate bonds out there. Low-risk investments may just keep pace with inflation, but that's better than just leaving the money in the bank at zero interest...or worse, renting a huge sum of money from a bank in order to pretend to "own" real estate that the bank really owns until you pay it off, with values possibly declining to wipe out your equity and the cost of taxes and maintenance too.

L'envoi: Without a bubble, real estate is not an "investment". It is simply the largest consumer expense you will ever have. But if there is another bubble (and one will surely come somewhere someday), then feel free to "invest" away and get out before the next crash.

4 ( +5 / -1 )

I purchased a plot of land in the burbs and built a house, and I have no regrets so far. Sure, real estate in Japan is NOT an investment, and the value of my home depreciates every day I live in it, but it's MY home, I can do what I want with it without getting permission from a landlord. I have a 60坪 backyard, trees, bbq and room for a pool in summer. Right now I'm looking out the window at trees and the mountains and the only noise is of birds chirping outside.

By the way it only takes 13 minutes by train to the centre of the city. I could pay about the same amount my house depreciates by every month to rent an apartment in the city centre... but I prefer the big house, yard, privacy, clean air and nature.

I do admit trying to sell the place when the time comes may be a hassle, but it's a risk I am willing to take to enjoy the environment I live in. To each their own I guess.

9 ( +9 / -0 )

I bought a house with a bit of land for less than US$100K in a semi-rural area just 40 minutes from downtown Nagoya. I had a friendly bilingual real estate agent and found no real bureaucratic problems others than those caused by my lousy Japanese. People with permanent residence and a steady job seem to have no problems getting mortgages. When I compare my home with expat friends in crummy rented and overpriced flats in the city, it's a no-brainer that buying a house that young Japanese don't like is a better deal.

5 ( +5 / -0 )

I both rent and own land and property in Japan, but the issue is mostly around the problem of expats getting a loan to buy! It took me some time before the bank would even talk to me, and I had to live here for awhile to get a loan as an individual. My company could buy property since I co-own it with others. To buy and sell for profit is easy, we have now renovated a couple of houses and sold with 40% profit in both cases. Again what we all need to look out for is the "Gajin" thing where we are always just the "Foreigner" and we are not seen equally to the Japanese, this makes it hard sometimes to buy and even rent. Many rental companies have a policy against foreigners to rent their properties and many are reluctant to sell to us, I have been turned down 5 times to buy a property because I was a Gajin. Thats Japan!

1 ( +1 / -0 )

Buying right is the key to it, resale or renting it wont be a problem and the mortage as opposed to rent is a no brainer, move from a rented place and you'll still lose money (bond etc), move/sell your property and you get most of if not all of your mortage payments back.

Granted the property probably wont increase in value like alot of countrys but you wont be just throwing rent into someone elses pocket each month.

Buy land not a box (apartment) in the air, its the land that has the value not the house or apartment. Cant see the point in buying an apartment at all, must have rocks for brains those who do.

My place is inland on a hill and solid stable ground 10 minutes walk from 2 stations and 15 minute walk from another, have yard, carpark, garden lawn, trees, patio, barbecue and the location is a big part of maintaining the value. People will always want to live close to transport.

0 ( +3 / -3 )

I agree with a lot of the posters on here. Last year my husband and I decided to buy a house. At first we wanted to buy property and build a house but it was way beyong our budget because my income wouldn't have been included.

So, we decided to look at used houses. Most Japanese hate the idea of a used house but there are some good ones out there. Now we live on a good chunk of land with 2 gardens, a garage, a 4 car parking area and a small dog run. The house itself is only 14 years old and is a 7SLDK. It was renovated before we moved in and the only problems we have had are with some of the sliding doors wheels (which we replaced). The great thing...it was way cheaper then building a house half the size on a post stamp plot of land where we could reach out and touch the neighbours house.

Buying an apartment seems silly to me but I guess for some it is there only option. But my advice; move out to the countryside and get a nice piece of real-estate for your own enjoyment. If you just want to flip the property, get something close to the station.

2 ( +2 / -0 )

total nonsense...

"Edward Perkich is the president of Sleep Well Homes KK, a foreclosure property advisory firm in Tokyo."

the figures he quotes might be for foreclosures otherwise how can the average price be 8.9m yen and the average rent 105,000 a month?...I could go round buying up places and getting the money back within 5 years

Very dubious badly written article, should specify that the article is referring to foreclosures. And there is a reason why they are cheap, I'll let the JT readers use their imagination on that one...

4 ( +4 / -0 )

43 apartments have been sold for less than 1.3 million yen, and the average selling price has been 8.9 million

Yeah, an apartment... not a house.

An apartment you own the box you live in. You don't own the building. You have to pay monthly building fees And most importantly, you do not own the land.

Buying an apartment is a horrible investment.

4 ( +6 / -2 )

In my case I get a housing allowance from my employer of Y27500 per month because I rent. If I bought a place I would lose that. Factor in depreciation, loss of interest on the money used to buy the property, taxes, a 5% consumption tax and agents fees on purchase and the risk of losing it all in an earthquake and renting seems the best option for me.

0 ( +1 / -1 )

Really, everyone has a different situation and needs.

An apartment -- bought -- can make a lot of sense, but probably only if you expect to stay at least 3 years. Landlords are likely financing their own 30-year note with that rent money, plus your key money is phhhhtttt! when you leave.

We made a tactical error by renting an office for 20+ years and had we bought instead, we'd now have a wonderful investment property fully paid off. I am not sure what we gained by handing that monthly rent over to our very nice, and extremely happy, landlord.

Same basic logic applies to an apartment. If you can buy, and plan to stay a while, by all means do.

0 ( +0 / -0 )

Renting is just one means of getting shelter, as is actually buying a property. Your mortgage is pretty much rent anyways! Plus the amount of interest you pay on top of a mortgage to the bank, you're $350k house is now looking like a $450~500k piece of property. Wouldn't be a problem if you can actually sell the place for that much but way too many factors go into home prices.. and what if you are forced to sell during a slowdown in the economy?

People rent because it affords them a quick escape if need be. If you want to be a smart renter, take the difference between your rent and a mortgage (plus all the other costs of home ownership) and put that money to work.. whether or not you can get a good return in Japan remains to be seen

2 ( +2 / -0 )

Let’s face it: renting is just dead money – at least, for a tenant.

This is a myth. You pay money, and you get a product in return. Nothing different than buying food. You might as well argue that going to the grocery store every week is dead money, and that you should raise your own pigs and grow your own rice.

1 ( +4 / -3 )

The location of the property is the key and the purchase is mostly a long term investment. If you ever pay off the first house and buy a second house, you can always rent out for good stable income return. If you get older, the rental income will help in addition to your job to maintain the quality of life. You cannot depend on J-goverment long term social security or other goverment handouts. You also get major tax advantage.

1 ( +1 / -0 )

More people are discovering that park benches are way cheaper than either buying a property or renting.

2 ( +2 / -0 )

napoleancomplex

Interest on a mortage in japan is extremely low, mine is around 1.5% so fairly negligable, not sure how you come up with your figures.

Renting is dead money with no chance of ever getting anything back, paying a mortage you are in line to get a large part of it back by one way or the other, buying right (land) not apartment and LOCATION etc is the key, so when the time comes to sell the property has some attraction.

Renting long term is for mugs.

-1 ( +2 / -3 )

Unless fluent in Japanese I would avoid a foreclosed property - cheap for a reason!

-1 ( +0 / -1 )

The example in the article is ridiculous. How are you going to raise a family in a 50m2 place? Would be tight with even one kid. And at that rental price, it must be an older building an undesirable part of town. Would you want to own something similar for 20+ yrs?

0 ( +0 / -0 )

Agree with Ulta, hell before I bought land/home my last aparto was just over 100sq metres for the wife & I & I was going stir crazy.

While I think housing in NAmerica is often insanely LARGE, cities in Japan most are insanely small, IT will drive you batty!

0 ( +0 / -0 )

I own a house here near Jiyugaoka - I was lucky to be able to pay cash because of a stock market windfall in the USA. I could not get a loan in Japan because of difficult-to-document self employment income. I wanted to put my Japanese wife's name on the deed to extent of 50% ownership, but was forbidden because of some law regarding imported funds (something to do with taxes, not sure). The maximum ownership I could assign to her was about 10 or 15% (forgot exactly).

I agree with commenters who say that owning something with some land is usually the way to go. However, renting has the supreme merit of flexibility. My Japanese wife loves the fact that we own something outright and in the city. I would like to move someplace out lying, but home ownership tends to keep you in one place.

0 ( +0 / -0 )

Most rent-or-buy comparison articles one sees aren't realistic, leave out several hidden fees of purchasing houses, and are usually outright real estate industry propaganda, if not out and out lies. However, at least one, oddly enough from a real estate business, has been introduced that's this side of honest.

0 ( +0 / -0 )

Hmm HOA fees? You mean maintenance fees? Only for apartments. Low low low interest rates almost zero Equity. Can't rent can't sell? Not an issue if you buy close to a city. How to do it! Don't buy a new house not worth the money. Buy old and it's half the price. Example Suginami my house 290,000 USD 7 bike ride from Asagaya eki. Dropped the ball on a 335000$ property 3 minutes walk from Asagaya eki. House not a condo or apartment small but 3 bedroom,kitchen living No key money, no renewal fees, no BS Property taxes on a 40 year old house are really cheap. You need a salary job for at least 3 years and helps if you have a Japanese wife, or permanent residence

Tips: don't buy a non-rebuildable property unless it's pretty close to the station. Hard to sell still but you can rent it. Hint the road should be 3 meters wide at least to be rebuildable property. Parking space helps.

non-rebuildable means you can reform but need to keep original footprint of the house and keep at least 1original post standing.

If you buy non rebuildable I've seen em for 150,000 USD

If you are staying for more than 10 years it's worth buying.

1 ( +1 / -0 )

Renting in Japan is waste of money. If you have enough savings, good income, working for a stable company (the bigger the better) and a permanent residence you can get a loan from the bank with an interest rate around 0.5% /0.7%. Ofcourse the rate depends on how much money you want to borrow. Investing in real estate in Japan comes with lots of benefits. As an owner you get high tax return. I am talking about investing in an income one room appartement which means you are not living in the appartment but you rent it out. Even you already have a loan for your own house you can get a loan because there are 2 different housing loan systems in Japan. 1 for your own house and 1 for investing in property.

0 ( +0 / -0 )

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