Investing in Japanese Real Estate

7 Situations When You Should Consider Selling Your Residential or Investment Property in Japan

Real Estate Japan recently conducted an e-mail interview with Shinichi Kawamura on whether now is a good time to consider selling a residential or investment property in Japan. Mr. Kawamura is CEO of LINC Inc., a real estate consulting company and brokerage in Tokyo.

7 Situations When You Should Consider Selling

Here are seven situations when you may want to consider selling a property in Japan.

  1. Rising mortgage interest rates
  2. When you have a clear objective for selling the property
  3. Leveraging your property’s yield situation
  4. Five years have passed since purchase (for investment properties) – tax planning
  5. When there have been major changes to the surrounding environment 
  6. If large-scale renovation costs are required due to age
  7. If the property has been vacant for a long time (for investment properties)

These points are discussed in detail below.

Is now a good time time to consider selling a residential property in Japan?

So far as the residential market is concerned, it may even be slightly late to sell real estate, but depending on your particular property, you may still want to consider selling in the current market.

The timing and scenarios for selling will depend on the type of property (whether you plan to sell land, a detached house, pre-owned condo), and the purpose of the sale (whether you are organizing assets or relocating).

If you are considering selling in the near future, it may be a good idea to consider selling in 2019, while the market is stable.

Rising mortgage interest rates

One major cause of market instability is mortgage interest rates for housing loans. The year before last, Bank of Japan Governor Kuroda announced that the BOJ would “continue strong monetary easing”.  However, interest rates for housing loans (Flat 35) have been climbing slowly since bottoming out in the summer of 2016.

When interest rates rise, general consumers tend to lose their appetite for buying, so ideally you would want to sell before that happens. On the other hand, it is possible that prices will rise temporarily due to last-minute demand in anticipation of the increase in consumption tax scheduled for October 2019. However, if you miss the opportunity to sell in the last-minute rush, prices will drop sharply on the rebound. In that sense, market rates will likely swing up and down wildly from this year onwards.

The most basic and critical point in deciding when to sell

The most basic and critical point in deciding when to sell your real estate is to have a clear image of the objective of the sale (Why are you selling? What will you do with the proceeds?).

It is very difficult and risky for a general consumer to dictate price and seek a sale at a high price. Ensuring a sale with no regrets all comes down to delivering (assigning) your valued property safely, at an appropriate price, to a good buyer at the right time. If you lack even one of these four requirements, you will not be able to affect an acceptable sale (a satisfactory result).

Is now a good time time to consider selling an investment property in Japan?

Importance of getting a property appraisal

Unlike residential properties, sale prices for investment properties are heavily affected by yield.

Appraisals to establish a sale price are also generally conducted by back calculating from yield.

However, due to the current rise in property prices, prices for investment properties are also soaring.

As the possibility of realizing a higher than expected capital gain is high, we recommend that you try submitting your property for an appraisal.

The following cases are also times to consider selling, which we hope you will find to be informative.

  1. Five years have passed since purchase
    1. As explained in this article (What are the taxes and fees when selling property in Japan?), a high tax rate is imposed if real estate is sold less than five years after it has been acquired. Therefore, when at least five years have passed since obtaining the property, it could be a good opportunity to consider selling.
  2. When there have been major changes to the surrounding environment
    1. If there is a major change to the surroundings, such as a decision to relocate by a large corporation nearby, no time must be wasted in considering a sale. This is because there is a risk that an imbalance between demand and supply will lead to a significant drop in prices.
  3.  If large-scale renovation costs are required
    1. If large-scale renovations are required due to deterioration with age, it will be necessary to reconsider your investment strategy with a view to selling. If the costs required are too high, there are cases where selling will improve return on investment in the long run.
  4.   If the property has been vacant for a long time
    1. If a property has been vacant for a long time, you need to consider lowering the rent or selling the property. If you lower the rent due to a long vacancy, the yield after the reduction will go down considerably. If yield goes down, this will have a significant direct impact on the sale price. It is worth considering selling before yield goes down.

About Shinichi Kawamura

Shinichi Kawamura, CEO, LINC Inc.

After years of managerial experience at one of the world’s leading homebuilders in Japan, Mr. Kawamura received an MBA while working overseas. He specializes in providing consultation services in the real estate industry by partnering with professionals such lawyers, accountants, architects, and designers, etc. to find optimal solutions for clients.

LINC Inc. which was established as the residential and investment real estate business of a construction company, has achieved a sales record of 50 billion JPY.

They are able to offer comprehensive real estate solutions through partnerships with industry professionals, including first-class certified architects, lawyers, accountants, takken (real estate transaction managers), systems engineers, designers, and management consultants.

They currently offer a wide range of services, including but not limited to order-made homes, office design, consulting, and real estate brokerage.

For more information about selling property in Japan

If you are interested in learning more about selling property in Japan, please fill out the form below and a representative from LINC Inc. will get in touch shortly. Consultations are free and require no obligation.

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If you would like a private consultation, please tell us two or three dates and times when you would be available to meet.

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