Real Estate Japan recently conducted an e-mail interview with Shinichi Kawamura, CEO of LINC KK, a real estate consulting company and brokerage in Tokyo. Mr. Kawamura discusses in detail the issues related to buying a residential investment property in Tokyo, especially a single apartment, as opposed to a whole building. He also explains some of the unique features of the Tokyo residential market.
Q1:What are the advantages of single-unit property investment, as opposed to whole building investment?
By buying a single-unit property, you can start investing in real estate while minimizing your risk. However, this type of investment is basically geared to beginners. For those who have ten or more properties, there is a possibility that if you purchase whole buildings, you will enjoy a greater advantage.
For example, if you plan to purchase a whole building, the purchase price will exceed 100 million yen in Tokyo. However, you can purchase a single-unit property for as little as ten million yen.
Also, as there are a lot of single-unit properties compared to whole buildings, you can lower various risks such as vacancy risk, declining rents and so on, by choosing a well-located property from a wide range of many properties.
Also, if you have multiple properties in different places, you can reduce risk. With a single-unit property, you can also save on repair costs (as compared to repair costs for a whole building) and can calculate future earnings easier.
However, if the investment amount is small, naturally, the income gain will be lower, so we also recommend buying whole buildings for investors who have a lot of investment experience.
Q2: In your experience, what are some frequently asked questions or misconceptions that some foreign investors have about the Japanese real estate market?
We get many questions from foreign investors about eviction and delinquency of rent. Practices concerning evictions and delinquency of rent are very different in Japan compared to other countries. Overseas, you will enter collection (and possibly litigation) right away if you do not pay rent, but in Japan you will not be kicked out so easily, even if you do not pay rent. Also, in Japan, if the lessee has disappeared and left their belongings in the property, the owner cannot throw these things away, because the lessee continues to have ownership of them.
Q3: What do you think are the unique features of the residential property market in the Tokyo metropolitan region?
What can be said with certainty is that real estate brokerage in Japan has changed dramatically.
With the development of technology, a lot of information is now transparent and people can get the information they need. As a result, there will be no real estate brokerage business that focuses just on providing real estate information.
In addition, the definition of “house” may change in the future. For example in Japan, in 2009, share houses became an explosive trend. Now they are becoming a standard part of our lifestyle and the meaning of what a “house” is has thus changed. A lifestyle that no one had expected until then has become something commonplace at tremendous speed.
Now, a person generally lives in one house, but in the future it may become the standard to have multiple houses due to globalization and development of transportation technology. This is because there is a possibility that one’s place of work will be fluid, and furthermore, working in several places may become the standard.
Therefore, there is a possibility that the business of real estate brokerage will change to work that produces “different ways of living” by people in the future.
Q4: Is it possible for a non-resident foreigner to get local (Japanese) financing for an investment property?
It is possible. Several financial institutions are offering loans even if you do not have permanent resident status. However, if you do not have permanent residence rights, the examination criteria for loans tend to be strict. Or the loan amount may be low, and in many cases the burden on cash increases.
Q5: Can you tell us about a recent transaction that you brokered or helped to facilitate for a foreigner investing in a single-unit property?
As a recent trend, I feel that the proportion of foreigners who purchase low-risk mid-return real estate properties has increased.
Recently, we worked with a foreign client who started doing real estate transactions in order to gain bank credit in preparation for 2020, when real estate properties transactions are expected to increase.
Many properties are expected to be on sale in 2020 due to Olympic demand, revision of the Civil Code, and so on. At that time, it will be difficult for him to apply for a foreign bank loan, so he chose create a track record of success in low-risk mid-return properties, with an emphasis on getting credit from banks. This track record will help him in 2020 and beyond to get bank credit.
He was also very concerned about data analysis. In order to be successful, he was carefully considering where and why real estate is low-risk.
This approach is the right one, I think, and real estate transactions which focus solely on yield or price lead to great risk. I would like all of our clients to have success in their transactions.
Editor’s note:
Real Estate Japan Inc. and LINC K.K. are pleased to present a brand new series of investment seminars in Tokyo for foreigners interested in taking the first step in Japanese real estate investment. The seminar will be led by Mr. Kawamura (interviewed above) and Mr. Yasa from LINC KK, with interpretation provided by Real Estate Japan staff.
Available seminar dates:
Saturday, September 29th @ 11AM
Saturday, September 29th @ 3PM
We will be discussing the following topics and more:
- How you can mitigate risk by investing in pre-owned single-unit studio (1R) studio apartments in the Tokyo Metropolitan area
- How to get the best financing plan for yourself as a foreigner
- What criteria to use when evaluating a target single-unit investment property in the Tokyo Metropolitan area and how to purchase property as a foreigner
- How to choose a suitable geographic area to match your investment goals
- Taxes
- Introducing featured properties in Setegaya Ward
- The case for an all-cash purchase
- Mortgage simulation: After the formal talk, we will be holding one-on-one consultations, including walking you through a financing simulation so you can see the kind of mortgage loan programs/interest rate that you may qualify for.
To learn more and to register, please visit the seminar page.
Top photo: The Eitai Bridge and condominium buildings on the Sumida River, Tokyo.