Differences Between the Tokyo and Kansai Leasing Market

The Kanto and Kansai regions of Japan are as different as East and West in many ways, from food to language, to cultural customs.

The Kanto region consists of  the greater Tokyo area and seven prefectures: Gunma, Tochigi, Ibaraki, Saitama, Tokyo, Chiba, and Kanagawa.

The main cities in the Kansai region are Osaka, Kobe, and Kyoto. The Kansai region includes seven prefectures: Mie, Nara, Wakayama, Kyoto, Osaka, Hyogo, and Shiga.

Below we take a look at some key differences between the Kanto and Kansai regions in terms of the residential leasing market.

If you are looking to buy and operate a rental income property, you should be aware of these differences so that you can maximize your investment.

1. Air conditioning

In Tokyo, as a property owner making your property available for leasing, you are expected to have air conditioning pre-installed in all rooms.

Not so in Osaka. In western Japan, in properties with multiple bedrooms, air conditioning only needs to be installed in the living room. The tenant is usually responsible for installing air conditioning in the bedrooms.

2. Security Deposit (Shikikin, 敷金)

Shikikin (敷金) is a refundable expense meant to cover any damage that exceeds normal wear-and-tear during the tenancy and to cover unpaid rent.

The amount of deposit usually charged by a property owner varies depending on the region and the property itself.

If you use the services of a property manager (PM), the PM will usually hold the deposit and revert it to the tenant when they vacate the property. If there was any damage done to the apartment or any outstanding rent, these costs will be deducted first and the balance returned to the tenant.

In Tokyo, the security deposit is usually equal to two months rent. In Osaka and Kyoto, it is usually one month.

Depending on the property, a higher or lower security deposit might be required.

In all areas of Japan, if the property allows pets, the tenant is usually charged an additional month’s deposit for a pet.

3. Key Money (Reikin, 礼金)

Key money (礼金) is a gratuity paid to the landlord. It will not be returned to the tenant when they vacate the apartment.

Key money is often explained as a cultural custom or as a relic of the era of rapid post-war economic growth, when Japan experienced acute housing shortages in urban areas. Prospective tenants would pay key money to landlords to get to the head of the line.

In recent years, the practice of charging key money has been in decline, but as a property owner, market conditions still allow you to charge key money and doing so can make a difference in the profitability of your investment.

In Tokyo, in cases where key money is charged, it is usually equal to one month’s rent. In Osaka, key money is usually equal to two month’s rent.

If you use the services of a PM, charging key money can cover the typical new agreement fee payable to the PM, since this fee is usually equal to one  month’s rent.

If you are having difficulty renting out your property, reducing key money would be one way to attract more prospective tenants.

4. Lease Renewal Fee (Koushin Ryo, 更新料)

An ordinary residential lease in Japan usually expires after two years.

In Tokyo, if the tenant wishes to renew the lease, in most cases, they have to pay one month’s rent as a lease renewal fee. This is also the usual fee in Kyoto.

In Osaka, however, there is generally no renewal fee because some landlords already charge two month’s key money.

If you use the services of a property manager, you will generally only receive a part of this fee because part of it is payable to your PM as an administrative fee.

5. Return to Original State (Genjou Kaifuku, 元状回復)

When a tenant vacates a property, it must be restored to its “original condition” which means the condition the property would be expected to be in, provided there has only been ordinary wear and tear over the lease term.

The property owner’s responsibility at the end of a lease is for all wear and tear in the property arising from ordinary use by the tenant, including any deterioration in the condition of the property due to the passage of time.

Tenants are generally only responsible for restoring ‘non-ordinary’ wear-and-tear after vacating a property.

In Tokyo, this cost is usually divided between the owner and the tenant depending on many different factors.

According to Tokyu Housing Lease, property owners in Kansai tend to bear higher average restoration costs than in the Tokyo market.

6. Security Deposit Depreciation (Shikibiki, 敷引き)

According to Tokyu Housing Lease, depreciation of the security deposit is rare in Tokyo but more common in Kansai and Hakata (Fukuoka).

7. Ratio of Corporate v. Individual Leasing Contracts

Compared to the Kanto area, Kansai has a higher ratio of leasing agreements between individuals and property owners, versus between corporate entities and property owners. About half of contracts handled by Tokyu Housing Lease’s Kansai branch are individual leases, but the percentage of individual leases in the Kansai market as a whole is about 70%.

8. Guarantee Company/Guarantor

In the Kansai area, property owners often require tenants to provide the name of an individual to act as a guarantor, in addition to requiring that the tenant use a guarantee company to cover rent delinquency.

As tenants in Kansai are often required to nominate an individual who will vouch for their rent, the fee for using a guarantee company is usually a one-time fee of 50% of the monthly rent. In comparison, many guarantee companies in metropolitan Tokyo usually charge one month rent.

Guarantee fees do vary by company, so it is best to check directly with  them.

9. AD Promotion Fee

Some property owners may decide to pay additional promotional fees directly to real estate agents for preferential treatment and advertising of the unit. This is called an AD fee and can be a strong tool to give your property an edge in the market. In the Kansai area those fees are usually equal to around two months rent while in the Kanto area the average fees amount to around one month rent.

10. Trash Collection

While in the Kanto area the municipal government is responsible for trash collection, in the Kansai area this is handled by private companies. This cost is usually borne by the owner and is included in the monthly management fees.

This article was written with insight provided by the team at Tokyu Housing Lease, one of Japan’s leading property management companies.

You may also be interested in: How to Rent Out Your Property in Japan: Tips from a Property Manager and Buying and Managing a Rental Investment Property in Japan

If you are interested in learning more about Tokyu Housing Lease’s PM services, please fill out the form below, and a representative will contact you shortly.

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