Buying a Pre-Owned Home

Is 2018 the Time to Buy a Home in Japan? Big Changes Coming to the Market

By Jeff Wynkoop

The construction boom for the 2020 Tokyo Olympics is in full swing, and the asking price for newly-built residences in central Tokyo keeps going up like so many new cranes dotting the city. As new home prices skyrocket, more buyers are turning their attention to the less expensive pre-owned home market.

New Quality Certification

For many would-be buyers, however, there is an even more important factor than price: from April 2018, The Provision of Quality Housing Stock Association (優良ストック住宅推進協議会), a consortium of the ten biggest Japanese housing developers, is starting a process to inspect and certify the quality of pre-existing homes for future purchasers. The new certification (called Sumusutokku or スムストック) is intended to make it easier for consumers to distinguish good old properties from bad (by having at their fingertips a third-party opinion about cosmetic versus structural problems in the target property), and as such the new Sumusutokku label is expected to provide a new impetus to the growing market for pre-existing homes. This is after the Association announced last year that beginning from April 2017, they will be providing free defect insurance to consumers buying a pre-owned home built by one of its ten members. For five years after purchase, new owners will be eligible for up to 10 million yen in compensation to fix the problem in case a major defect is found.

One of the big problems when looking at older homes is estimating the potential cost of renovations. This is compounded by the fact that it is not unusual for the blueprints to older properties to be lost, making inspections that much more costly and difficult. The Real Estate Transactions Law was amended recently to require agents to survey and disclose information to potential buyers regarding the structural integrity and earthquake-preparedness of pre-existing residences. Nevertheless, some believe a new disclosure from the seller’s agent will not give sufficient comfort to buyers, since they well know of the agent’s conflict of interest in the deal.

Overview of the Pre-Owned Home Market

According to the Real Estate Economic Institute Co., Ltd., in 2017 the number of sales of older homes (37,000) in the Tokyo area exceeded the number of transactions in pre-existing homes (35,700). For the last several years, the market for pre-existing homes in Tokyo has been growing at a high pace, while growth in sales of new homes seems to have peaked due to the relative scarcity of stock and the soaring prices for homes with modern amenities in high-demand neighborhoods. As the price for new houses has risen, the supply has shrunk due to developers getting increasingly nervous about a downturn from such high prices, but the supply and price of pre-owned homes is still moving upward. In 2017, the average price for a pre-owned residence in the Tokyo metropolitan area was 31.98 million JPY, up 23% compared to 2013 prices, whereas the average price for a new residence rose approximately 20% during the same period.

Have buyers of pre-owned homes already missed the boat?

Since beginning next month it will be easier for consumers to discern a good pre-owned property (a Sumusutokku property) from bad, many wonder if now is the best time to buy. Some potential buyers worry that there will be a rush of demand next month, leading to a bubble and possibly short-term drop in prices in the near future once the new April demand is absorbed.

If history is a good indicator however, the scheduled consumption tax hike in October 2019 will greatly affect how sales go this year. Although the sale of a pre-owned home between consumers is not subject to Japanese consumption tax, agent’s fees and renovation costs will be affected by the higher tax. Prior to the last consumption tax increase, demand surged roughly six months to one year before the new rate came in. If that holds true this time, from now until October this year may be the perfect time to buy a pre-owned home before the pre-tax hike rush.

You may also be interested in: Guide to Japanese Real Estate Taxes