What you should know before buying a vacant house in Japan

By Jeff Wynkoop

Buying a vacant house in Japan and fixing it up is the dream of many city dwellers. With the price for a new condo at all-time highs in most Tokyo neighborhoods, many people are considering purchasing a pre-owned residence as a way to get more for their limited budget. This has caused more adventurous purchasers to look to stretch their budget further by searching for a suitable abandoned or vacant house (“akiya”, or 空き家 in Japanese). There is even a growing list of companies such as 家いちば (ieichiba)  dedicated to helping consumers find and purchase their own akiya. Japan is a beautiful country, and moving to the countryside and leaving the city behind can be very alluring to long-term city residents here.

The number of abandoned homes is in the millions and growing

According to the Ministry of Internal Affairs and Communications, there were approximately 8.2 million akiya in 2013. Today in 2018, this number likely exceeds 10 million. Moreover, some think tanks forecast that by 2033, over 30% of all Japanese homes will be abandoned and vacant. Depending on your neighborhood and locality, this means that in the future it will be more common for you to never see your neighbors, simply because you have none. For more on this issue as it affects Tokyo, please see: What to do with Tokyo’s hundreds of thousands of abandoned homes.

Three main risks

With the average cost of a new condo in February 2018 reaching 61.28 million JPY in the greater Tokyo area, and 72.23 million JPY in the city proper (this according to the Real Estate Economic Institute Co., Ltd.), it seems demand should be turning more and more to this burgeoning supply of housing. But all this begs the question: what are the risks of buying an akiya in Japan?

Generally, there are three main problems with akiya. The first one relates to acquisition of the property. Say, for example, you find an abandoned home in a good location that seems to be in reasonably good condition. How can you buy and obtain clear title to the property if you can’t find the owner? In Japan, there is no requirement for transfer of ownership to be recorded at the Legal Affairs Bureau, so how can you find out who the rightful owner is? You can look at Fixed Asset Tax records, but that doesn’t help when the owner is deceased and isn’t paying anymore. How can you be a buyer when there is no seller? The answer is you can’t, and so the property remains vacant and abandoned.

The second main issue with akiya has to do with the actual physical condition of the property: oftentimes the structures are so dilapidated that a simple refurbishment or even renovation will not be enough. You can divide the main physical problems into two categories (1) problems having to do with insufficient air circulation, and (2) problems having to do with (sometimes undetected) leaks or standing water. The first problem can lead to mold and condensation problems, while the second can cause total functionality of the building to break down. With the average cost to renovate a bathroom in Japan totaling approximately 630,000JPY (according to a 2011 report from the Ministry of Land, Infrastructure, Transport and Tourism), there are big costs associated with almost any renovation. And no one should forget that enduring the trials and tribulations of refurbishing, renovating, and rehabilitating a whole akiya, room by room, is not for the faint-hearted.

The last issue with akiya that always seems to come up is abandoned personal property at the house. It can cost significant time, money, and effort to remove and dispose of furniture, radios, books, television sets, plants, garden gnomes, statues, tools, etc. belonging to the prior owner. People leave behind anything and everything you can think of, literally. Needless to say, sometimes it can be a highly unpleasant experience discovering exactly what you have bought when getting intimate with your new akiya.

Before you take the plunge

On the plus side, you may be able to find a real bargain in your akiya, and the location may be ideal. If you are willing to put in the extra effort of acquiring and renovating a vacant house, it can be worth the trouble. And for some, the rare opportunity to design your own living quarters the way you want with the exact renovations you desire is enough to take the akiya plunge.

It should be noted that there are a variety of local government subsidies for those wishing to refurbish or renovate an akiya. For example, Toyoshima-ku in Tokyo gives owners subsidies for refurbishments and renovations of up to 100,000JPY and 200,000JPY, respectively, if certain conditions are met. If you are seriously considering purchasing an akiya, you should find an advisor who knows the applicable national and local rules for taxes and subsidies to help save you money.

Can I get a Flat 35 mortgage for my akiya?  

In order to get a Flat 35 mortgage for a property that received a Construction Confirmation (kenchiku kakunin or 建築確認) prior to May 31, 1981, you have to obtain a document (a taishin kijun tekigou shoumeiosho or 耐震基準適合証明書) that certifies the property complies with the Japanese earthquake resistance laws now in effect. This means that the building must first be inspected and brought up to code through renovation/reconstruction, and this can be quite costly.

You must also obtain the document described above (a taishin kijun tekigou shoumeiosho)  in order to receive beneficial tax treatment of real estate acquisition taxes (不動産取得税) when acquiring a 20-year-old or more detached house, or a 25-year-old or more condominium.

Can I get a tax deduction for my akiya mortgage?

As a general rule, only houses that are new to 25 years old can be used to apply for a mortgage interest deduction on your personal taxes in Japan. If your akiya is over 25 years old, there are two things you can do to qualify for the deduction. The first is you can buy an insurance policy for owners of existing properties with defects  (既存住宅売買瑕疵保険). However, to buy such insurance, you usually have to undertake some sort of renovation of the structure of the building, and the policies only have terms for five years or less. The other thing you can do to qualify for a mortgage deduction is to obtain a taishin kijun tekigou shoumeiosho (耐震基準適合証明書) that certifies the property complies with the Japanese earthquake resistance laws now in effect. This means that the building must first be inspected and brought up to code through renovation/reconstruction, and this can be quite costly.

You may also be interested in: Questions to ask when buying a condominium in Japan