The consumption tax in Japan will increase from 8% to 10% on October 1st. Has there been a last-minute rush by people to buy before the new rate kicks in? Yes, for some items. Below we give an overview of how the tax increase has affected consumer behavior and what they’ve been buying.
JR and private railway companies are anticipating a big last-minute rush of people looking to renew their commuter passes (teikiken, 定期券) before October 1st. If you’ve been in any train station in Japan this month, you’ve likely seen signs urging you to re-up your pass and beat the big crowds expected this weekend. You can renew your commuter pass up to two weeks before it actually expires, so you can save a bit if you renew before October 1st; and a little bit more if you’re willing to buy an annual pass rather than a monthly one.
The Tobu, Keikyu, Keisei, and Odakyu railways are all extending their hours of operation by one to four hours this month to accommodate the higher than expected number of customers who want to renew their passes. JR is not extending its hours, but most stations have at least one ticket vending machine where you can renew a commuter pass without going to a window.
In the run-up to the previous consumption tax increase in April 2014, there was about a six percent bounce in purchases of household goods starting six weeks before the tax actually kicked in, but according to at least one study, consumers did not rush out as early this time around, with sales increasing only about 1 to 2 percent year-on-year six weeks ago. However, sales of household goods saw a sharp jump (about 19%) starting in the first week of September. This increase is expected to continue up to the last minute, with laundry detergent and toilet paper being especially in demand.
Electronics – Especially Large Screen TVs
Big ticket electronics, especially large screen TVs, have been flying off the shelves this month.
According to market research firm BCN, TV sales in the first week of September jumped 77.4% compared to the same period last year. This is an even bigger bounce than the comparable period during the previous tax increase. In April 2014, the consumption tax rate went from 5% to 8%; in the week prior to that increase, TV sales rose 44.8% year-on-year. This time around, market analysts expect sales of big screen TVs to peak in the fourth week of September.
Many people are also taking the opportunity to upgrade to 4K and bigger screens in anticipation of watching the Tokyo 2020 Olympics. At the Namba branch of BIC Camera, a mega electronics retailer in Chuo Ward, Osaka, reports are that sales of TVs are up three to four times what they were last September, with many people saying that they want to watch the Olympics in ultra high-definition.
Household appliances and furniture
Major retailers also report that rush demand for big household appliances, especially washing machines and refrigerators, started in the second week of September. Last minute buyers are likely to continue to keep sales strong through the weekend.
Furniture retailers have also seen year-on-year sales increases starting about the middle of this month, especially for dining room sets, beds, and sofas.
Other people are making the last minute decision to buy expensive jewelry. At the Matusya Ginza department store in Ginza, for example, sales of high-priced rings, necklaces, and watches have almost doubled compared to last September. The store reports that pearl necklaces and luxury watches are especially in demand. According to a spokesperson for Matsuya Ginza, the imminent tax increase has been an impetus for people who have been on the fence up till now. The store expects a rush of last-minute buyers this weekend.
Tire retailers have also seen rush demand this month as people look to buy winter tires a few months earlier than they would otherwise. The tire market is usually quiet in September but sales at many major retailers are up 30% to 40% compared to last year.
In contrast to consumer behavior before the April 2014 consumption tax increase, car buyers this time around have not rushed to make purchases before the next tax rate kicks in.
In the period prior to the previous tax increase, new car sales increased year-on-year by double-digits for six consecutive months. This year, industry analysts have noted that buyers are much more cautious. New auto sales have increased only about 0.8% in the first half of this year, and there has been no month when sales jumped by double digits.
One explanation for this is that the government has sought to mitigate the effect of the tax increase by decreasing the tax charged at the time of purchase of a new car for a period of one year. If you buy a new car after October 1st, you will also get as much as a ¥4,500 reduction in your annual automobile tax. For more on this, please see: Here’s what you need to know about the consumption tax increase to 10%.
Residential Real Estate
Has there been a consumption tax effect in the residential real estate market? Yes, but with best efforts by the government to ensure that demand continues to stay strong well after the new tax rate takes effect.
First, it’s important to note that sales of newly constructed condominiums and free-standing houses are subject to consumption tax. Re-sale houses and apartments are not.
To gauge demand, one number closely watched in the new condominium market is the contract rate, which is the number of sales contracts divided by the number of units released for sale for the period. A contract rate of 70% is considered a healthy buyers market. The “first month’s” contract rate is the contract rate for properties sold in the first month they were released for sale. Below is the “first month’s” contract by month for 2019.
- January: 67.5%
- February: 66.5%
- March: 72.2%
- April: 64.3%
- May: 60.0%
- June: 65.9%
- July: 67.9%
- August: 75.4% (+7.5% year-on-year)
As the data shows, there was a noticeable jump last month in contracts for newly built units, in contrast to contract rates in the high-sixties for the previous four months. There was no slow-and-steady upward trend as “consumption-tax-hike day” approached.
A key reason behind this is that the government has purposely sought to soften the effect of the consumption tax increase for home buyers. The various incentives are meant to prevent people from rushing to buy a home prior to October.
Your loan amount and mortgage interest rate will significantly affect this calculation, but for some home buyers, the difference in the consumption tax amount will be more than offset by the various deductions and incentives the government is offering. Regardless of the upcoming tax increase, as a home is likely the biggest purchase you will make in your life, agents always advise their clients to carefully run the numbers when deciding whether and when to buy a purchase.
One of the key incentives offered by the government is a 3-year extension of the mortgage deduction, which is meant to help bolster demand for newly constructed homes.
Other incentives include:
- Cash back (Sumai kyufukin) incentives for buying a home
- An increase in the tax exemption limit for monetary gifts (for example, fom parents) used to buy a home
- Introduction of a housing point system to incentivize energy-saving, earthquake-resistance and barrier-free construction
For an in-depth explanation of how to claim these deductions and incentives, please see: How to claim tax deductions and cash back incentives for home buyers in Japan
You may also be interested in: How the 2019 consumption tax increase will affect home buyers and sellers in Japan
Sources: Mainichi Shinbun, September 26; Souzai Kakekomi, Intage Co. Ltd, Chunichi Shinbun, September 27; REINS, jiji.com August 30
Lead photo: Diamond Online