Tag Archive for Real state investing

How safe is Japan to invest ? and which part of Tokyo you should consider ? -crime rate-

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Do you want to buy a house or invest in Japan ?
If you’re considering an international investment property, step one is to find a good real estate agent who understands the country’s regulations,
especially if you’re not fluent in the local language.
Next question is what sort of criteria for judgement do you have in your mind for finding a property ?
If you don’t know what you’re looking for, you’ll never find it.
How about crime rate ?
Good.
Japan is safe.
Having lived in Kobe, Kawasaki, Tokyo, Sydney, Gold Coast, London
and travelled over 25 countries, I can assure it. And crime rates are an important indicator to analyze when looking for an investment property.
Buying the property in a high crime country or area can be risky not only to you, but also to your investment or even to your tenants.
High crime generally reduces the values of properties in a given area.
A study in USA for example, found that a 10 percent reduction in homicides resulted in an 0.83 percent increase in housing values the following year.
Needless to say, people in Japan do care about the safety in the neighborhood.
I am not saying that you can’t make money in areas with higher crime.
There could be a good number of investments in areas with a relatively high crime rate. There are still?plenty of good people in those areas that you can make money renting or selling to.
But the important thing is to know what you are getting into.
It is important up front to decide what kind of risk tolerance you have and what types of areas you are willing to invest in.
But how safe is Japan ?
Once you’ve decided on what kind of areas(countries) you are looking to invest in,
you can start to research them. Always ask Google first.
Here is the some statical data on some developed countries by UN, GLOBAL STUDY on HOMICIDE 2013.

UN GLOBAL HOMICIDE DATA 2013

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How can you know if your property in Japan is a good investment ?

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There are a number of options and variations in the real estate investment opportunities in Japan.
You can invest in the condominiums, residential buildings, flipping the existing houses, flipping the abandoned houses, office buildings
boutique hotels and small hostels so on.
You also have to decide the area you want to invest.
Is it in Tokyo, neighboring areas of Tokyo or local cities which usually offer more attractive yields ?
Each option has both pluses and minuses.
In this article today, however, I will discuss in general what I think a good rental property is and what things to look at when you are considering buying a property for the investment in Japan.
In my opinion, you need to consider the following factors.
Monthly cash flow, the location, the value (appreciation), the condition of the property, the market and your age.
Taxes and other factors need to be considered as well.
Understanding the tax angles when you buy the property in Japan Part-1

Understanding the tax angles when you buy the property in Japan Part-2

Brief on Inheritance tax in Japan as of 2017

Among the above factors, the first thing I look is the monthly cash flow.

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High yielding, guaranteed rent should be too good to be true ?: ‘Kabocha no basha’ subletting problem in Japan

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Pitfall of sub-leasing(sub-letting) real estate investment

High yielding, guaranteed rent（sub-leasing)  should be too good to be true ?
Recently one of the scandals which rattled the industry is KABOCHA-NO-BASHA
(Pumpkin Carriage) problem.
The background of the scandal is as follows.
Investors were guaranteed a fixed monthly amount over an extended period if they invested money by contracting with a real estate company called Smart Days(Tokyo)
that used the funds to set up and manage share house facilities under sub-leasing agreement.
Since 2015, Smart Days, operator of women-only share houses called Kabocha no Basha (Pumpkin Carriage), has promoted high yield investments through the media and has mainly acquired customers of office workers. In the sub-leasing contract, rent payment collected through the sub-leasing is sought to pay back the debt for a long period plus small profit.
For example, suppose you borrow 100 million yen from a bank and the monthly repayment amount is 500,000 yen, if you earn rental income of 550,000 yen a month, it will generate 50,000 yen a month profit. This system is typical leveraging in the real estate investing and there is no red flag about it.
In an ideal setting, Smart days as the sub-leasing company would rent out rooms to tenants and bring in a steady and continuous supply of rent, a portion of which would go to the investors.The shared house with shared toilets and bathrooms is not as wide as 7 m² in living space, but the initial cost of moving in is kept low (so they say), and it was expected that more women moving into Tokyo from rural cities will choose to stay in these share houses.Smart days also promoted the business to support tenants finding a job (This is an alarming part)

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Vacancy risk: Risks in private real estate investment in Japan (Part2)

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Vacancy risk
Previously I discussed the defect risks when you acquire the property.
Today I will discuss the risks while you are owning the property.
In fact, there are several challenges while you own and manage the property.
Vacancy is one of them.
Vacant rooms obviously do not generate any income so it is very important
to fill your property (whether it is a rental house or a small multiunit rental property) with good, rent-paying tenants.
However in practice, you will see vacant rooms for certain time period over the years and there are tenants who don’t honor the leasing contract.
Let’s look at the ‘vacancy risk’ and how to mitigate such risk.
The beauty of real estate investment in Japan is that your can expect very
stable income every month. Rents are usually  paid monthly.
Therefore finding stable trustworthy tenants is a key for success.
However, due to certain reasons such as inconvenient location of the property,
Investors may face the situation where the property being vacant.
If your occupancy rate is very poor, you may have the problems to pay back
the loan. That is the ‘vacancy risk’.

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Hidden Defects : Risks in private real estate investment in Japan (Part1)

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There are risks associated with any investment – loss of capital, finance, leverage and liquidity risks and so on.
Not like buying the paper assets such as REITS, many of these are only relevant to the direct investment (where the investor invests, owns and has control over the real estate asset).
This article will highlight the main risks associated with investing in real estate in Japan and provides commentary on how to analyse and mitigate these risks.
Today I am going to discuss the risks at time of acquisition.
Unlike regulated industries such as accounting and financial planning, working for a property company (as distinct from working as a traditional real estate agent),
does not require a great deal of education, experience, or study prowess. Marketing investment property requires nothing really but the ability to sell.
That is one of the reasons why there are unlicensed (often rogue )
‘property consultants’ in Japan.
Engaging in the marketing activity to lure the investors without holding a license is against the
Building Lots and Buildings Transaction Business Law. If your consultant or agent do not hold
the license, your contract is not protected by the said law.
For more information, please see my post on February 11, 2018.
Are there any rogue real estate agents in Japan ?
At the end of the day, even the good agents cannot guarantee the success of the investment and thus investors must learn the risks and returns
before they make a investment.

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Good opportunities ? : How does the booming inbound tourism impact the property market ?

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Japan is enjoying very healthy growth of inbound tourism.The number of inbound tourists, which stood only at 8.36 million in 2012, set record highs for the sixth year in a row. It continues to thrive as a record 28.7 million tourists visited Japan in 2017, up 19 % from the previous year. In 2016, it was up 21 % and in 2015, up 47 %.
Visitors from China, South Korea, Taiwan and Hong Kong account for more than 70 % of the total number.
The number of Chinese travelers grew 15% to 7.35 million, South Korea increased 40 % to 7.14 million.
2018 January number will be announced on February 16 but apparently it is keeping the nation on track for the government’s target of boosting the annual number of visitors to 40 million in 2020.
There are some challenges, however, that must be overcome, such as a tight supply of accommodations that cater to overseas guests and a heavy concentration of visitors from East Asia.
Further efforts should be made to realize the full potential of inbound tourism as one of the nation’s key growth industries including welcoming more American and European visitors
who have a tendency to stay longer with bigger spending budgets.
(Chinese tourists spend less than Europeans and Americans on accommodations and foods)

Japanese people are regularly talking about the latest inbound tourism booming but how does the industry look more in the global perspective ?
Is only Japan performing well ?
In order to analyze the Japan in the global market, let’s look at the 2017 report published by UNWTO (UN World Tourism Organization).
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Cost to exit : Understanding the tax angles when you buy the property in Japan Part-3

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Successful investment strategy doesn’t simply mean buying and operating property.
Exit strategy is significantly important for the overall success.
You need to think about the exit strategy while you are acquiring property.
When you build the exit strategy, tax laws play the important role.
Today I am discussing the tax regulations when you sell your property outright.
Tax when you exit the property
The capital gain generated by selling your real estate is called transfer
income in Japan  (It is almost same as capital gain tax in US)
To calculate the capital gains or losses, take the sales price then deduct selling expenses,
from the amount realized. Then deduct the original cost of property, plus expenses deemed to
have increased its value, less claims which have notionally decreased its value.
Expenses deemed to have increased its value are capital improvements
(roof replacement, central air conditioning installation, rewiring, etc.), assessments for local improvements
(water connections, sidewalks, roads), casualty losses (restoration of damaged property), legal fees.
Expenses deemed to have decreased its value are depreciation, casualty or theft loss deductions
and insurance reimbursement, certain credits, exclusions and deductions.

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Are there any rogue real estate agents in Japan ?

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The real estate trade can be stressful in any country.
The financial commitment is substantially large, the regulations and laws are complex
and the market risk is high.  Average Japanese people share the same concern.
Another problem is a large part of consumers’ assumption that all estate agents, letting agents and
landlords are all regulated. In Japan, all the agents who actually arrange the real estate transactions
(including rental contract) must be licensed.
Engaging in the marketing activity to lure the investors without holding a license is against the
Building Lots and Buildings Transaction Business Law. If your consultant or agent do not hold
the license, your contract is not completely protected by the said law.
It would be treated more under civil law. But if your broker is licensed, they are regulated by the government
and thus your contract is eligible for more protection under the conditions set forth by the said law.
Nonetheless, there are some rogue agents or consultants who are not licensed in Japan.
For example, such rogue agents put up advertisements for properties on which they have not been
instructed to promote in an attempt to get a cut of the fees.

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Cost to hold your property : Understanding the tax angles when you buy the property in Japan Part-2

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Previously I discussed the transaction taxes you have to pay at time of the acquisition of the property.
When you are holding the property (both land and building) in Japan, you need to pay two annual taxes whether you are making money out of the investment or not regardless of the purpose of the ownership.
One is fixed asset tax and second is city planning tax.
Land and houses and buildings on which the city planning tax is levied are the same as the objects of taxation for the fixed assets tax.
When the deal went through. the new owner’s first annual property-tax bill came to standard rate 1.7% of its assessed value.
Unlike London or New York, in Japan the same tax rate is applied to price band.

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There are three Tokyos in Japan ?

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For those who are not familiar with Tokyo, there is only one
Tokyo in Japan. I know.
But if you know more about Japan or have ever lived
in Tokyo, sometimes definition of ‘Tokyo’ could be confusing.
If you are just traveling in Japan, such definition does not matter.
You just keep enjoying good food and beautiful view.
However when it comes to the property investing in Japan or Tokyo.
the definition matters.
I want to give you the basic information about Tokyo today.
There are three definitions of Tokyo in Japan.
One is Tokyo special 23 wards with population 9. 2 million, second is
Tokyo Metropolitan
with 13.7 million population and third is greater Tokyo with massive 38 million people.
There are various definitions of the Greater Tokyo Area, each of
which tries to incorporate different aspects.
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