How come there’s so few photo’s of the interiors of most properties?
Larger properties usually will have more extensive photo’s of interiors than the “cookie cutter” smaller apartments. There are actually a few listings of smaller flats which do have internal photos (although there’s not much to see, a toilet, a sink, a room with a window or balcony and thats it) . One of the reasons for the lack of photo’s is that Japan’s rental lease law is highly tenant-oriented. One of the implications is that no one, including the owners and property managers, is allowed to enter properties while tenanted. As a result, and since we normally recommend properties that are already tenanted, there are rarely any up-to-date internal photos available for viewing before, during or even after the purchase.
What if the tenant damages my property?
The Japanese are, without a doubt, the world’s best tenants – they are quiet, respectful, polite, are rarely late or miss out on their rent payment, and would on no occasion trash or damage an apartment (save for normal wear and tear, accidental damage, etc).
To further mitigate this issue, JIPC requests and receives a complete repairs and complaints history for every unit sourced, prior to purchase during the due diligence report, to ensure that any issues, if such exist, have been fully addressed and resolved. We also attempt to insert a “seller’s responsibility” clause to all purchase contracts (although this may not always be possible).
Even if intentional or serious damages were to occur – something which hasn’t happened to any of our clients to date – a complete internal renovation of a typical JIPC sourced unit (usually 15-35 sqm in size) – including fixtures, floorings, wallpapers, painting and deep clean etc – is usually around the $2,000 mark – hardly a case of total loss – and as mentioned, we haven’t had to order one yet.
Do I have to go to Japan to compete the acquisition ?
No – although we highly recommend visiting at least once, before or after your purchase/s, to familiarize yourself with Japan generally, and with the area/s in which you purchase specifically.
JIPC represents you, the investor, through the use of a limited power of attorney document and services agreement. The combination of these two documents (signed and witnessed before a valid authority, with supporting identification documents attached), enables us to represent you in all dealings with Japanese entities in Japan, and also enshrines our obligations to you, as well as your rights.
How come prices are so low / returns so high?
While this may seem “too good to be true”, not all property investments available for purchase in Japan are that attractive – the ones that we list and source are the result of extensive experience, local knowledge and research, thorough due diligence, and closely nurtured relationships with leading realtors in the areas that we deal in.
One of the other main factors which account for this affordability and high return, is the fact that JIPC specializes in the “opening up” of yet-untapped, promising alternative metropolitan centres in Japan to the foreign investor – areas where the market is highly localized, and of which most foreigners, particularly non-Asians, are not aware.
While this means that we work with realtors who use “old-school” means, such as low quality mobile-phone type photos, pencilled floorplans taped to shop windows, etc – it also means that prices are still very far from their foreign-influenced counterparts in more familiar Japanese cities such as Tokyo, Kyoto, Osaka and popular holiday spots like Hokkaido. And these aren’t little villages and country towns we’re talking about either – (Fukuoka city, for example, boasts a population of close to 1.5 million people!) – simply areas that are all but unknown to foreigners and, as a result, are still highly localized, both in price and in practice.
Locals in these areas are less inclined to do business with foreigners, and do not speak English as a rule – JIPC bridges this gap, however, by providing them with a Japanese entity to deal with, while at the same time providing you, the investor, with a single, English-speaking point of contact for all your property purchase, management and sale requirements.
How do I get my money back home?
There are a couple of options:
1) Open a Japanese bank account – to do this you would need to visit Japan on a non-visitor visa (contact your local Japanese embassy to enquire about a business/investors visa, which may or may not be available, depending on your country of origin), obtain a verifiable Japanese address, and register your residency at the corresponding local municipality. Armed with your registration certificate, you’ll then need to attend a local bank (Tokyo branches of the “big five” Japanese banks are the preferred option), and do your best to convince the appropriate person to allow you to open an account.
This is not a simple, straight-forward procedure, and isn’t always successful – while we can and will assist you in this process if you so wish, we cannot guarantee success.
This is why the vast majority of our clients choose to go with option no. 2, below –
2) JIPC can and will facilitate, at no additional fee, complete financial services through our corporate bank accounts in Japan – we will collect your rent from the property management firm, hold it for you until a sufficient amount to profitably justify a transfer is accumulated, and then transfer it to your nominated offshore bank account (transfer fees apply).
These transfers carry a much more attractive exchange rate than that available through normal banking, conducted through our foreign exchange suppliers. We will also advise you on profitable exchange rate trends, discounted withdrawals achieved through conducting electronic wire transfers for several clients simultaneously – or we could alternatively utilize your collected funds in any other way you instruct us to, such as further purchases, insurance policy purchases, advance payment of housing company fees (eq. of body corp or HOA), etc – all of the above aimed at further minimizing your expenses, and maximizing your profits.
This service comes with a live balance sheet, updated automatically, with all incomings or outgoings fully documented, and provided to you on a regular basis.
Do I need to furnish my property in Japan before I lease it out to tenants?
In Japan, the owner does not need to furnish the property. However, air conditioning needs to be installed. In the Tokyo area, all rooms should have air conditioning units installed. For family-type apartments in the Osaka area (Kansai) it is sufficient just to install air conditioning in the living room because the tenant usually will bring their own units.
Do I need homeowners insurance?
Normally this is voluntary, but most property managers will require that the owner be covered by homeowners insurance. This is because damage caused by lightning strike, fire or arson is only covered by the owner’s insurance, so it is highly recommended that you have insurance to protect your investment. Most owners that we work with also decide to take optional earthquake insurance, but one thing to keep in mind is that the maximum insured value is 50% of the assessed value of the property.
How do I pay building management fees and the repair sinking fund?
Building management fees pay for the day-to-day running of the building, such as common area maintenance and the salary of the on-site building manager, if there is one. The building’s management association, consisting of the owners of the building, set the building management fees.
The Repair Reserve Fund or Repair Sinking Fund is a fund that the apartment unit owners have established to fund future capital repairs in the building. Most buildings require that owners make a monthly contribution to the repair reserve fund, so this is one of the expenses that you should plan for. The monthly building management fees and repair sinking fund have to be paid by the owner through a Japanese bank account. For non-residents who do not possess a Japanese bank account, some property management companies will act as a proxy payment agent to do the payments on behalf of the owner.
What is the withholding tax on rental income?
For non-residents, rental income from the tenant received by the property management company if you have a Master Lease agreement is subject to withholding tax. This includes income tax and the Tohoku Special Restoration Tax payable to the tax office. In case you have a Pass-Through (non-Master Lease) agreement and if your tenant is an individual, Withholding Tax does not apply. That being said, this scheme is quite rare. If you use a property manager, your PM will remit rental income to you after subtracting the withholding tax of 20.42%. Please be aware that your effective tax rate will most likely will be much lower, so you should check with a licensed tax accountant. A tax consultant can also file your annual withholding tax return on your behalf. There are only a few tax accountants who are specialized to work with overseas owners to do this job in English or Chinese.
How do I pay my annual property taxes?
Every owner is legally required to pay annual property taxes. For overseas non-resident owners, some property management companies can pay property taxes on your behalf or can become your tax representative if your property in Japan is used as a second home.
Is it possible to raise the rent during the term of the lease?
During the term of the lease, the rent will be fixed at the level agreed to. That being said, it is possible to approach the tenant during the lease renewal period with regard to raising the rent. The proposed increase should be in line with the current market conditions, and if the tenant accepts the proposal the renewal can move forward. Should the market and rents decrease in the area or in the property itself, some tenants will ask to reduce the rent during the renewal period. In either case, your property manager will take the role of communicating on your behalf with the tenant to hopefully come to an understanding beneficial to both parties.
What happens if the tenant does not pay the rent?
In the case of delinquency, your PM will contact the tenant (by telephone or in writing) on behalf of the owner. If delinquency goes on for a long time, payment requests are made through certified mail, and if this still does not resolve the problem, payment requests to the joint guarantor or legal action might be considered. Cancellation of the lease agreement can be requested, but only if there are reasonable reasons for cancellation, for example, if the tenant does not pay despite repeated requests for rent payment.
What are the main risks people should be aware of with respect to investing in residential income properties in Japan?
Tenants in Japan enjoy strong tenant rights under Japanese law. A tenant has the right to renew an ordinary lease agreement almost indefinitely. This means it is potentially very difficult to evict a tenant who is delinquent on rent. As explained above, it may also be a challenge to raise the rent if you are leasing a property using an ordinary rental agreement. That being said, Japan still remains advantageous for investors and landlords because even in a bearish market rents tend to not decrease quickly. Japan has very high earthquake building standards and technology, but Japan is an earthquake-prone country. Buyers should factor in earthquake risk when weighing the decision to purchase property here.
What is the average vacancy rate investors should expect for income properties in Tokyo? Is it different in other parts of Japan?
Though there have been minor fluctuations, average occupancy rates have been above the 95% threshold (Source: Savills World Research, Tokyo, Q4 2015). Osaka’s occupancy rate is very similar to Tokyo’s (Source: Tokyu Housing Lease Corporation, Kansai branch).
How prevalent is rental delinquency in the residential rental market in Japan?
According to the Japanese Property Management Association, for the first half of 2015, the average delinquency rate (the rate at which tenants are late in paying rent), up to one month was as follows: 2.7% in the Tokyo metropolitan area, 3.6% in the Kansai (Osaka, Kobe, Kyoto) area, and 3.2% nationally.
The delinquency rate, where the tenant was more than two months delinquent, was as follows: 1.5% in the Tokyo metropolitan area, 1.8% in the Kansai area, and 1.5% nationally.
I live in Japan and own a rental property here. Why should I use a property manager (PM) rather than managing the property on my own?
The main issue with owning a rental income property in Japan is the language barrier when it comes to dealing with potential tenants. Using a PM company can make the operation of your investment property much smoother.
Even if you speak Japanese, the other main reasons for using a PM in Japan are the following:
1 Hands-Off Investment. There are many aspects to property management, which makes it a very time-intensive process, similar to a full-time job. A PM can take of this work (monthly accounting, following up with tenant delinquency and the eviction process) in a timely manner.
2 Problem resolution. Tenant complaints (for example, repairs, neighbourhood trouble like complaints about noise or bad smells) need to be taken care of immediately. The PM’s job is to resolve these issues quickly and cost-effectively.
3 Paperwork and Repair/Renovation Work. A PM takes care of leasing management, contract renewals and cancellations. They can also manage the return the property to “original state” and do any necessary renovations on behalf of the property owner.
4 Indirect relationship with tenant. Owners who use a PM do not need to have direct contact with their tenants. This can help to prevent conflict.
5 Japan’s unique laws and culture. Japan has unique laws and culture with respect to leasing. A PM can take the hassle out of trying to master the minute details of your rights and obligations as a landlord because they will handle these things on your behalf.
What are the main benefits of using a PM for owners who live overseas?
If you are an overseas owner, a PM can take care of transferring the rent money to your overseas account, since it is very difficult to open a bank account in Japan as a non-resident. Also, a PM can take care of recurring costs like property tax and building management fees, etc. with a proxy payment system. Other benefits include:
1 Language. A PM will handle all tenant relations, so you do not need to worry about communicating with your tenants in Japanese.
2 Legal. A PM will also take care of all contracts so that they are compliant with the law.
3 Tax. A PM is also an invaluable resource for advice on any tax issues that might arise.
4 Turning over the property. As an overseas owner, it can be cost-prohibitive for you to come to Japan every time you turn over the property to a new tenant. Your PM can handle all the aspects of getting a property ready for leasing up and handing over to a new tenant.