Japan: Overview
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Upward residential price rise derailed by credit crunch
Japan's property market has slowed in the past few months, after the growth of the past few years. The reason is the ripple effect of the credit squeeze triggered by the U.S. subprime mortgage loan crisis.
This follows a significant recovery in Japanese property prices. There was a 8.41% rise during 2007 (8.62% when adjusted for inflation) in the six cities land price index (In Japan, land prices are used as a proxy for residential prices). This follows a 4.12% rise in 2006, a 0.89% fall in 2005. So after years of stagnation, the momentum has been up.
Open to foreigners. There are no legal restrictions on foreigners owning real estate property in Japan.
RENTAL YIELDS
Yields are moderate in Tokyo
Gross rental income on apartments in Tokyo, Japan is around 5.8%. Smaller units have the highest yields. A 60-sq. m apartment generates a yield of 7.93% while a 120-sq. m apartment generates much lower at 4.86%.
Rent and apartment prices both increased from last year. However, yields have become lower because prices increased faster than rent.
Due to a dearth of space in overpopulated Tokyo, apartments in the city centre have always been very expensive. On the average, apartments sell for around US$13,324 per sq. m. Prices can go as high as US$18,350 per sq. m for a unit with 150 sq. m.
TAXES AND COSTS
Effective rental income tax is low in Japan
Effective Tax Rate on Rental Income |
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| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 3.4% | 5.9% | 5.9% |
| Click here to see a worked example | |||
Source:
Disclaimer
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Rental Income: Rental income of non-resident individuals is subject to 10% tax. However, effective rental income tax is low, ranging from 3.4% to 5.9%.
Capital Gains: Net gains realized from selling short-term real properties, i.e. property held for less than 5 years, are taxed at 30%. Net gains on property held beyond five years are taxed at 15%.
Inheritance: Inheritance is based on residency status but foreign individuals inheriting property located in Japan are still subject to inheritance tax, which is levied at progressive rates.
Residents: A permanent resident is taxed on his worldwide income at progressive rates.
BUYING GUIDE
Moderate roundtrip buying costs in Japan
The total roundtrip transaction cost is around 6% to 10%, inclusive of the 3.15% agent’s fee (inc. VAT and local taxes) plus an additional payment of ¥63,000 (US$526). The Acquisition Tax differs for land and buildings at 1.5% and 3%, respectively.
LANDLORD AND TENANT
Japanese landlords get key money
Tenancy laws passed in 2000 shifted the balance of power from tenants to landlords, making Japan strongly pro-landlord.
Rents: Rents are freely negotiable. Aside from two to three month’s security deposit, landlords receive key money worth one to two month’s rent.
Tenant Eviction: Automatic renewals of leases were abolished in 2000, making eviction easier. If the tenant prematurely ends the contract the landlord can charge one month’s rent.
ECONOMIC GROWTH
Fragile economic recovery in Japan
The GDP growth rate was 2.1% in 2007, a slight decrease over the 2.4% growth experienced in 2006. Growth is now expected to dip in 2008, due to higher costs, the appreciation of the Yen, and the global growth slowdown.
Japanese inflation was minimal in 2007 at 0.1%, though there has been a slight uptick in the early months of 2008, leading to a 1.2% y-o-y CPI increase.
Real private sector wages rose by 1.6% in 2006 and are expected to rise further by 2.2% rise in 2007.
RESIDENTIAL PROPERTY AROUND THE WORLD
Asia & Pacific
Bubble fears prompt foreign ownership limits in China
America & Caribbean
The slowdown of the U.S. housing market
Middle East and Africa
Bahrain is open to foreigners and sizzling hot
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| RESIDENTIAL PROPERTY FACTS | |
| Price (sq.m): $15,851 For a 120 sq. m. property, usually an apartment. | Rental Yield: 4.86% For a 120 sq. m. property, usually an apartment. |
| Rent/month: $7,711 For a 120 sq. m. property. | Income Tax: 3.40% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income. |
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Roundtrip Cost:
8.5%
The total cost of buying and then reselling an apartment. Includes: * all transaction taxes and charges: * lawyers' and notaries' fees * agents' fees Assumptions: The buyers are non-resident foreigners. The apartment cost US$250,00 / €250,000. |
Cap Gains Tax: 4.0% Assumptions: The property was bought for US$250,000 / €250,000, and sold 10 years later, after a 100% appreciation. |
| Landlord & Tenant Law: Strongly Pro-Landlord Rating is based on a detailed study of each country’s law and practice. | |
APRIL 2008
- Sotheby's International Realty opens its doors to embark on global luxury real estate brokerage - Japan's Corporate Ne
MARCH 2008
- Japan land prices rise in 2007. But honeymoon is over - New York Times
- Fitch: Limited Impact On Japan's real estate majors Ffrom residential slowdown - The Fin Channel
FEBRUARY 2008
- Asia Pacific property digest (pdf - requires free registration) - Jones Lang LaSalle
JANUARY 2008
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