Japan: Overview

RENTAL YIELDS

Last Updated: Apr 13, 2009

Expensive apartments, moderate returns

The gross rental returns on apartments in Tokyo, Japan, averages around 5.54%. Smaller units have the highest yields. A 40 square metre (sq. m) apartment generates a yield of 5.90% while a 250-sq. m apartment has lower returns, at 5.21%.

Due to a lack of space in overpopulated Tokyo, apartments in the city centre have always been very expensive. On the average, apartments sell for around US$13,328 per sq. m.

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TAXES AND COSTS

Last Updated: Dec 10, 2008

Effective rental income tax is low in Japan

Effective Tax Rate on Rental Income
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

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.

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BUYING GUIDE

Last Updated: Aug 16, 2007

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.

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LANDLORD AND TENANT

Last Updated: Jun 21, 2006

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.

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ECONOMIC GROWTH

Last Updated: Dec 22, 2008

Fragile political and economic environment

The economy entered recession in Q3 2008 after the GDP shrunk in two consecutive quarters compared to the previous quarter (- 0.1% in Q3 and -0.9% in Q2). Overall economic growth is expected to drop to 0.5% in 2008 and -0.1% in 2009, in sharp contrast to the 2.3% average annual growth from 2004 to 2007.

The economic recovery was due to reforms measured implemented by former Prime Minister Koizumi (elected in 2001) and strong export growth. Koizumi stepped down in Sept. 2006, due to party term limit rules. Two succeeding prime ministers resigned after single scandal-plagued years in office.

It is unclear whether the LDP’s Taro Aso, elected premier on September 2008, can push tough reforms through the divided legislature. His popularity quickly plunged after he took office, but he has resisted calls for an early election. The law mandates that elections must be held not later than end-Sept. 2009.

The economic stimulus packages needed to push the economy forward are expected to encounter rough sailing in parliament, which remains in deadlock. While the LDP controls the more powerful lower house (which elects the prime minister), the opposition, the Democratic Party of Japan (DPJ), controls the Upper house.

The Bank of Japan cut the key interest rate to 0.1% on December 19, 2008 from 0.3%. In October, the central bank cut the key rate from 0.5% to 0.3%. Future interest rate cuts are still possible: the key rate was at 0% from February 2001 to June 2006.