Guide to buying a property in Japan

Buying a Japan property

Buying procedure

1. DUE DILIGENCE
   1. Planning for source of funds. Inclusion of miscellaneous cost like real estate salesperson’s commission, registration cost etc. A ball park figure is to include 10% of purchasing price.
   2. Choosing a location and setting a budget. Relevant considerations include the age of the building and whether parking lots are required. Inspection of the building for completed projects can be done as well.
2. COMPLETION OF PURCHASE APPLICATION FORM
   After you are satisfied with the property, you need to complete and submit a “purchase application form” to the seller, which includes your offer price, payment method, contract date, date of delivery. This form is analogous to the “offer to purchase” form in Singapore, where the buyer gives a non-binding written expression of his interest to purchase the property at a certain price. The purchase application form is needed to kick start the negotiation process.
3. DRAWING UP THE CONTRACT
   Once you and the seller have agreed to all the major conditions, in particular, the purchase price of the property, a sales contract can be prepared by the lawyer. The sales contract is usually in the Japanese language.
4. EXPLANATION OF IMPORTANT DETAILS BY AGENT
   According to Japanese law, it is mandatory for a registered real-estate agent to review and explain the important details of the contract to you before you enter into a binding agreement with the seller. This is to ensure that you fully understand the contract before you sign it.
5. SIGNING OF CONTRACT
   After the explanation by the agent, both the buyer and seller will sign the sales contract. Upon the signing of the sales contract, the buyer must give a deposit (usually 10% of the purchase price) and pay a documentary stamp duty. This stamp duty is not refundable in the event that the loan application is rejected.
6. LOAN APPLICATION
   Any loan application for purchase of Japanese properties can only be made after the sales contract has been signed. Loan application for purchase of Japanese properties will normally take about 6 to 8 weeks. If the loan is rejected, the contract will be terminated and the deposit of 10% will be returned to the buyer.
7. FINAL SETTLEMENT/ COMPLETION OF THE PURCHASE OF THE PROPERTY
   The final settlement will be done by a judicial scrivener or a law clerk in Singapore’s context. The buyer will need to pay the remaining 90% of the purchase price upon completion. This can be done by the disbursement of the bank loan, depending on the quantum of the loan. In the event that the loan quantum is less than 90% of the purchase price, the buyer has to top up the balance. Miscellaneous fees will also be payable upon completion. The table for the miscellaneous fees is detailed below. Upon completion, the seller will deliver all the keys to the property to the buyer.Miscellaneous fees

   Costs incurred to get a bank loan	Bank commission Fire insurance premium
   Pro-rated ongoing fees and taxes	· Fixed Asset Tax City Planning Tax Management fee, Sinking fund (for an apartment) Membership fee for the neighbourhood association
   Agent’s  Commission	3% of the sales price + ￥60,000 + consumption tax in accordance with property transaction regulations.
   Registration Tax	For registering ownership transfer and/or mortgage on a property.
   Commission for the Legal Scrivener	Fee for conducting ownership transfer and necessary related registration. The fees vary depending on the size and complexity of the transaction.
   Acquisition Tax	This tax is paid to the local government and is usually due within six month of the purchase.

Selling procedure

1. PRELIMINARY ISSUES
   1. Engagement of agent
      You can enter into an exclusive agreement with one agent (referred to as a ‘senin’ agreement) or with multiple agents (referred to as an ‘ippan’ general agreement). Once you entered in to a ‘senin’ or ‘ippan’ general agreement, the agent/agents will market your property and find prospective buyers.
   2. Valuation enquiry
      Make an enquiry about the value of your property from Japanese agents.
2. RECEIPT OF PURCHASE APPLICATION FORM
   You will receive applications to purchase forms from prospective buyers. This form is analogous to our “offer to purchase” in Singapore, where the buyer give a non-binding written expression of his interest to purchase the property at a certain price. This The purchase application form is needed to kick start the negotiation process.
3. DRAWING UP THE CONTRACT
   Once you and the seller have agreed to all the major conditions, in particular, the purchase price of the property, a sales contract can be prepared by the lawyer. The sales contract is usually in the Japanese language.
4. EXPLANATION OF IMPORTANT DETAILS BY AGENT
   Your agent is mandated by law to review and explain the important details of the contract to you before you enter into a binding agreement with the buyer. This is to ensure that you fully understand the contract before you sign it.
5. SIGNING OF CONTRACT
   After the explanation by the agent, both the buyer and seller will sign the sales contract. Upon the signing of the sales contract, the buyer must give a deposit (usually 10% of the purchase price) and pay a documentary stamp duty. The seller also has to pay a stamp duty. The stamp duty is not refundable in the event that the loan application is rejected.
6. BUYER’S LOAN APPLICATION
   If the buyer needs to take a bank loan, there will be a waiting period of 6 to 8 weeks. If the loan is rejected, the contract will be terminated and the consideration of 10% will be refunded to the buyer.
7. FINAL SETTLEMENT/ COMPLETION OF THE PURCHASE OF THE PROPERTY
   The final settlement will be done by a judicial scrivener or a law clerk in Singapore’s context. The buyer will need to pay the remaining 90% of the purchase price upon completion. This can be done by the disbursement of the bank loan, depending on the quantum of the loan. In the event that the loan quantum is less than 90% of the purchase price, the buyer has to top up the balance. Miscellaneous fees will also be payable upon completion as detailed below. Upon completion, you will deliver all the keys to the property to the buyer.
   Miscellaneous fees

   Agent’s  Commission	3% of the sales price + ￥60,000 + consumption tax in accordance with property transaction regulations.
   Registration Tax	For redemption of mortgage if the mortgage has not yet been paid off.
   Commission for the Legal Scrivener	Fee for conducting ownership transfer and necessary related registration. The fees vary depending on the size and complexity of the transaction.
   Capital gains tax	Payable as a form of income tax

   Stamp duty for contract

   Price on Contract	Property Sales Contract
   Less than ￥1M	￥500
   Less than ￥5M	￥1,000
   Less than ￥10M	￥5,000
   Less than ￥50M	￥10,000
   Less than ￥100M	￥30,000
   Less than ￥500M	￥60,000
   Less than ￥1B	￥160,000

    

Taxes

1. BUYING
   1. Stamp duty for contracts and loans
      Stamp duty is levied on contracts involving amounts equal to or over ￥100,000, with the amount of tax varying according to the contract price as shown below:

• Acquisition tax (Local Tax)
  Tax payable = Assessed value of acquired real estate x 3%
• Registration Tax
  Amount of Tax ＝ Assessed Value of Property (Tax Base) × Tax Rate
  The tax rate varies according to the type of registration. For instance, the tax rate for the registration on transfer of ownership ranges from 0.4% to 2.0%, depending on how the transfer occurred.

  Category	Tax rate
  New Residence	Land	Assessed Value x 2.0%
  	Building	Assessed Value x 0.4%
  Pre-owned Residence	Land	Assessed Value x 2.0%
  	Building	Assessed Value x 2%
  Loans	Loaned Amount x 0.4%

   

• HOLDING
  1. Fixed Asset and City Planning Tax
     • The fixed asset tax is currently at 1.4% of assessed value of property
     • The city planning tax is current 0.3% of assessed value of property.
  2. Income Tax
     • Rental income obtained from the property is counted as income tax in Japan. 42% of the rental income is withheld by the tax authorities until income taxes are filed. Deductibles for income tax includes building management fees, annual fixed asset taxes, fire insurance, repairs, property management and brokerage fees and depreciation etc.

     Taxable income	Rate (%)
     < ￥1.95M	5
     ￥1.95M -￥3.30M	10
     ￥3.30M -￥6.95M	20
     ￥6.95M -￥9.00M	23
     ￥9.00M -￥18.00M	33
     > ￥18.00M	40

      

  3. Inheritance tax
     

     Assessed property Value(￥)	Tax rate
     <  10,000,000	10％
     30,000,000	15％
     50,000,000	20％
     100,000,000	30％
     300,000,000	40％
     > 300,000,000	50％

  4. Gift tax
     

     Assessed property Value (￥)	Tax rate
     < 2,000,000	10％
     2,000,001 – 3,000,000	15％
     3,000,001 – 4,000,000	20％
     4,000,001 – 6,000,000	30％
     6,000,001 – 10,000,000	40％
     > 10,000,000	50％

      

• SELLING
• Stamp duty
  Stamp duty for contract is payable by the seller. The tax rate is as above.
• Registration tax
  Upon completion, you will be required to pay for the redemption of mortgage at about ￥15,000.
• Capital Gains tax is payable as a form of income tax.
  Capital gains = Selling price – (Initial Purchase Price – Depreciation cost) – expenses incurred in buying – expenses incurred in selling

  	Within 5 years	More than 5 years
  Resident	39% of Capital Gains	20% of capital Gains
  Non- Resident	30% of capital Gains	15% of capital Gains