Making a Plan in Japan

[Rising Sun]

G'day, another newbie joins the ranks after a lot of reading. A little about myself ... I've divided this post into 3 parts for clarity:

1) Past:
Born in Sydney 35 years ago and have worked in Tokyo for the last 12 years. I was a uni student in Sydney and still have the deferred 4 year HECS fees as proof. During that time (14 years ago) I bought a half-share of 100 acres of land with my brother on the NSW Mid-North Coast. My brother lives there now and it is non-income producing.

2) Present:
No PPOR and no IPs. 5 years left on a work contract, but I plan to stay in Tokyo for about 10 to 15 years before returning to Oz. As a non-resident Australian citizen (i.e., because of the double taxation agreement between Japan and Oz) I pay taxes here in Japan. Currently renting a small "mansion"
(reinforced concrete unit). I'm on a 3 year renewable work visa and will apply for Permanent Residency this year.

3) Future:
a.) (this year) I want to buy an older house or apartment block with land to live in as it works out cheaper than renting here in Japan. I've been looking around at the government foreclosed auctions and REAs. With low interest rates and high yields, an IP may also be possible.
b.) (over the next 2 years) I plan to buy some IPs in Oz. This gives me time to research and educate myself, read heaps, look at the various markets, set up a Hybrid Discretionary Trust and Trustee Company, find a savvy accountant, financial advisor, and mortgage broker, or loan pre-approval. I don't want to rush in right now as I feel the market has cooled off. In Tokyo, NAB and ANZ offer cheap interest rates for buying IPs in Oz ... the catch is that when the LVR hits 80% there is a costly "margin call". Alternatively, I could apply for a "professional" package loan through one of the Aussie banks in Oz.

If anyone is in a similar situation, or could offer me some advice, it would be greatly appreciated.

Later, Rising Sun. :)

[ronin1210]

g'day rising sun,

I am a fellow aussie living and working in Japan. I am also looking to purchase an investment property or two back home (thankfully rent where I am is cheap). I would be interested to hear about this margin call at 80% LVR you are getting hit with. Do these lenders have any online info about this and other conditions of loans? Given the interest rate discrepency and state of japanese property market I have no idea why people here have not been pumping investment dollars overseas.

cheers

ronin

[Amarantha]

It's called "Lender's Mortgage Insurance" or LMI. A search, using these terms, of the forums and on google should yield all the information you need :)

[Rising Sun]

G'day Ronin,

Good to see there is another Aussie masterless samurai in Japan! I don't have a loan through either of them as of yet, but I am considering them for the future. Like I said the loans are for Aussies living in Japan and buying IPs in Oz and the interest rates are attractive (for loans in Japanese Yen) but the risk is the call of "topping up" the loan. As I understand it, if someone takes out a loan through either of them and there is a drop in the exchange rate of the A$ to the JY, the LVR may surpass the 70 to 80% mark (after the currency fluctuation is taken into account) and they will request a correction by getting the customer to inject more cash (and it can be quite substantial). Of course, it is more volatile if you start off at LVR 70 to 80%, or close to it. If you started at LVR 50%, you have more comfort zone.

Tokyo NAB offers Japanese Yen loans at cost of funds plus 2% p.a. and out to an LVR of 70%. I think they do an $A loan of out to LVR 80% (with different interest rates). You can see the details at http://www.nabasia.com/tokyo/en/personal.asp?StoryID=5686. Alternatively, you could email Richard Henderson at richard.henderson@nabasia.com who I'm sure would mail you out an English info package.

Tokyo ANZ offers Japanese Yen loans at cost of funds plus 1.25% p.a., which on 27/2/2004 totalled 1.31% p.a.! :D (70 to 75% LVR). They have a website at http://www.anz.co.jp but mostly in Japanese. I'm sure Ken Torii at toriik@anz.com would mail you out an info package in English.

They seem like similar products, with some variations. Have a read and see what you think. Have you taken out any loans yet through Aussie banks? What was your experience? Did you set them up while you working here in Japan? It would be good to hear your story. :cool:

Cheers, mate, Rising Sun.

[rumin]

Hello fellow tokyo-ittes!
I've been in Tokyo over 12 years,too...I have 2IPs at the moment (had 3 but just sold 1 and looking to purchase a biggie in the next 12 mo. )Boy,Have I had some ups and downs....but totally worth it! ;)
I thought the tokyo NAB only liked 65% LVR???
Anyway..How about we have a Tokyo chapter meet-up?? :)
I,certainly had learnt a lot in 9 years with IPs and even if one other person didn't make one of the mistakes I've made...It'd be worth it :eek:
Feel free to PM me
rt419@hpo.net

I'm situated nr Jiyugaoka on the Toyoko line...

cheers.
Ruth

[see_change]

Guys , given the state of the market in Australia ( at top of boom ) and the state of the market in Japan ( depressed , but some places starting to pick up ) , if I was living in Japan at the moment, that's were I'd be investigating buying IP's at the moment. Not saying I'd end up buying, but Id certainly check it out very carefully.

( then I'd report back on what I'd found to all those nice people on somersoft ... :D )

See Change

[Y33]

Hi Rising,

Before you go a head with a loan from one of the banks have a good look at what happens if the exchange rates move 10% either way. If the rate change goes against you and your LVR blows out you may have to put extra cash in to bring it back in line. Also if you plan on leaving Japan you will have to refinance first. Be very careful of anyone who suggests that the banks don't need to know you don't live in Japan anymore.

In regards to investing in Japan, IP's look good when you consider the low interests rates but you need to be aware of the charges (tax and agents 20% of selling price) if you decide to sell later. Unlike Australia you are not permitted to sell privately in some areas. Also as the property gets older the price is currently falling here in Japan and has been on a down cycle for over a decade. Any IP that you buy must be +cash flow and this +cash flow must be enough to cover how much the IP will depreciate over time.

One strange things about Japanese banks is how much you are allowed to pay back or borrowed. It is not the same at all banks but this is a rough guide. Income 20-30K=15%, 30-50K=30% 50K~=40%

Some banks do not allow you to pay out the loan quicker and any renovations must be approved by the bank first.

Also as a foreigner you face an uphill battle even if you have residency.

My suggestion would be to find a vacant block of land and build a set of 1K units the same as Leo Palace does.

Although buying and paying back a mortgage may appear cheaper than renting you will need to do this over a long term period than a short, possibly 10 yrs. All this will depend on the difference between your rent and mortgage and resale value later.

[ggumpshots]

Hi Rising,

Before you go a head with a loan from one of the banks have a good look at what happens if the exchange rates move 10% either way. If the rate change goes against you and your LVR blows out you may have to put extra cash in to bring it back in line. Also if you plan on leaving Japan you will have to refinance first. Be very careful of anyone who suggests that the banks don't need to know you don't live in Japan anymore.

In regards to investing in Japan, IP's look good when you consider the low interests rates but you need to be aware of the charges (tax and agents 20% of selling price) if you decide to sell later. Unlike Australia you are not permitted to sell privately in some areas. Also as the property gets older the price is currently falling here in Japan and has been on a down cycle for over a decade. Any IP that you buy must be +cash flow and this +cash flow must be enough to cover how much the IP will depreciate over time.

One strange things about Japanese banks is how much you are allowed to pay back or borrowed. It is not the same at all banks but this is a rough guide. Income 20-30K=15%, 30-50K=30% 50K~=40%

Some banks do not allow you to pay out the loan quicker and any renovations must be approved by the bank first.

Also as a foreigner you face an uphill battle even if you have residency.

My suggestion would be to find a vacant block of land and build a set of 1K units the same as Leo Palace does.

Although buying and paying back a mortgage may appear cheaper than renting you will need to do this over a long term period than a short, possibly 10 yrs. All this will depend on the difference between your rent and mortgage and resale value later.

Building units and renting is a great idea
inOz, but from the examples I have seen in Japan....... fees/ prefectural and National govt charges associated costs, agent fees selling and buying costs etc the propostion doesnt look attractive at all.............Have you spoken to an accountant to find out the nitty gritty.
I have a yen loan but it has appreceiated by 8% in 2 years. Are you prepared to bet against the yen or the dollar over the next several years?
ANZ require income of $150,000 and were very unprofessional when I approached them.
I think you must be an exceptional person to buy property at the moment in Japan..there are too many unknowns for me...........however there are oppurtunities.
The market will be stagnet for the next 5 years at least I believe...so oppurtunities abound elsewhere in my books.
My final comment would be to invest in a market that you understand thoroughly otherwise Japan will hit you with something unknown and ruin your plans.
If you intend to live in Japan 15 years then that does change things somewhat but I still think an Investment in OZ NZ would be a far superior return over 15 years

[Y33]

Hello ggumpshots, I agree the market is better in Australia than in Japan but if Rising sun is going to stay here for another 10 yrs then the rent he is paying is totally dead money. Rather than pay, for example, $900/month dead money he may be able to find the right investment that will give him a reasonable return. Any property he buys in OZ needs to return this $900/month through rent or CGG or both. A block of 8 1K units in Japan can be built for around $400K-600K. The average rental return from these style of units is $550/monthX10UnitsX12m =$66K. Interest on the loan is between 1.1%-2.4% depending on the lender. If he can get a 30Yr IO loan at 2% his repayments average out at around 14-16K/yr. This is only a rough caculation and I haven't gone into all the finer points and costs that are associated but if done the right way can give a nice return. 1K unit developments are a cheap way to get into the market here but as with any investing you are exposed to risks. Some main benefits of investing in Japan are: interest rates are not going to have a sudden rates hike and go up to 4-5%, the bubble burst has already brought the prices down and it would be safe to say there wont be another burst where property drops 50-75%, property values in some areas are starting to increase again ever so slightly.

The main point is to do your DD and check with your accountant to see if this style of investing suits your need and budget.

[Panic]

Thank you Rising Sun for starting this tread.

I've been meaning to start something similar as to the opportunities of investing in Japan atm and in the next few years.

As SeeChange has put it very eloquently OZ market is on its way down and will stagnate for few more years to come. So no rush with that. On the negative side of the OZ market is that it is almost impossible to find cf+ properties atm.

Back to Japan REI. I have done only preliminary investigations on Tokyo REI, but would like the Japan based members to educate me and the forum further more on the opportunities and the procedure to acquire IP's in Japan by OZ investors. Mainly few things:
1. Is Tokyo the only city to have cf+ properties or those can be found all over Japan?
2. Which other cities would be good for IPs?
3. What is the average rate of return, ie yield?
4. I can’t seem to find many online (English) sites which deal with selling of units... can you help us with that?
5. Is there a specific procedure to follow, like approvals, documents, residency etc, when purchasing IPs?

Thanks
V

[Rising Sun]

Thanks for your input.

Sorry I haven't checked this thread in a while, so quite a late reply. I didn't have any replies for a while so I thought no one was interested. But now that I've looked back there was some interest.

I have been working hard this year and started on my my Doctoral studies a couple of months ago. Therefore, friggin' busy :confused: . By the way, just got my "eijuken", permanent residence visa a couple of days ago. Totally stoked about that ... don't have to apply for another visa again in my life here ... just re-entry permits. Life wasn't meant to be easy, as an ex-sheep farmer once said :) Bugger!

Still got my eyes out :eek: for a residence to call mine. Would love to hear from fellow Tokyo-ites, or those in Japan, or with experience/interest in Japan. Maybe we can help each other out. I hope that's one of the reasons why this forum exists.

By the way, Tokyo-ites, did you see an article in the free English magazine here, Metropolis, about a foreigner buying a house here a month or so ago? Check it out. It may be available on the website.

A meeting in Tokyo of fellow Tokyo-ites/Japan-ites would be great. Beer, sake, PI talk ... anyone interested?

Cheers, Rising Sun.

[Sultan of Swing]

By the way, Tokyo-ites, did you see an article in the free English magazine here, Metropolis, about a foreigner buying a house here a month or so ago? Check it out. It may be available on the website.



Hi Rising Sun

Great thread! I'm finding this interesting reading.

For those of us that can't get a copy of Metropolis, could you tell us a bit about the article? You said enough to make me curious.

Cheers

[topcropper]

Yeah, hello you Japanese residents.

Hows things going over there? Gee, the Japanese stock market is on fire! How's property? Booming too I suppose. Unlike Oz, it seems to me that stocks and property boom together over there. Both topped out in 1990 followed by 15 years of gloom. Wonder if the cycle will repeat?

Interesting the property valuations. Must be some money making opportunities, especially with investment markets being so crook for so long and stuff all interest rates.

See ya's.

[Terryw]

hi

For people interested, there is a discussion group at:
http://finance.groups.yahoo.com/group/Japan_invest/

Regards

Terryw

[topcropper]

Thanks for that Terry W.

I liked this story from that site. Thought I would post it here....

See ya's.




Take It From Japan: Bubbles Hurt

By MARTIN FACKLER

KASHIWA, Japan

FOURTEEN years ago, Yoshihisa Nakashima looked at this sleepy suburb an hour and
20 minutes from downtown Tokyo and saw all the trappings of middle-class
Japanese bliss: cherry-tree-lined roads, a cozy community where neighbors
greeted one another in the morning and schools within easy walking distance for
his two daughters.

So Mr. Nakashima, a Tokyo city government employee who was then 36, took out a
loan for almost the entire $400,000 price of a cramped four-bedroom apartment.
With property values rising at double-digit rates, he would easily earn back the
loan and then some when he decided to sell.

Or so he thought. Not long after he bought the apartment, Japan's property
market collapsed. Today, the apartment is worth half what he paid. He said he
would like to move closer to the city but cannot: the sale price would not cover
the $300,000 he still owes the bank.

With housing prices in the United States looking wobbly after years of
spectacular gains, it may be helpful to look at the last major economy to have a
real estate bubble pop: Japan. What Americans see may scare them, but they may
also learn ways to ease the pain.

To be sure, there are several major differences between Japan in the 1980's and
the United States today. One is the fact that property prices rose much faster
and more steeply in Japan, partly because speculators used paper profits from a
booming stock market to invest in property, insupportably leveraging the prices
of both higher and higher.

Another difference is that the biggest speculators in Japan's frenzy were
deep-pocketed corporations, and they pumped up the commercial property market at
the same time that home prices were inflating.

Still, for anyone wondering why even the possibility of a housing bubble in the
United States preoccupies so many economists, it is worth looking at how the
property crash in Japan helped to flatten that economy, which is second only to
that of the United States, and to keep it on the canvas for more than a decade.

And as American homeowners contemplate what might happen if their property
values fell -particularly if they fell hard - there are lessons in the bitter
experiences of their Japanese counterparts like Mr. Nakashima.

JAPAN suffered one of the biggest property market collapses in modern history.
At the market's peak in 1991, all the land in Japan, a country the size of
California, was worth about $18 trillion, or almost four times the value of all
property in the United States at the time.

Then came the crashes in both stocks and property, after the Japanese central
bank moved too aggressively to raise interest rates. Both markets spiraled
downward as investors sold stocks to cover losses in the land market, and vice
versa, plunging prices into a 14-year trough, from which they are only now
starting to recover.

Now the land in Japan is worth less than half its 1991 peak, while property in
the United States has more than tripled in value, to about $17 trillion.

Homeowners were among the biggest victims of the Japanese real estate bubble. In
Japan's six largest cities, residential prices dropped 64 percent from 1991 to
last year. By most estimates, millions of homebuyers took substantial losses on
the largest purchase of their lives.

Their experiences contain many warnings. One is to shun the sort of temptations
that appear in red-hot real estate markets, particularly the use of risky or
exotic loans to borrow beyond one's means. Another is to avoid property that may
be hard to unload when the market cools.

Economists say Japan also contains lessons for United States policy makers, like
Ben S. Bernanke , who is expected to become chairman of the Federal Reserve at
the end of January. At the top of the list is to learn from the failure of
Japan's central bank to slow the rise of the country's real estate and stock
bubbles, and then its failure to soften their collapse. Only recently did Japan
finally find ways to revive the real estate market, by using deregulation to
spur new development.

Most of all, economists say, Japan's experience teaches the need to be skeptical
of that fundamental myth behind all asset bubbles: that prices will keep rising
forever. Like their United States counterparts today, too many Japanese
homebuyers overextended their debt, buying property that cost more than they
could rationally afford because they assumed that values would only rise. When
prices dropped, many buyers were financially battered or even wiped out.

"The biggest lesson from Japan is not to fall into the same state of denial that
existed here," said Yukio Noguchi, a finance professor at Waseda University in
Tokyo who is perhaps the leading authority on the Japanese bubble.

"During a bubble, people don't believe that prices will fall," he said. "This
has been proven wrong so many times in the past. But there's something in human
nature that makes us unable to learn from history."

In the 1980's, Professor Noguchi said, the frenzy in Japan reached such extremes
that companies tried to outbid one another even for land of little or no use. At
the peak, an empty three-square-meter parcel (about 32 square feet) in a corner
of the Ginza shopping district in Tokyo sold for $600,000, even though it was
too small to build on.

Plots only slightly larger gave birth to bizarre structures known as pencil
buildings: tall, thin structures that often had just one small room per floor.

As a result, Japan's property market in the 1980's was much more fragile than
America's today, Professor Noguchi said. And when the market fell, it fell hard.
Because of all the corporate speculation, the collapse wiped out company balance
sheets, crippled the nation's banks and gave the overall economy a blow to the
chin.

Since 1991, Japan has spent 11 years sliding in and out of recession. It is only
now showing meaningful signs of recovering, with the World Bank forecasting that
Japan's economy will grow by a solid 2.2 percent this year

Despite the differences, Professor Noguchi said he also saw parallels between
Japan then and America now. Last year, as a visiting professor at Stanford, he
said he read real estate articles in local newspapers that sounded eerily
familiar. Houses were routinely selling for $10 million or more, he said, with
buyers saying they felt that they had no choice but to buy now, before prices
rose even further.

"It was deja vu," Professor Noguchi said. "People were in a rush to buy, and at
extraordinary prices. I saw this same haste psychology in Japan" in the 1980's.
"The classic definition of a bubble," he added, "is people buying on false
expectations about future prices, and buying with the hope of selling in the
future."

Economists and real estate experts see other parallels as well. In the 1980's,
the expectation of rising real estate prices made many Japanese homebuyers feel
comfortable about taking on huge debt. And they did so by using exotic loans
that required little money upfront and that promised low monthly payments, at
least for a short time.

A similar pattern is found today in the United States, where the methods include
interest-only mortgages, which allow homebuyers to repay no principal for a few
years. Japan had its own versions of these loans, including the so-called
three-generation loan, a 90- or even 100-year mortgage that permitted buyers to
spread payments out over their lifetimes and those of their children and
grandchildren.

But when property prices dropped in Japan, homeowners found themselves saddled
with loans far larger than the value of their real estate. Many fell into
bankruptcy, especially those who lost their jobs or took pay cuts as declining
property prices helped to incite a broader recession. From 1994 to 2003, the
number of personal bankruptcies rose sixfold, to a record high of 242,357,
according to the Japanese Supreme Court, which tracks such data.

Even many of those who avoided financial collapse found themselves marooned in
homes that they never intended as lifelong residences. For many Japanese
homebuyers in the 1980's, land prices had risen so high that the only places
they could afford were far from central Tokyo. Many went deep into debt to buy
tiny or shoddily built homes that were two hours away from their offices.

Now, after years of tumbling land prices have made Tokyo more affordable again,
few people are shopping for homes in the distant suburbs. That has led to severe
declines in property values in these outlying areas, leaving many people with
homes that are worth less than the balance on their mortgages from a decade or
more ago.

Mr. Nakashima, who bought the apartment here in Kashiwa, said it would take him
at least another decade to whittle down his loan to the point that he could pay
it off by selling his home. And this assumes that the apartment does not drop
further in value - a real possibility, because lower prices in Tokyo have led to
a recent boom in construction of newer apartments in neighborhoods closer to
downtown.

"We can't sell and get something better because we'll take such a huge loss,"
said Mr. Nakashima, a serious man who recounts his story with careful precision,
sometimes pausing to check dates. "The collapse of the bubble robbed us of our
freedom to choose where we can live."

He rues the idea that homes came to be seen as just another investment. "Homes
should be different from stocks," he said. "They shouldn't be the object of
speculative investing. If home prices move too much, they can ruin your life."

Mr. Nakashima says he is resigned to spending the rest of his days in Kashiwa.
It is peaceful here, after all, he said. There is also a bit of history: he
pointed to two tree-covered mounds in a corner of the apartment complex that are
said to contain the severed heads of samurai killed in a battle here five
centuries ago.

Some economists say that there are probably millions of people like Mr.
Nakashima, trying to make the best of life in homes that are distant from work
and for which they grossly overpaid. "There is a whole generation of homebuyers
stuck out in far suburbs," said Atsushi Nakajima, chief economist at the
research arm of the Mizuho Financial Group in Tokyo. "It's sad, but Japan has
basically forgotten about them, and is moving on. They are just left out there."

Mr. Nakajima said he had barely missed being stuck out there himself. In 1991,
he was looking at a 100-square-meter apartment (1,080 square feet) for about
$600,000 about two hours outside Tokyo. He said his wife stopped him. Six years
later, he spent the same amount to buy a more spacious house in a downtown
neighborhood. "Maybe my wife should be the economist," he said.

Now that Japan's real estate market is finally showing signs of recovering from
the 1991 collapse, economists say it offers a lesson for Americans in how to end
- and not to end - a long slide in property prices.

For years after the real estate bubble burst, the Japanese government tried to
resuscitate the market and other parts of the economy with expensive public
works projects, but they were so poorly planned that they succeeded only in
inflating the national debt.

NOT until the late 1990's did the government try a new tack: deregulation. To
kick-start the economy, Tokyo started loosening restrictions on the financial
industry. While most of this effort was aimed at reviving the banking industry,
it also allowed investors to create real estate investment trusts, essentially
mutual funds that invest in commercial property. A few years later, the
government also eased building codes, such as height limits, and cut approval
times for building permits.

Economists and real estate executives credit these changes with bringing new
money into the market, and with making redevelopment easier. The results are
visible in a boom that is dotting the Tokyo skyline with cranes and new
high-rises.

They are also visible in statistics. Residential home prices in Tokyo rose 0.5
percent in the 12 months through July, the first gain in 15 years, the
government said in September. Nationwide, land prices are still down, but the
pace of decline has slowed to a crawl, the government said.

"Deregulation revived the Tokyo land market," said Toshio Nagashima, executive
vice president at Mitsubishi Estate, one of Japan's largest real estate
companies. He said the changes were one reason that his company committed to
spend $4.5 billion by 2007 to build six skyscrapers in the central Marunouchi
financial district.

Japanese economists say the United States is not likely to suffer a decline that
is as severe or long-lasting as Japan's, because they see a more skilled hand at
the tiller of the American economy: the Federal Reserve. Japan's central bank,
the Bank of Japan, failed to curb the stock and real estate bubbles until
mid-1989, when it was too late and prices were sky-high, they said.

When it did take action, it moved faster and more drastically than Japan's
overinflated land and stock markets could handle, raising its benchmark interest
rate to 6 percent from 2.5 percent over 15 months. Economists say that this
pulled the rug out from under both markets at the same time.

Akio Makabe, a finance professor at Shinshu University in Matsumoto, says the
Fed has been more deft in handling the rise in America's property market, which
he believes is definitely in a bubble. He praised the Fed for apparently
learning from Japan's mistakes, tightening more gradually and taking the
economy's pulse as it does so.

"Japan shows the importance of avoiding a hard landing," Professor Makabe said.
"Avoid big shocks. That is the biggest lesson of Japan's bubble."

[ggumpshots]

http://www.shinseibank.com/english/

offers low interest loans to gaijins, but like anything checkout the fine print.
As mentioned earlier be aware of currency changes,
if you decide to leave the country and earn funds in another currency

[pennyk]

If you have a LOC in Australia, secured against Australian property, can you use that to purchase IP's/ properties in Japan without any further approvals? (assuming your LOC covered the cost of the purchase?

Pen

[Patosan]

Gosh ... in all the time I've been here I've never seen so many Jp resident forumites posting in the one thread.

I have IP back in Oz and have Oz sourced CBA loans. I feel now would be a terrible time to secure a yen loan against Oz IP, as the ex rate has far too much potential to screw you.

Why not get Oz IP with AUD loans & also Jp IP with yen loans. Then down the road as the wind changes you could have the chance to convert an AUD loan into a yen one or the other way. I may be looking at Jp IP next but there's a lot of homework to do.

[Rising Sun]

Dear all,

Thanks for your replies. Pato san, good advice. I'm seriously thinking of going this way now. I'm thinking of getting a Japanese yen loan for a PPOR here in Japan and getting an Aussie dollar loan for an IP/s in Australia. I want to get a PPOR (old house) here for a couple of reasons: I intend to stay here for a while, houses are the cheapest they have been in 14 years, the interest on Japanese yen loans are so cheap, old houses lose their value here and go back to only land value after 20-30 years.

Hope to hear from other people too.

Keep on risin' :cool: , Rising Sun.

[ggumpshots]

Dear all,

Thanks for your replies. Pato san, good advice. I'm seriously thinking of going this way now. I'm thinking of getting a Japanese yen loan for a PPOR here in Japan and getting an Aussie dollar loan for an IP/s in Australia. I want to get a PPOR (old house) here for a couple of reasons: I intend to stay here for a while, houses are the cheapest they have been in 14 years, the interest on Japanese yen loans are so cheap, old houses lose their value here and go back to only land value after 20-30 years.

Hope to hear from other people too.

Keep on risin' :cool: , Rising Sun.
The yen V dollar has moved about 20% in the last 2 1/2 years. I f you buy and have to return to OZ in the short term will/may this be a problem in the future.
Now might be a real unwise time to take a yen loan , but if you have a lot of time then any currency changes will be unimportant to savings made on a yen loan.
If you have sufficient income in both curiencies, and are assured your property wont go backwards in sale price then buying in both countries is the way to go, but for me, I have many unanswered questions.

I have been given contradictory information on buying property in Japan and associated costs. Can anyone help?
Currently, for investment properties...........

What Capital gains taxes are there ?

What inheritance taxes?

What National Prefectural and local Taxes? Land Taxes?

What percentage does a Property Manager take to look after a property.?

What Rent Disputes Mechanisms exit? How effective are they? What costs are involved ......minimal or substantial?

The laws are heavily in favor of the leasee , so how difficult is it to recover unpaid rent/ evict a tenant?/ increase rent?

What are Transaction costs for buying and selling a property?

Are all costs/interest associated with an IP dedutable?

What would you expect an accountant to charge to maximise ones tax return?

What would be a reasonable yield, on, a managed property house / apartment in your area/ japan?

Depreceiation schedules seem better/ more generous than OZ. Is that your take on things?

How do these laws differ for a PPR compared to an IP?

Is there a MEGUMI SOMERS who has written the equivilent JAN SOMERS property book?

How much is earthquake Insurance ?????????????????
:D :D

[Patosan]

Now might be a real unwise time to take a yen loan , but if you have a lot of time then any currency changes will be unimportant to savings made on a yen loan.
The point is that he would have yen rental income paying for the yen loan if he was to leave, same as I have Oz rent paying the bulk of my AUD loans now.

AUD for Oz IP & Yen for Jp IP.

Also there is no pressure to refinance when he moves from country to country, since the IP are all funded by the local currency income and loans. Thus this method is relatively safe as a starting point since rate changes have minimal effect. Of course ex rate opportunities may arise over time and these can be considered at those times.

[Patosan]

Is there a MEGUMI SOMERS who has written the equivilent JAN SOMERS property book?

Well there is "Megumi" ... a rather large breasted idol here ... she could have a book ... I must check the bookstores. :rolleyes:

[ggumpshots]

If he IS renting , I agree.
But if he is not renting there lies the problem. Maybe a forced sale could occur and then currency movements would be a concern if no yen income.

Earning Australian currency and a reversal of the currency trend we have seen over the last few years could be catastophic on a Japanese Loan.....which would be far bigger than a typical OZ loan


Also you are assuming rent is Postive cash flow after all costs....is that reasonable given all the costs.....probably, ....but thats what I would like to find out.
Property values are still expected to drop over time where I am , but who know for sure. If an earthquake hits Tokyo, or rather when it hits Tokyo, what do you think will happen to land values there and the yen generally?

From a Capital growth viewpoint there seems slim pickings but not impossible

[Patosan]

G'day Ggumpshot,

I'm not assuming cf+ simply that the rental income should take care of the bulk of interest.
There is no safer method than this ... thus it's not always the cheapest way.
Using yen to finance Oz IP or AUD to fund Jp IP naturally has high rate risk but could save heaps.

Too much alarmist talk about quakes ... there is quake insurance.
Hell his Oz IP could be burnt down, flooded, bombed, god only knows.
Quakes are a reality in Jp ... he lives here so I assume he knows that.
You talk as if forced sales could only happen here.

Mind you I'm not saying buying Jp IP is a great thing to do, as I haven't done any real DD myself yet. I'm mainly discussing the finance issue and a safe way to do it from wherever he may be.

[Rising Sun]

G'day all,

Thanks for the lively discussion. As I wrote before, I am seriously thinking of getting a PPOR here in Japan with a J Yen loan through a J bank, and an IP in Oz with an Aussie $ loan through an Oz bank in Australia. What a mouthful! But not really that complicated.

This will eliminate the risk of margin calls I would be subject to if I get a loan through an Aussie bank in Tokyo to finance an Oz IP.

Thanks for the different viewpoints from everyone. Greatly appreciated. As far as earthquakes go, I have been living here for 13 years and I know there is a big one due to hit Tokyo at any tick of the clock. God willing it won't happen soon. Having said that, it could happen when you are in an elevator, in a subway, in a building that decides to fall down around you ... in those cases, having earthquake insurance or not will be the least of your problems. Mere survival will be high on the agenda. Without getting too philosophical, it may be the time that your number is up.

With this in mind, a big reason why I want a PPOR here is a lifestyle choice. To get out of the dingy little apartment and have a place to call my own (no matter how modest) would be great. Also I can stop paying that dead rent money every month. Just as an aside, I'd like to let everyone know that around where I live, a block of land that is 100m squared or more, with a house would be considered large! That's why houses are usually 2 or 3 stories here. Obviously, not much space. So it's not like I will be buying a house on quarter acre block with a Hills hoist clothes line and a swimming pool and barbie in the backyard. Just a place big enough to invite Megumi the idol who Pato san mentioned, would be good enough.

Mr. Mojo risin',
Rising Sun.

[rabbit]

From what I've heard from friends who've looked into it, earthquake insurance in Japan is next to useless. You will only get payment if your property is fully destroyed, ie you can't claim for partial damage. So, if your place is destroyed and you and your family are still alive to make a claim, what chance do you think there is that any insurance company will be around to payout the massive amount of claims there will be? I went to Kobe a year after the quake there, and the damage was awe inspiring, huge cracks down the roads, through buildings etc etc. People there are paying mortgages on places that no longer exist. And now with the condo construction fraud coming to light, would you be sane to buy anything without land? According to a Class A architect I know, few condo blocks are built to government regulations, but this will never be revealed as the economy would be shaken too badly.

Having said that, I know of 4 people who have bought house and land deals here recently and are very happy with their situations. For example, 35 kms from city center, new house (5 LDK) with parking, near station and major shopping area, 36 million, mortgage 105 thousand yen a month (35 year 100% loan). Or 2 kms from the city center, 50 million for a 4 year old three storey house (again 5LDK with parking).

Regarding that article about the guy in Kashiwa, I travel that line, and in the late morning it's not unusal to see some very depressed looking guys on the train, riding up and down, pretending to be at work, sipping cups of sake. It's a very crowded train and taking it every morning, crushed against all the other sour faced commuters for an hour or two, knowing you'll never be able to move elsewhere because of massive negative equity, is too much for some. 2-30,000 suicides a year speak to that. Truely commuter hell.

As to renting to other people, take the example of where I've been living for 5 years. 2 years ago the owner told all the people in our block of apartments to move out in a month as he wanted to redevelop. 3 out of 7 families complied, the other 4 (including me) said "show me the money." It is well known in Japan that tenants need only move if they are compensated big time. The landlord refused to pay, and we are still here. He has been unable to relet the empty 3 apartments since, so us remaining tenants have a very quiet and peaceful life. There are two families who will probably stay until they die (or the landlord pays.)

There are ways around the above scenario, like only renting to foreigners with short term leases, but you have to know the ins and outs of an increasingly competitive market.

Anyway, I am by no means an expert on the subject, but have been living here a couple of decades and seen the bubble and the bust. All of the above info is from talking to friends in the pub. ;)

[Rising Sun]

G'day Rabbit,

Thanks for your informative post. Yeah, it looks like there are many Japanese people in a bind now about the condominium/architect fiasco plaguing Japan. I think it's another classic case of the bureaucracy brushing stuff under the carpet until it gets too much and people start to trip over it. The banks have had their own massive worries for years here too. Despite all this, it seems that Japanese people are still very keen on buying or renting "mansions" (condominiums) for their "convenience" to railway stations/shops/schools, etc. Buying used houses is not so sought after, which for me is pleasing thought.

Anybody else with apartment/mansion/land/house buying stories/experiences in Japan?

Still living and learning :cool: ,
Rising Sun.

[Des]

Hi all.

Sorry about joining the thread so late, but I’d just like to relate my experiences with the vagaries of the currency exchange rate.

Wife, daughter and I came back from Tokyo about 15 years ago, and kept our free-lance subcontracting work with the same Tokyo company (the wonders of the Internet, even in the early days), so we have always been paid in yen. Over these 15 years we have enjoyed the euphoria of earning big bucks when the yen skyrocketed and the Australian dollar fell (around 1995 and a few years back), and suffered the depression of seeing our earnings fall by almost a third over a one-year period when the currency trends reversed. We still get paid in yen (but only part-time now), and at the moment the exchange rate is fairly ordinary. Fortunately, during the highs we didn’t get carried away and buy lots of expensive stuff we didn’t need, instead all the spare cash was channeled into property. So I would strongly recommend thinking very carefully before taking out any loans that will be subject to exchange rate fluctuations. Interest rates of next to nothing are attractive, but if the exchange rate heads in the wrong direction, you could suffer badly.

Daughter will soon be graduating from Uni and will most likely be heading to different parts of Australia and possibly overseas, so wife and I are thinking to move back to Japan in about three years to live for quite a few years, or even permanently. Wife has sibling family in Toyama and Nagoya, so we are looking at these two cities. We are going up to Japan for holidays towards the end of this year, so I’ll be doing some serious research in these two areas for a PPOR house, either established, new, or buy land and build. If anyone’s interested, I’ll give a rundown on what I have found when we get back.

Regards
Des

[Patosan]

G'day Des,
... so wife and I are thinking to move back to Japan in about three years to live for quite a few years, or even permanently.
Apart from your wife having family here, why would you consider living in Jp instead of Oz ?
You certainly have experience of being here, so I'm interested in your feelings.

[ggumpshots]

Hi des,
I made enquiries of an Australian Buider in Japan a few years back who said that because of government regulation the cost of Building a house in japan was about 4 times that of building in sydney. Not talking about land costs here. Thats pretty staggering when you look at the quality of the new houses here.
He certainly didint have any enthusiasim in his voice. I no longer have his details. I look forward to your reasearch.

[Des]

Hi Patosan,
Good question. You’ve now got me thinking. Family is probably the main reason. Plus I get on really well with Wife’s family, and I’ve always enjoyed Japan, both during my single days when I used to wake up in the gutter in Roppongi far too often, and then married with daughter going to the local kindergarten. Mind you, we’ve led a bit of a nomadic existence, so maybe after another 10 or 15 years we might be looking to move again (though we’ll probably be too old by then). Another reason I think is that once daughter leaves home and settles into her work away from us, we’ll be looking for new challenges and a change of environment to prevent us from becoming stale (by the way, we’re both past the mid-life crisis age). And as you would know yourself, Japan is certainly a change of environment and presents a fascinating range of challenges, regardless of how long you’ve lived up there.
Each time we’ve lived in Japan, though, it’s been in Tokyo, so if we had to go back to Tokyo again, we’d probably prefer to stay in Oz. We’re leaning a little more towards Toyama than Nagoya at this stage, mainly because it’s a smaller city and a bit more open space, so we won’t have that cramped feeling we always had in Tokyo.
I notice in your signature block you’re knee deep in the paddies. Are you living in inaka, or in one of the cities? From the SBS news and wife’s family, apparently snow is pretty bad up there at the moment, so if you’re up north at all, take care.

Hi ggumpshots
That’s the general feeling I get from some of the websites. Reasonable vacant land just outside of Toyama seems to average generally about ¥150,000 per tsubo (very roughly about $500 m2) which doesn’t seem too bad. Naturally some lots are cheaper, and others are more expensive. Building costs could be prohibitive, although I think it depends on what you go for. A prefabricated kit home that they build back at the factory and put together on site like a Lego set is certainly cheaper than an individually designed and built house. But how much cheaper is the key. I think buying established will probably be the way to go.

Regards,
Des

[Patosan]

G'day Des,

We are in Wakayama City, an hour south of Osaka. Actually we're on the outskirts of the city so we are essentially country, yet only 15 min from city centre, 45 min from int'l airport and 60 min from Osaka, with better climate than most of Jp.

We have had many cold days recently but haven't got too much snow, not like those on the Sea of Japan (north) side. Just yesterday the Prime Minister sent the SDF in to help clearing snow fro the worst hit areas.

[Ralph]

Gents,

Have been reading your posts with interest (notwithstanding they were sometime ago!).

I'm currently looking at buying a property in Niseko, Hokkaido, as a holiday home / rent out (ski season). The area there has boomed over the last 5 years with land prices now in the order of 400,000 to 600,000 Y/subo in the main village and cheaper the further out you go. I have little expectation of the same sort of growth continuing and am doing numbers of flat / up to 3% CG per annum. I know it's a longshot, but to the extent any of you had views / knowledge on the area they'd be much appreciated:D

NAB are planning to offer up to 50% LVR on Japanese property by the end of the year by the way - you no doubt know this by now, in my view that will open up the JP market to more OS buyers, the majority of which have been Australian in regard to Niseko.

I plan to finance the JP IP in Yen and to the extent needed, top up annual payments in AUD (and wear that xrate risk).

On a related note I've done a bit of work around the possibility of refinancing my current Oz IP loans to Yen rates - the risk is as you have already pointed out, rather severe if the Yen strengthens, and I'd have to expect more chance of strengthening against the Oz than the other way.

Anyway, working some numbers I suspect that ownership of a JP IP gives you a bit of a hedge to offset the Xrate risk of refinancing the Oz IP's to Yen, (i.e. to the extent the JP IP grows in value (and you sell the IP - otherwise no offset), the Yen profit obtained when converted back to Oz dollars benefits from an Xrate movement in the opposite direction of the Oz IP refinancing). To get 100% of the hedge you ofcourse need profit in the JP IP sale to be equivalent to the Oz debt you refinanced - that will take a while....if ever!! To reduce this risk though you can channel the interest saving from the Oz refinance (int rates: Y=2%, AUD = 8.5%) back against that loan, so you're reducing this highly Xrate exposed debt and you're ofcourse paying this down faster than you otherwise would have. Not risk free by any means, but the best I've been able to come up with. It doesn't quite get me there on the sleep at night factor, but creeping up on it.

Sorry for the length, to the extent anyone else has done this, or knows of a better way I'm very interested.

Cheers,

Ralph

[yieldmatters]

Tokyo ANZ offers Japanese Yen loans at cost of funds plus 1.25% p.a., which on 27/2/2004 totalled 1.31% p.a.! :D (70 to 75% LVR).
Didn't read the whole thread so I apologise if this has already been said. But you do realise you take on the exchange risk (i.e. $AUD asset and YEN loan). There's no free lunch on interest rate arbitrage!

edit: just realised Rising Sun posted 3 years ago!!! ha! wonder what happened.

[yieldmatters]

Anyway, working some numbers I suspect that ownership of a JP IP gives you a bit of a hedge to offset the Xrate risk of refinancing the Oz IP's to Yen, (i.e. to the extent the JP IP grows in value (and you sell the IP - otherwise no offset), the Yen profit obtained when converted back to Oz dollars benefits from an Xrate movement in the opposite direction of the Oz IP refinancing). To get 100% of the hedge you ofcourse need profit in the JP IP sale to be equivalent to the Oz debt you refinanced - that will take a while....if ever!! To reduce this risk though you can channel the interest saving from the Oz refinance (int rates: Y=2%, AUD = 8.5%) back against that loan, so you're reducing this highly Xrate exposed debt and you're ofcourse paying this down faster than you otherwise would have. Not risk free by any means, but the best I've been able to come up with. It doesn't quite get me there on the sleep at night factor, but creeping up on it.

Sorry for the length, to the extent anyone else has done this, or knows of a better way I'm very interested.

It's impossible to benefit from the interest rate differential without taking on exchange rate risk. If you could work out how to do it you could become a risk free billionaire!

I THINK you found the problem with your example yourself when you said it relies on the JP IP to be equivalent to the AUD debt refinance. The interest rate differential implies an inflation differential (they tend to move together). Therefore if both assets stay flat in real terms (just move with inflation) then the Japan property should fall behind.

[Ralph]

Thanks YieldMatters,

Agree with your view on the Xrate risk against the Oz property, and I haven't found any way to hedge other than by making a BOLD assumption that the JP IP gets growth and that portion of growth (above purchase price) gives a bit of a hedge - a long way from covering the full risk though!

[gooram]

Can anyone explain the tax implications of buying land in Japan?

Let's say there was no loan involved, I'm living and working in Australia:

1. are costs associated with the investment tax deductible?
2. when comes time to sell, assuming it makes a profit, is capital gains tax applied to my Aus income or is it paid in japan?

Thanks,
Gooram

[redsquash]

Can anyone explain the tax implications of buying land in Japan?

Let's say there was no loan involved, I'm living and working in Australia:

1. are costs associated with the investment tax deductible?
2. when comes time to sell, assuming it makes a profit, is capital gains tax applied to my Aus income or is it paid in japan?

Thanks,
Gooram

1 yes
2 CGT paid in AUstralia any addtional tax above that will be the japanese component as there is a tax treaty between th e2 countires

[gooram]

1 yes
2 CGT paid in AUstralia any addtional tax above that will be the japanese component as there is a tax treaty between th e2 countires

Can you expand on this? Do you know what additional taxes would be paid to Japan? And what are the details of the treaty?

[alexlee]

Can you expand on this? Do you know what additional taxes would be paid to Japan? And what are the details of the treaty?

The double tax treaty works on SALARY income. Does it apply to everything else?
Alex

[gooram]

From a company in Hirafu – called Niseko Property.

Q9. What about Taxation in Japan?

The following information is intended as a guide only. We recommend that you seek advice from a tax professional if you have more specific questions. Niseko Property will provide an outline of all the taxes and charges payable by the purchaser in relation to each property in the sales section of our website.

Japan and Australia have a taxation treaty so you will not be double taxed on income earned in Japan.

Capital Gains Tax

CGT applies to sales by non residents and is up to 30% for sales within 5 years of purchase and drops to 19% after 5 years. There is an exception to this rule if you use the property as your principal residence and you have residency status in Japan.

Acquisition tax

An acquisition tax of 3% is applied to property sales and is paid post sale.

Consumption tax

Japanese GST is paid on the sale of buildings both new and used at a rate of 5%. However it is not charged on the sale of land. Companies who have been established for less than 3 years may have an exemption on consumption tax.

Stamp duties

Levied on sales of land and buildings, they are generally small in the vicinity of ¥200,000 per transaction.

Annual Property Taxes & Rates

The only ongoing / Annual fee for the ownership of land/houses is an Annual fixed Asset tax of 1.4% of the statutory valuation of the land. Statutory values are generally 50% lower than actual values.

A small fee is charged for the provision of local services such as rubbish collection and snow removal. It is necessary to allocate a management company to manage these taxes as the notices are sent in Japanese.

Travel Deductions

If you travel to Hokkaido annually to inspect your property as part of your holiday, you are able to offset part of your travel expenses against your income.

Withholding Tax

A 10% withholding tax may apply to the sale of property from foreign vendor's pending payment of the necessary capital gains tax.

[redsquash]

The double Taxation agreement applies to all income.

The depreciation schedules are quite different but overall seem more generous.
If you sold in Japan after 4 years from the above info, then you still need to pay the addtional 20 % AUstralia CGT.
After 5 years you need to pay 50%-19%. ie 31 % addtional CGT to Australia.
I was of the impression though the japanese tax rate was a lot higher. The guys in Niseko would know as they have nice glossy brochures and have had a strong presence there for some time.
If you go on holiday then the trip to visit your IP would incidental . You might have a problem justifying more than 10 % of the expense in my view.
You might also look at setting up a Japanese company.

As stated before I think it highly unwise to invest in Japan.

[Ralph]

Geez,

The Oz government get's their hooks into everything:cool: Question in my mind though is, does the Oz govt calculate what you would have paid if this was an Oz IP and then charge you any 'extra' tax if Japan hasn't charged you as much (like a top up). E.g. make a 100k profit on sale on Japanese IP, Japan asks for 40k tax (40% @ < 5 years). In oz that tax would have been 100k * 50% CGT exemption * 50% marginal tax rate = 25k. So in this case Oz govt would not charge you 'extra' tax. OR :eek:do they charge you the left over profit after Japan tax per my example below.

If you hold less than 5 years, and make say a 100k profit on sale as above, you pay 40% CGT in Japan (40k). You then have a proifit left of 60k after Japanese tax which the Oz govt charges you on only 50% of the profit (like an Oz IP), so 30k is then the taxable profit applied at your marginal rate, .e.g. 50%, so 15k. Your tax paid on a 100k profit then is 40Japan+15Oz = 55, effectively 55%.

Using the same example, if you hold more than 5 years, you pay 19k tax in Japan and then 50%*81k=40.5k taxable profit * 50% marginal rate ~ 20k. So tax paid is 19KJapan+20k Oz=39k. Otherwise, in this case Oz may just charge a topup of 6k to equalise the Japanese tax of 19 to get it up to 25k you would have paid in Oz?

Cheers,

Ralph

[gooram]

Ralph,

My understanding is that the tax treaty prevents you from paying more tax than you normally would here in Aus. So from your above post, your last sentence would be the correct scenario. But I need to find out for sure.

One other thing that the Niseko property people say is that your expenses are deductible. I've heard from a non-tax accountant that this is not quite true. I've heard that expenses on foreign investments are subtracted from your CG when you sell. So instead of saving 30% on all expenses, you would only save 30% on half of your expenses, assuming the CGT applied to 50% of your gain.

Can anyone confirm or deny this?

Much appreciated!
Gooram