Let’s imagine you are a qualified bank loan user for any of the banks listed below and want their finance for your property investment but don’t quite understand the information. For those who have no idea who are Banks X, Y, Z, A, S and T, the previous article (http://bizliaison.jp/archives/209) should help.
To simplify the explanation, let’s just focus on Bank X.
- Rate (%)
The bank indicates two rates 2.3% and 3.0%. In general, 2.3% is applied. 3.0% can be chosen if you want to extend loan by 10 years. I will discuss more for the next item, and here just pick up RC case. If you are interested in a building aged 25, the maximum loan period will be 30 years (55 years – 25 years = 30 years). If you want to extend the loan by 10 years and do not mind repayment at 3.0% instead of 2.3%, the bank could offer 40-year loan (30+10=40 years).
- Max years (RC)
RC means “reinforced concrete”. RC and steel are are most common construction types for “一棟ビル(“Itto Biru“or Whole Building)”. In terms of the local tax code, legal durable years for RC building is determined as 47 years. But in the real life, durable years vary among RC buildings, and some can be used for over 60 years. In the case of Bank X, 55 years are internally used for durable years when calculating maximum loan period.
For reference, Bank X uses 40 years for wooden/LGS (light gauge steel) apartment and 45 years for steel building.
Talking back about Max years, extending loan period is very frequently discussed when the investor aims to acquire a wooden apartment. Recently, we have received increasing number of inquiries about wooden/LGS apartments which are in general priced much lower than RC buildings and likely to be targeted by beginner investors. But the challenge is the property age. Although the property is located closed to a big station, looks good, fully occupied, and, most importantly, appears to be affordable, such an apartment quite often fails to appeal to loan reviewers if aged over 25 years (i.e. built before 1993). I don’t think many would be excited about bank finance for only 15 years (40 years – 25 years =15 years).
Then, the option of 3.0% comes into play. If the current gross yield is 12% and repayment period is extended to 25 years, 3.0% borrowing cost may be still appealing.
- Max loan amount
In the case of Bank X, 200 million yen is not just the upper bound for a specific property but the limit for the same investor. Let’s suppose that you already own a few properties and still have outstanding of repayment of 100 million yen regardless of which bank(s) finance(s) you. For a new property you are interested in, the Bank will only allow you to utilize 100 million yen.
It holds true for Bank Y and Bank Z as well, and it is another unwritten term. You will never be informed of this unless you ask them for clarification.
- Repayment timeframe
Under 80 years old means you will have to complete repayment before you become 80 years old. As you see the orange table, Bank Z and Bank T set the repayment deadline under 82 years old. The loan applicant must be under 60 years old according to Bank X terms and conditions. Meanwhile, Bank Y accepts somewhat older applicants up to 65 years old.
- Property location
Lastly, where the property is located matters to most of the banks. Bank X stresses the area inside the National Route 16. In the course of interviews with the local banks, some also referred to the area maybe because it roughly covers the main part of Greater Tokyo.
I have not done enough research about major city banks and Japan Finance Corporation (日本政策金融公庫 or Nihon Seisaku Kinyu Koko) in light of property investment loan but assume their area coverage must be much larger as they have branches nationwide than Banks X, Y, Z and some other property loan providers.
Anyhow, as stated before, Japanese city banks and JFC are not the ones who will assist you with finance for your property investment.
For any query, please feel free to contact us (http://bizliaison.jp/contact-us).