Tips for successful property investment in Japan

Why Japanese banks like indirect communication

In the previous articles (http://bizliaison.jp/archives/209 and http://bizliaison.jp/archives/285), I suggested indirect communication with banks regarding your application of property investment loan. Have your agents discuss with them on your behalf.

Based on my experience, there are rationales to support the communication style above.

Banks prefer such communication style

I guess they do not want to be bothered by miscellaneous queries from investors. In a sense,  property agents  serve as a buffer for the banks in terms of communication with the end-clients. Since property agents are experienced with property loan application, they would advise or take the investors through a series of preparation steps while the banks are least bothered.

Property agents highly motivated to smooth the communication between two parties

I’m sure any property agent is highly motivated to smoothly proceed with bank review. Successful loan review is very likely to be linked to their agency fee at the end of the settlement. No wonder they are very happy to take on the role of liaison. Agents prefer the role than just doing nothing and watching inefficient communication between the bank and their client. They will advise you on what’s the quickest way to the goal and patiently explain to you why you need to do this and that.

Emails rarely replied by banks

Lastly, indirect communication works better because the communication protocol among local banks is very different from general business custom.

Before getting involved in property business, I had been very much accustomed to two-way communication. If I emailed, my counterpart would reply. If I called and left a message because the counterpart was not available, the person would return my call in most cases. I assume this type of two-way communication should be a norm for businesses in any part of the globe.

However, I recently realized it is hardly applicable to the Japanese banks. They receive emails and calls but rarely reply or return calls. I would say one out of 50 calls for the chance of call backs. To be frank, I’ve received email replies only a few times in my life. They surely received my emails and must have read and understood but just kept them without replying. The amount of communication flows between the parties concerned can be illustrated as below.

 

To my surprise, my contact at Bank Z does not have his own email account. I asked how we could send him copies of required materials for loan application such as final returns, property registration certificate copies, transaction agreement, etc. He said “Just send them by fax”. Sending almost 100 pages by facsimile transmission???  I asked if any company email address is available, but there is none. As mentioned in the previous article (http://bizliaison.jp/archives/209), Bank Z is one of those who are known to be aggressive about property loan business.

According to some local sources, banks are strictly controlled in terms of information output. They may answer to our questions and talk to us about the current status of the preliminary examination over the phone, but they very rarely provide us with any piece of information via email. When needed (e.g. important documents are missing, any urgent matter occurs, etc.), banks call us but such occasions are not many.

The situation above may be hard to understand among the end-clients, but you need to be aware of this in advance.

Japan Property Investment Loan – Required documents

Now you have determined to purchase a property priced around your target level and wonder if bank loan is available with Bank X or Bank Y or Bank Z or some other one. As stated in the previous article (http://bizliaison.jp/archives/209), don’t go to the bank in mind on your own unless you have already established good relationship with them. Have your property agent suggest most feasible option. Local investors are quite selective about property agents because they are aware that whether bank finance is available or not mostly depends on property agent’s capability and the level of interaction with banks.

Assume your agent tells you that one of the banks would be happy to do a preliminary review. Practically, the preliminary review phase is almost final one as the review results are mostly reflected on the final bank examination.

In order to proceed with the preliminary review, you will be required to submit various types of documents. I’m not surprised if you faint at the list of required materials. Here is an example of document set requested by Bank Y:

  • Copies of final return (確定申告書or kakutei shinkokusho) for the past 3 years
  • Copies of withholding certificates (源泉徴収票or gensen choshuhyo) for 2 years
  • (In case of full-time employer) Copies of detailed monthly salary statements (給与明細書or kyuuyo meisaisho) for the past 6 months
  • (If you have a mortgage or own investment property) Copies of detailed statements of bank loan (借入明細書or kariire meisaisho) for the properties you currently own (For the reasons why this type of document is needed, see the previous article: http://bizliaison.jp/archives/268)
  • (If you have a mortgage or own investment property) Copies of property registration (登記簿謄本 or tokibo tohon) for the properties you currently own
  • (If you currently rent out your property) Copies of lease agreement for the property (賃貸借契約書or chintaishaku keiyakusho) you currently rent out

Of course, you will have to fill out an application form for bank loan like this.

Only paper format is available. As you may know or may not know, you can apply for housing loan online but for property investment, all the banks only allow you to apply with this type of conventional format.

If your spouse or some other household member owns a property and still has repayment outstanding, the bank will ask you to provide with relevant information. Because the maximum loan amount is determined for the household not just the loan user alone.

Just the thought of such a heavy paperwork makes you feel already turned off? If your target property is really appealing, other investors feel the same way. Since loan preliminary review takes time, in light of competition, I think the best way is to prepare well in advance. Most of the banks require similar set of documents. Now you know what types of documents should be submitted, you can prepare most of them as soon as you start property search. Then, you can render a Letter of Intent to the seller in a timely manner.

 

 

Japan Property Investment Loan – Bank X

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 Road #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).

Japan Property Investment Loan – Overview

Do you know what is the current mortgage rate if you wish to purchase a house to live in Japan?

Yesterday I happened to receive a heads-up on the latest mortgage rates from SBI Sumishin Net Bank, who now applies 0.507% (including costs) for floating rate and 1.16% for 20-year fixed rate to new housing loan application in January 2018. Overall, the levels have unchanged over the last year. But please note, in the case of SBI Sumishin Net, the suggested low rates will only be applied for a certain period of time and will be likely to be up later.

The most practical levels may be 2.475% for floating rate and 3.25% for 10-year fixed rate suggested by Japan Housing Finance Agency (http://www.flat35.com/loan/atoz/06.html). The former has remained the same over the last 9 years while the latter picked up about a few years ago.

Meanwhile, what are the rates for property investment loan? The table below summarizes the current rates and terms of property investment loan offered by some of the banks I mentioned in the previous article (http://bizliaison.jp/archives/209).

Bank names are masked as they are our day-to-day contacts. And part of the information above is not publicly available from their websites or promotion materials. If you are interested to know who they are, why not asking your property agent? They should be knowledgeable about the current terms of property loan in Japan.

Compared to the mortgage loan, the rates appear to be reasonable. But again please note there are banks who suggest much higher rates like 4.5% for the properties with somewhat irregular features. Irregular features may include property site far away from Greater Tokyo, old property, illegal construction (e.g. over the limit of floor-area ratio or building coverage ratio), etc. Or such banks may not request the borrowers for strict qualifications.

For further comments on the table, please see the next article, which will be posted soon…

Applicant criteria for property investment loan in Japan

Bank’s brochures for “Apartment Loan (loan for investment to a wooden/LGS apartment)” may be downloaded from their websites or available in print form if you request them for.

Across the banks, common criteria for loan applicants are as follows:

  • A Japanese citizen or a foreigner with permanent resident (PR) status
  • Aged 20 ~ 60/65
  • Annual income: 7 million yen or over
  • Worked for the same employer for at least 3 years or at least 3 years passed since inception of the business in case of self-employed worker
  • Location of the property: Kanto (Tokyo, Chiba, Saitama, Kanagawa), Kansai (Osaka, Kyoto, Hyogo, Nara), Chubu (Aichi)

Of course, the product summary also includes other conditions such as loan amount, loan period, payment style, etc. but the information varies between the banks and hard to standardize as general information here. Some brochures refer to their loan rate or suggest the levels.

Unwritten requirements

Whatever the criteria may be, potential loan applicants must be aware of other requirements that are NEVER referred to in the publicly available materials. These requirements are only known to you when you personally communicate with your counterpart (either the bank or the property agent who liaises between you and the bank).

  • Japanese spouse: Almost an indispensable prerequisite. Even in the case of  a Japanese couple, the spouse of the borrower must cosign. If the borrower is PR, your wife or husband is expected to play a key role of communication in Japanese as well as that of cosigner. If both of the couple are PR and either or both can speak AND write Japanese with no problems, the bank will check the communication skills at a face-to-face meeting.
  • Annual income: Practically, 15~20 million yen will be their preferred level for PR applicant although the lower bound is said to be 7 million. If you have worked for a foreign securities firm over 3 years, the banks should welcome you.
  • (Some banks request for ) No intent to leave Japan for good: Some banks had very bad experiences of PR borrowers running away before completing the repayment having difficulty collecting them. Such banks are extremely conscious about payback risks and may repeatedly ask you for confirmation.
  • (Some banks request for) Information on the property and loan outstanding owned by the borrower’s family member(s):  They determine the loan amount for a potential property based on the outstanding borrowings of the household.

In the next post, you will see different rates and loan years  the local banks currently apply and determine according to the properties they examine.

Property investment loan in Japan

Property investment loan in Japan

– Can foreigners have access to the local bank loan for property investment? And who are the banks?-

In the past several years, we have responded to day-to-day inquiries about Japanese properties from various parts of the globe. Among the popular questions, the top one is definitely about local bank loan potential.

If you have already been through, skip the discussion below, but if you are a new entrant in this market, we hope you find the information below helps.

Q1. Is bank loan available for property investment in Japan?

A1. Yes, of course.

Q2. Can foreigners have access to the local bank loan?

A2. Case 1) If you are a permanent resident, yes, local banks that deal with property investment loan would be happy to talk to you.

Case 2)If you are not PR but have a Japanese spouse who is a full-time employee he/she can apply for bank loan based on his/her demographics NOT yours.

Case 3) If you are neither PR nor have a Japanese spouse, sorry, none of the local banks could work with you.

We would like to focus on Case 1 only because in Case 2, your husband/wife can collect information in Japanese on their own.

Let’s imagine you already found a nice wooden apartment priced 50 million yen built in 2005 and located in any of 23 Wards of Tokyo. But you want to leverage the property as mortgage if available.

Q3. Who are the banks you can talk to?

A3. Talking about well-known Japanese banks, Mitsubishi Tokyo UFJ, Mizuho, Mitsui Sumitomo… may come to your mind, but they will not turn to you or will even turn down general Japanese investors unless they have an enormous land assets. If they are qualified, the banks are said to offer rates of 1% level or lower.

In general, property investment experts often refer to Orix Bank, Suruga Bank, Shizuoka Bank, Kouko or JFC (Japan Finance Corporation), SBJ Bank, Sumitomo Mitsui Trust Loan & Finance, etc.

Their business approaches differ, and the loan terms and conditions vary depending on the loan applicant’s demographics. And we would like to cover what are the basic criteria of loan applicant and what requirements are specific to each bank in the next discussion.

Q4. Do I have to contact such a bank on my own?

A4. I would never advise you to directly communicate with them unless you have already established good relationship through previous transactions. Instead, have your property agent liaise between you and the bank(s). They prefer indirect communication until final stage of the loan application. The same is true for the local investors, too. Therefore, choose the property agent who is experienced in bank finance for property investment. Since they have been in good terms with multiple banks, they can advise you which bank will be most suitable for your property.

In the following articles, I will go into details about terms and conditions of the local property investment loan.

Best chance for investment in Harajuku area: 1LDK unit in Harajuku area.

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Only a 2-minute walk takes you to the property located in a quiet residential area. You can also walk to both Yoyogi Station and Harajuku Station within 10 minutes as well as Omote-sando and the National Stadium for a good stroll.

Apica Harajuku sedu is a 4-story low-rise condominium built in 1997. With automatic lock system, the property is a clean corner unit on the top floor that enjoys a lot of sunshine. Furthermore, you can have a pet, too.

If you are looking at a condo unit, you must be searching in the central Tokyo, Omote-sando and Aoyama area in particular. If so, we would definitely recommend you Apica Harajuku sedu situated next to the area.

It is 1LDK with 36.43 m2, monthly management expenses of 37,680 yen and priced at 39.8 million yen. Please feel free to contact us if you need further information.

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LIFE Design Corporation