Useful Informatmion of Administrative & specialized procedures in Japan

This topi and the next topic, I would like to introduce the procedures for buying and selling real estate in Japan that overseas residents should be aware of.  This time focuses on the purchase process.

Against the backdrop of the yen’s weakening trend in recent years, I have seen news reports indicating that the number of Japanese real estate purchases by foreigners is on the rise. I also receive inquiries from non-residents of Japan and individuals who have acquired foreign citizenship (formerly Japanese nationals) regarding the purchase of Japanese real estate. Of course, it is possible to purchase real estate in Japan even if you are a foreign resident or a foreign national. Therefore, I will outline the procedures and important points to keep in mind when purchasing property that foreign residents should be aware of.

Please note that this guide is based on the assumption of transactions with a typical home sales company (hereinafter “sales company”) or real estate brokerage (hereinafter “brokerage”). Direct transactions between individuals are not covered here.

 1. How to Find a Property to Buy

First, it is about how to find a property.  Today, it is possible to search for both new and pre-owned properties online. In the past, real estate ads were often inserted into newspapers, but now many developers and agencies have launched their own property websites or run video ads online. Additionally, there are now many real estate search sites available that allow you to search for properties for sale nationwide.

There are numerous real estate agencies nationwide, and it is not uncommon for the same property to be listed on multiple search sites or handled by several agencies. In fact, when you find a property you are considering purchasing, you may find that multiple agencies are listing it, leaving you unsure of which one to choose.

These properties for sale nationwide are registered in a system called “REINS,” operated by the Real Estate Information Network System (REINS), which is designated by the Minister of Land, Infrastructure, Transport and Tourism.  The system is designed so that only licensed real estate agencies can view the listings.  Real estate agencies obtain information from REINS and list these properties for sale under their own names. Since the listed sale price may vary slightly depending on the agency, it is advisable to negotiate the price with multiple agencies. Needless to say, before making a final decision to purchase a property, you should not only conduct an on-site inspection but also thoroughly consider your financial plan for the purchase.

 2. Procedure Flow

Once you’ve decided on a property, the process generally proceeds as follows. (This may vary depending on the property, the buyer’s circumstances, the seller, and the real estate agent.)

 ① Purchase Offer

After reaching an agreement with the seller or real estate agent on the terms of purchase, you express your intention to buy.  A sales contract is then drafted; however, if the contract involves numerous terms and takes time to finalize, it is common to pay a deposit.  There are three types of deposits: “deposit as proof of agreement,” “cancellation deposit,” and “breach of contract deposit,” with amounts typically ranging from 5% to 20% of the purchase price (the legal cap is 20%).  In the case of a “cancellation deposit,” if the buyer cancels the purchase during this period for personal reasons, the deposit is non-refundable.

 ② Preparing Purchase Funds and Mortgages

For non-residents, the purchase price is generally paid in a lump sum. While taking out a mortgage is common when funds are insufficient, non-residents are generally ineligible for such loans. Furthermore, even for residents of Japan who are foreign nationals, it is difficult to enter into a contract without permanent residency status. Consequently, unless they already have a substantial amount of funds available, non-residents often sell their existing overseas real estate and use the proceeds to finance the purchase of real estate in Japan.

 ③ Sales Contract

Prior to the actual date of signing the sales contract, the seller or real estate agent will provide you with the sales contract and a copy of the Statement of Important Matters.  Be sure to thoroughly review the contents, ask any questions you may have about unclear points or concerns, and ensure you fully understand and agree with the terms. Once you are satisfied, proceed to the signing date and sign the sales contract and the Statement of Important Matters.  After the contract is signed, you will pay the purchase price (or the remaining balance, if you have already paid a deposit) upon delivery of the property.

 3. Important Points for Overseas Residents to Know

 1) Miscellaneous Expenses (Taxes, Fees)

The following expenses will be incurred during the real estate purchase process. Be sure to factor these costs into your financial plan when signing the purchase agreement.

・Japanese taxes such as stamp duty, registration and license tax, and real estate acquisition tax*1. As a general guideline, these amount to 3–7% of the purchase price.

・Brokerage fees paid to the real estate agent when purchasing from a broker (e.g., for pre-owned properties; approximately 3% of the purchase price)

・Fees paid to a judicial scrivener for real estate registration procedures

 2) Required Documents

Since this is a contract involving a large sum of money, both the sales contract and real estate registration procedures require the presentation of identification documents, specifically a seal registration certificate (official seal + seal registration certificate) and a certificate of residence. However, since overseas residents do not possess these documents, alternative documents must be submitted. Specifically, for Japanese nationals, this includes a signature certificate issued by a Japanese embassy or consulate and a certificate of residence; for foreign nationals, it includes a signature certificate and a certificate of residence issued and authenticated by a notary public.*2

 3) International Money Transfers for Payment of Purchase Prices

Payment for the purchase must be made by bank transfer to the designated bank account. It appears that few sellers or brokers accept direct international money transfers from your own overseas bank account. If you have an account opened in Japan before moving abroad or a non-resident account, you must first transfer the funds to that account and then make the transfer to the seller or broker from there.*3  However, if you do not have an account in Japan, You can either register as a resident in Japan and open an account there*4, or temporarily transfer the funds to the account of a trusted relative in Japan before making the payment. Please note that financial institutions are required to report transfers of 1 million yen or more (both sending and receiving) to the tax office; therefore, large transfers to third parties may be considered subject to gift tax. For this reason, you must keep documents such as the sales contract on file so that you can explain that the funds are for your own home purchase should the transfer be suspected of being a gift at a later date.

4) Timing the Sale of Your Current Residence

While the purpose of purchasing real estate in Japan is likely to serve as a residence upon your permanent return or relocation to Japan, if you plan to sell your property in your current country of residence, you should be mindful of the timing in relation to your return. Once you begin residing in Japan, you are obligated to file tax returns in Japan starting from that point. If the sale procedures in your current country of residence are delayed for any reason and the sale occurs after you have taken up residence in Japan, you may be subject to real estate capital gains tax not only in the U.S. but also in Japan, so please exercise caution.*5

 <Notes>

*1: Property tax is also incurred annually after purchase.

*2: Some real estate agents may have specific requirements regarding the information to be provided, so be sure to confirm these in advance.

*3: If you have not yet informed your bank that you are residing overseas, we recommend that you do so.

*4: Applies only to Japanese nationals (those who have acquired foreign citizenship must apply separately for a status of residence).

*5: Please consult a professional whenever possible.