Useful Informatmion of Administrative & specialized procedures in Japan

In this and the previous article, I introduce the procedures for buying and selling real estate in Japan that overseas residents should be aware of.  This time I focuses on the sale process.

As I explained in the previous article, overseas residents—regardless of nationality—can purchase real estate in Japan, and of course, they can also sell it.  I believe the most common scenarios in which overseas residents own real estate in Japan are “purchasing it while living in Japan” or “inheriting their parents’ home after their parents in Japan passed away.”

1. Methods of Selling

Generally, it is common to entrust the sale to a real estate broker (hereinafter “broker”) in the area where the property is located.  While it is also possible to find a buyer directly via the Internet without going through a broker, this requires specialized knowledge, and—above all—there are limitations to conducting transactions solely from overseas, which also carries risks.

When you entrust the sale to a broker, you first enter into a real estate brokerage agreement.  The property is then listed as “for sale” on “REINS,” a system operated by the Real Estate Information Network System.  You may choose to entrust the sale to a single agency or to multiple agencies.  In the former case, that agency will take full responsibility for the sale; in the latter, they may be able to find a buyer from a wider pool of potential buyers.  A contract with a single agency is called an “Exclusive Sole Agency Agreement” or “Sole Agency Agreement” *1, while a contract with multiple agencies is called a “General Agency Agreement.” 

2. The Sales Process

The sales process is as follows.  The real estate agent will guide you through the procedures after the step (3).

(1) Preparations and Checking Market Prices

First, dispose of any unwanted household items to prepare for the sale, and—if necessary—clean the interior and exterior of the property to maximize the appraisal value.

(2) Requesting an Appraisal

Select potential real estate agencies and have them appraise your property.  During the appraisal process, it is standard practice for an agent to visit the site and thoroughly inspect the land, the building, and the surrounding area.  It is advisable to request appraisals from multiple agencies to find the one offering the highest appraisal value.

(3) Signing a Brokerage Agreement with a Real Estate Agency

Once you have decided on the real estate agency to officially entrust with the sale, sign the real estate brokerage agreement mentioned earlier.

(4) Sales Activities by the Real Estate Agency

Use the appraisal value as a reference to determine your initial asking price.  While a lower price increases the likelihood of a quick sale, if you have time to spare, it may be acceptable to set the price slightly higher at first.  If no buyer is found after some time has passed, consult with the real estate agency to lower the asking price.

(5) Sales Contract

Once a buyer is found and an agreement on all terms has been reached through the real estate agent, a sales contract is executed.  Specifically, the parties sign and affix their seals to the sales contract and the Statement of Important Matters. If it will take time to complete the transfer of the property after the agreement is reached, a provisional contract is signed and a deposit is received. For older properties—such as a parent’s family home inherited through an estate—there are cases where the building is demolished to clear the land before selling it to a homebuilder.  In such cases, a provisional contract is first executed to receive a deposit, and the final contract is executed at a later date once the land has been cleared and is ready for transfer.

(6) Transfer of the Property and Receipt of the Sale Proceeds

Simultaneously with the execution of the sales contract, the property is transferred (including the handover of building keys and registration identification information), and the balance is received.  Although this involves receiving a large sum, it is not typically accepted in cash. Since the payment will be transferred to a bank account, we recommend registering for online banking so you can immediately confirm receipt. (See Note 3: “Bank Accounts and International Money Transfers When Receiving Sale Proceeds.”) 

3. Important Points for Overseas Residents to Know

●Miscellaneous Expenses

The following expenses will be incurred during the real estate sale process: stamp tax and a commission to the real estate broker.  If the property was inherited from a parent and the inheritance registration has not been completed (i.e., the property is still registered in the parent’s name), you will need to transfer the title to your name first, which will incur a fee for a judicial scrivener.

●Taxes

When a foreign resident (non-resident) sells real estate in Japan, the following taxes are incurred in Japan.

・Withholding tax at a rate of 10.21% is mandatory at the time of sale (with exceptions*2). However, since this is the buyer’s obligation (meaning the buyer pays it on your behalf), the amount will be deducted from the sale proceeds.

・You are required to file a final tax return and pay taxes on the capital gains from this sale in the following year.  Since there is a time lag, be careful not to forget this. Additionally, if the withholding tax mentioned above was applied, you can deduct this amount (or receive a refund) when filing your return.  Therefore, we recommend consulting a tax accountant or other professional when filing your tax return. *3

●Required Documents

As this is a contract involving a large sum of money, similar to the purchase, you will be required to present a seal registration certificate (registered seal + seal registration certificate) and a certificate of residence as proof of identity for both the sales contract and real estate registration procedures.  However, since overseas residents do not have these documents, alternative documents must be submitted.  Specifically, for Japanese nationals, this includes a signature certificate from 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.

●Bank Accounts and International Wire Transfers for Receiving Sale Proceeds

As a general rule, the sale proceeds from the buyer are received via bank transfer. If you have an account opened previously in Japan or a non-resident account (as overseas residents generally cannot hold bank accounts in Japan), you can receive the funds directly; however, if you do not have an account in Japan, you will need to receive the funds via a third party’s account, such as a relative or agent.  It is best to assume that the buyer will not make an international wire transfer directly to the seller’s overseas account. Furthermore, when making an international wire transfer from your own account or a third party’s account in Japan to your own overseas account, financial institutions will conduct a detailed review of the purpose of the transfer and the source of the funds, so you will be required to present the sales contract and other relevant documents.

Remarks)

*1: Under an “exclusive agency agreement,” you cannot sell the property directly even if you find a buyer on your own. However, you will receive frequent activity reports from the real estate agent.

*2: Withholding tax is waived if all of the following conditions are met:
・The sale price is 100 million yen or less
・The buyer purchased the property for use as a residence by themselves or a relative
・The buyer is an individual

*3: The filing period for Japanese income tax returns is from February 15 to March 15 of the following year. (Dates may vary if they fall on a holiday.)