Daikyo Hongkong Limited - the pioneer of Japan real estate market

DAIKYO

1. Invest in Japan property

2. Profitable properties

3. Rate of Return

4. Risk of investment

5.Purchasing process

6.Taxation

7.The property

8.Leasing management

Q. Is this a good time to invest in Japan property now?

A. Since 1991, after the collapse of the bubble economy, Japan's property prices, even in its capital Tokyo, plummeted considerably. Japan property market after went down for over 20 years has gradually bottomed out. The new developments in Roppongi Hills, Tokyo Midtown and Shiodome have brought huge business opportunities in the property market in Tokyo. However, the U.S. subprime mortgage crisis in 2007 took a heavy toll on the Japanese economy, it once again brought down the property prices in Japan. On the other hand, compare to the soaring property prices in Hong Kong in recent years, properties in Tokyo have become relatively more attractive. Therefore, it is a good time to invest in Japan property market now.

Q. From investment point of view, what types of property can generate good returns?

A. Property investors are advised to choose well-maintained properties in good locations, for instances, properties that have good access to the metro stations in the 23 districts of Tokyo city. Benefit from the decrease in real estate prices in urban areas over the past two decades, many businesses and educational organizations such as universities have moved back to the center of Tokyo. To save everyday travelling time, more and more people choose to live near the city’s central areas for easy access to the workplace. The rise of single population and divorce rate in Japan have pushed up the demand of small apartments. The rent of small apartments has remained a steady growth.
The amount of rent depends heavily on the location, condition and management of the property. It is therefore important to choose properties that are well managed by the management committee and has a well-established maintenance plan in the long run.

Q. What is the difference between "gross rate of return" and "net rate of return rate" in property investment?

A. Gross rate of return is calculated by the total annual rental income received ÷ purchase price of the property.
For example, a property generates an annual rental income of JPY1.4 million and the purchase price of the property is JPY20 million, then the gross rate of return is 7%.
Net rate of return is calculated by annual actual rental income received ÷ total acquisition cost of the property.
Actual rental income refers to amount of rents collected minus necessary expenses, such as management fee and maintenance fee, etc. The total acquisition cost is property price plus other expenses paid upon the purchase.

Q. What is the rate of return on real estate investment in Japan?

A. The rate of return on real estate investment in Japan depends greatly on the property location, age of building, size and type of the property. In most cases, however, the rate falls within 4-10%. Compare to similar investment in Hong Kong, invest in Japan property can get relatively higher returns.

Q. Are Japan buildings collapsed in big earthquake?

A. According to an announcement by the Condominium Management Companies Association on how severely the Great East Japan Earthquake hit the condominium buildings in the regions of Tohoku and Kanto, none (0) of them were “seriously damaged” (reconstruction required due to destructive damage), 44 of them (0.09%) got “moderately damaged” (major reinforcement or repair work required), 1,184 of them (2.55%) experienced “minor damage” (a certain degree of repair work required due to tile separation or cracks), 7,477 of them (16.13%) had “slight damages” (almost not damaged or very slightly damaged in terms of appearance of the building), and 37,660 of them (81.23%) were “not damaged.” The Great Hanshin Earthquake drew wide public attention to the earthquake resistance of condominium buildings. Investors are advised to choose buildings that are constructed in compliance with the new regulations on earthquake resistance based upon Japan’s Building Standards Act, which was amended in 1981.
Moreover, investors can further rest assured by purchasing earthquake insurance.

Q. Will the decreasing in population in future affect my investment?

A. Decrease in population and urbanisation are the common phenomenon in many developed countries nowadays. However, in Tokyo, urbanisation has out weighted the effect of natural decrease in population. People who come from other areas has become a source of support to the growth of the real estate market.

Q. Will the decreasing in population affect property rental demands?

A. Despite the fact that Japan's population is significantly decreasing, the global population is still on a rise. Moreover, we shall also take into consideration of the regional differences in Japan. According to the official data released by the Japanese government, the population in Tokyo is still increasing every year with a high ratio of young and unmarried people.
The scarcity of possible construction sites along metro lines in the city of Tokyo signifies shortage in property supplies in future. Therefore, the high demand for rental properties along metro stations in the 23 districts of Tokyo is still expected in future.

Q. Will the rental income decrease for the building with longer property age?

A. In Tokyo, it is unlikely for the rent to drop drastically on well-located properties (i.e. within 10 minutes’ walk from the metro station). If the building is properly maintained and managed, it can still remain its high market value.

Q. Generally, what is the life span of a building?

A. Steel bars and steel frame structures may get rusty and weakened by concrete carbonation. Concrete carbonation takes place at a speed of 1 cm every 30 years. According to Japan's Building Standards Act amended in 1981, the concrete layer of a building shall meet the requirement of at least 3 cm in thickness, therefore, a building shall theoretically last for 90 years.

Q. Are there any restrictions on selling investment properties?

A. There is no restriction on selling investment properties.

Q. In long term, is there any risk in the decrease of asset value of residential properties?

A. The value of a condominium hinges on how well the space can be used. That is, the grade of a property is determined based on its location, environment, and convenience. Investors can mitigate the risk of drastic value depreciation by choosing properties in a good condition

Q. Will there be any problem if I can't speak Japanese?

A. We have English and Chinese speaking staff in Japan to accompany our customers for site viewing. Even though you are unable to take a trip to Japan, as long as the property is still vancant, we can provide property photos or videos of the exterior and interior as references. (All registration fee and expenses of the trip to Japan will be borne by the customers.)

Q. Is the property sale and purchasing agreement written in Japanese only?

A. In Japan, a statement notice with the property details and important reminders of transaction procedure will be provided before signing the official property purchasing agreement. Although all documents will be written in Japanese, we provide the translation of these documents as reference for our customers. Our English and Chinese speaking staff will also accompany, explain and interprete the agrement to our customers during sigining the agrement.

Q. Can Hong Kong passport holders apply investment loan or mortage for their properties in Japan?

A. Generally, financial institutes will conduct certain review and investigations for loan and mortage applications. To learn more, please feel free to contact us. (Different banks are subject to their own regulations, procedures, interest rates on house loan and mortage applications.)

Q. Are there any restrictions for foreigners to buy and own properties in Tokyo?

A. Basically, there is no restriction for foreigner to buy and own properties in Japan as long as they have done all the registrations and procedures for the property they purchased. Foreigners have the responsibility to notify the government about their property purchase based on the Foreign Exchange and Foreign Trade Act in Japan.

Q. How much I will pay for the brokerage commission?

A. According to the regulations in Japan, the brokerage commission for second hand propoerty is calculated as follows: the closing price x 3% + JPY60,000 (tax excluded). This applies to both buyers and sellers. However, other regulations on brokage commission are applicable to the property priced JPY 4 million or below. No brokage commission will be charged for the transaction of brand new properties.

Q. Who can file for the property taxes for me?

A. Buyers can assign tax agent to handle all taxation for their properties.

Q. About withholding tax

A. Property rental income is subject to a 20% withholding tax.The tax will not be levied on a property occupied by either the buyer or his/her relatives at the cost of the buyer himself/herself.

Q. What unit of measurement is used to calculate the area of the property?

A. In Hong Kong, properties are measured by sq ft, while ㎡ is more commonly used in Japan (1 ㎡ ≒ 10.76 sq.ft.). On the other hand, you may find some of the Japanese style rooms (washitsu) are measured by number of tatami mats (1 tatami mat ≒ 1.62 ㎡).

Q. Is the registered area of an apartment measured from the interior of room or from the centre of surrounding walls?

A. The registered area of an apartment is measured from the interior of a room, so it is usually smaller than the area of the apartment.

Q. What is the architectural structure of condominiums?

A. Generally, they are made from reinforced concrete.

Q. How good is the security of condominiums in Japan?

A. Many of the condominiums in Japan use automatical locks. Some of them equip with cylinder locks for better security.

Q. What is the popular lay out of condominium?

A. In Japan, the room layout is indicated by ‘nLDK’ (n: number of rooms; L: living room; D: dining room; K: kitchen). A ‘3 bedrooms’ unit in Hong Kong is equivalent to a ‘3LDK’ in Japan, where the bathroom and toilet are considered as one set.

Q. What is the preferred direction of residences in Japan?

A. Japanese people prefer south-facing residences that offer the best natural lighting.

Q. Does the area of balcony include in the sale area of condominium?

A. In Hong Kong, the sale area of a condominium includes corridors, entrance and balcony. However, in Japan, these parts of the building are not counted in the sale area of a condominium

Q. Is there any possibility for condominium reconstruction in future?

A. In Japan, old building reconstruction requires 4/5 (80%) of the owners' consent for the project.

Q. What is management group (management committee)?

A. According to the Act on Building Unit Ownership in Japan, condominium owners share the right and responsibility to use and and to maintain the area where the building is located. Owners are required maintain the public area, such as corridors, elevators and pipings, etc. Even though the owner may not actually live in the condominium, he/she still takes the responsibility to manage the public area. Owners shall set up a management group and operate according to the ordinance.

Q. What is management company?

A. Generally speaking, a management company is contracted to maintain and manage residential or office buildings. DAIKYO ASTAGE under the Daikyo Group is one of these companies.

Q. How are the management fees and maintenance fees?

A. To ensure comfortable lives and the asset values of property, the management committee is responsible for daily cleaning, inspection of facilities in the building. All these jobs are financially supported by the management fee.
Those periodically or long term maintenance and restoration works will be paid by maintenance fee, which are usually collected together with the monthly management fee.

Q. What is the long-term maintenance plan?

A. In order to maintain the functions and prevent ageing, the management committee of condominium shall reserve a long-term maintenance plan. In Japan, condominium maintenance takes high priority on its management agenda.

Q. What is the relationship between owner and tenant?

A. In Japan, the right of tenant is well protected. Owners may neither demand the tenant to move out without legitimate reasons nor visit the residence while the tenant is still living there.

Q. Interior maintenance

A. Generally, it is very important to keep the property clean and in good condition. An ill-maintained property may attract no tenants.

© DAIKYO HONGKONG LIMITED, All Rights Reserved.