BUY vs RENT - property in Japan

[DMY2011]

Hello

Originally from Australia, I have been living in Japan for nearly 5 years and intend to be here for at least another 10 years.

I am now trying to determine if buying or renting is a better option financially, because owning does not ensure a capital gain. Most likely zero growth at best. Often, a loss.

If anyone has some experience with property in Japan, I would very much appreciate any inputs regarding this question.

Thank you
D

 

[Mike Cash]

What level of capital gain does renting assure?

 

[FrustratedDave]

I own a few pieces of land, one of which we live on. We may (My wife and I if we choose) be able to sell the property with our house on it at a huge loss. My advise is that unless you are going to live here for the rest of your life I would not buy land and build on it.

You could look into model homes for sale, I hear that you won't lose much on them. Yes even with a pre-built home if you sell you will probably lose money.

 

[orochi]

I'll second Dave's comment. Don't buy it looking for an investment.
If you're looking for a long-term home, then see if it fits your needs. You should be able to do some calculations pretty quickly for a rental vs owning.

 

[DMY2011]

Thanks for your feedback.

Mike Cash - sorry, I don`t understand your question. Do you mean `if rent, then your cash available can be invested in other ways - stocks for example. and what is your CG on this?

FD - sorry to hear this.

So in other words, even the cost of renting over 10 years, as dead money, is less than the capital loss over 10 years?

eg:

rent for 10 years at 250K / mth = 30,000,000

vs

purchase price of 70,000,000
less annual costs for 10 years = 6,200,000
gross = 63,800,000

therefore, to equal the cost of 30,000,000, the value of the place would need to drop by 23,800,000.

23.8M as a loss on the 70M = 34 percent over 10 years.

Is this correct?

Thanks
D

 

[nyouyaku]

What level of capital gain does renting assure?

zero, and I think in Japan (and now the US as well ) you have to view purchasing a property a bit like purchasing a vehicle in that you do not buy a vehicle in order to make money but rather purchase one for the sake of utility. One has to see a house not as an investment but rather a place to live so buy only as large as you would need the actual space to live in, and not buy one that is oversized with the hopes of making money on the appreciation of the property. Regardless of knowing that you would not make money on buying a home, even if you knew you would lose some money, you still need to buy or rent a place in order to secure shelter. Just do not look at it as an investment vehicle and I am sure that you won't be as disappointed if you go in with this mindset.

 

[DMY2011]

buying versus renting in Japan

Nyouyaku

Thanks for sharing your thoughts.

Indeed, new property in Japan is like a car. Once you drive it out of the show room, or open the front door, the value drops. However, if you don`t mind pre-owned homes, and buy around 5+ years old, then the initial drop in value is already priced in. So you don`t lose that value. the previous owner did.

Pre-owned homes hold their value in general, though depreciation takes its toll over the years. based on my own research and viewing, apartments over 5 years, the values held OK ,or rise a little depending on the area. Meguro-ku and Minato-ku faired OK.

The other key ingredient to buying in Japan is sub-zero interest. Generally about 0.875% p.a

At this rate, your interest is much lower than rent money per annum. Although no/little capital growth, you save money on the difference between renting and interest paid. Plus, you are building an asset. (If rent was around 7% as in Australia, better to rent. but of course, if interest was around 7%, the economy would be better, and inflation pushing up home prices, giving capital growth. (Its `6 - one half of a dozen`)

zero, and I think in Japan (and now the US as well ) you have to view purchasing a property a bit like purchasing a vehicle in that you do not buy a vehicle in order to make money but rather purchase one for the sake of utility. One has to see a house not as an investment but rather a place to live so buy only as large as you would need the actual space to live in, and not buy one that is oversized with the hopes of making money on the appreciation of the property. Regardless of knowing that you would not make money on buying a home, even if you knew you would lose some money, you still need to buy or rent a place in order to secure shelter. Just do not look at it as an investment vehicle and I am sure that you won't be as disappointed if you go in with this mindset.

 

[Petaris]

Are five year old homes fairly plentiful on the market these days?

 

[DMY2011]

Yes, quite a lot.

 

[Petaris]

Thanks for the response DMY2011!

That is something I'll have to look more into when the time comes. It opens up another avenue that might possibly be more attractive then renting in Japan.

In the US home values took a varying hit depending on how over valued the market in an area had become. In our area it took a hit but it wasn't as bad as other more populous areas such as California. We bought our home just a few years ago and took advantage of the market re-adjustment to get a great deal on a nice foreclosed home. We have been doing some remodeling and I am confident that we will turn a profit when we choose to sell. Its always kind of concerned me that in Japan buying a house didn't seem to be any sort of investment as it just depreciated like a car would here. I had thought the only reasonable option was to just rent a house but buying a home that is a few years old and removing a lot of the initial loss that would happen if we bought a new house makes that option more attractive in certain ways.

Thanks again!

 

[nyouyaku]

Yes, and it would be good to consult someone like Amy Hoak on real estate prices. I wonder how LIBOR rates and home prices are interlinked.

 

[Sepponite]

Rent is the way to go. There are certain caveats, such as landlords here oftentimes have rules like no pets, no drilling holes in the walls to install a set of bookshelves, and certainly no home improvement projects.

If you can find a good landlord then great. If not, you'll be saving money, but it won't really be your house.

My wife and I went the ownership way and had a house built on land we own. It's worked out well because we can plant trees, have pets, and I would imagine festoon the house with swastikas if we wanted. Still, the place is worth what the land might possibly sell for, minus whatever it would cost to get rid of the house.