Foreclosed property in Japan

Its interesting that many people dont seem to be aware of the opportunities to buy foreclosed property in Japan. For many foreigners and Japanese alike, there are great opportunities. I've bought foreclosed properties in Japan & the Philippines. The benefits of Japan are:
1. Great savings - you can buy a house for as little as 10% of the replacement value, or 30% of the market value, with particular savings in rural areas. Why? Depopulation, and 'no long stay holiday' culture. Its more competitive in the city. The amount of property available is amazing.
2. Polite society - Japanese people are 'good sports'. They dont curse and blow your house up when you move into their foreclosed property. The prior owner in our case gave us some advice on how to maintain it.
3. No talk: Japanese people are ashamed to talk about it, so neighbours, who are likely buyers, don't know the property is for sale, so don't tell them.
4. Good yields: You can buy a property offering yields as high as 13% (in our case), and thats before you leverage it, so if 70% bank debt, you can pay the property off in a few years, and buy another in the meantime.
5. Great infrastructure for fixing up a property. I had no experience for fixing up a home. I found the staff at Cainz Home very helpful, but its mostly common sense and building materials are cheap in Japan. Fixing up my place was one of the most gratifying things I have done. I paid Y2.8mil for my place 1hr from Tokyo. Cheaper if you go further into the country, but I wanted access to a large city (Tokyo) for drinking.

Its not all good news. There is no property bubble on the horizon, no govt reform agenda, but it will come eventually, and the lack of population growth means that there is no real growth. But yields are exceptional, and of you are living in Japan, or want to retire here (using Japan Rail pass as well), I can think of few better places. Maybe Philippines, which also has foreclosed property. Anyway you can Google 'foreclosed Japan' for more info.

Hello shouganai,

I'm interested in buying a foreclosed property in Japan in the future as an investment. I'm thinking about a condo for less than 10million yen. I think a condo would be best since I don't have to worry about maintenance as much as a house would.

I was wondering how did you buy your property in Japan? Did you make your bid at the court yourself? Since I've been checking out some places at foreclosedjapan.com and if I were to buy a property from them they said this would be the fees:

Properties under 10 million yen:
(bid amount + debt, if any) + 6% + 630,000 yen

Properties over JPY10M:
(bid amount + debt, if any) + 12%

The above will cover all closing costs - acquisition/registration taxes
and costs, our fees, and court charges.

I was wondering if there commission is really expensive for the services they provide?

Dundas said:

Hello shouganai,
I'm interested in buying a foreclosed property in Japan in the future as an investment. I'm thinking about a condo for less than 10million yen. I think a condo would be best since I don't have to worry about maintenance as much as a house would.

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Search Google for a book you can buy on this topic. The big problem with a condo is the management fees on condos in Japan are very high. I'd buy a house.

Dundas said:

I was wondering how did you buy your property in Japan? Did you make your bid at the court yourself?

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I had the assistance of my Japanese speaking GF. If you dont speak Japanese you would need to find a court office who is prepared to help you speak in English, and help you fill out the documentation.

Dundas said:

Since I've been checking out some places at foreclosedjapan.com and if I were to buy a property from them they said this would be the fees:
Properties under 10 million yen:
(bid amount + debt, if any) + 6% + 630,000 yen
Properties over JPY10M:
(bid amount + debt, if any) + 12%
The above will cover all closing costs - acquisition/registration taxes
and costs, our fees, and court charges.
I was wondering if there commission is really expensive for the services they provide?

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We bid directly through the courts. I don't know from memory how ForeclosedJapan.com structure their costs, but based on your info YES. These costs are rather high. I guess you mean 'x 6%'. Particularly high given you don't pay any agent fees (2 agents x 3%) buying foreclosed properties. They do however need to cover the cost of failed bids, so I would also be worried about the conflict of interest they have in that respect if they don't charge for a non-successful purchase, and of course its expensive if you have a succession of failed bids. Its nice to think we would win the bid every time. Frankly all agents are expensive given what they do, which is another reason to buy foreclosed property.

Stupid Questions

I hope you don't mind but I have some stupid questions to ask. How can yields be excellent when demand is drying up due to the decreasing population? Isn't this what caused the foreclosures in the 1st place? If it's a buyer's market for property owners, isn't it also a wide open market for renters? In that case, where does the income come from? When will the gov't adopt reforms to spur growth in outlying areas when even Tokyo has problems with declining property values?

I've read that a lot of real estate companies in Japan have gone belly up because of their investing in developments during the tiny bubble over the past couple of years. This bubble collapsed when foreign investors started to pull out at the end of last year. Even large real estate companies like Mitsui and Mitsubishi are having problems selling their new developments in Tokyo. As you said, it's a good market to buy property to live on but otherwise, especially with the strong yen, I think I would look at places like Bangkok or Kuala Lumpur for investment property in Asia. LA and San Francisco also should have some good buys right now.

Dogen Z said:

How can yields be excellent when demand is drying up due to the decreasing population? Isn't this what caused the foreclosures in the 1st place? If it's a buyer's market for property owners, isn't it also a wide open market for renters? In that case, where does the income come from?

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There is always demand, its just a case of price and which market segment. Young people move to city, so cities are growing, rural areas are experiencing declining population. There is intra-prefectural migration as well, as some regional cities are retaining some population. Normally these is an inverse relationship between growth vs yields, unless there is a paradigm shift. Yes, renters have a choice, so you buy where they will rent. eg. Nice surroundings, close to station, modern property. You have to weigh this up against demand for different properties.

Dogen Z said:

When will the gov't adopt reforms to spur growth in outlying areas when even Tokyo has problems with declining property values?

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Lack of reform is just one reason why Japanese property has stalled. Slow credit growth is also a factor. Banks aren't lending.

Dogen Z said:

I've read that a lot of real estate companies in Japan have gone belly up because of their investing in developments during the tiny bubble over the past couple of years. This bubble collapsed when foreign investors started to pull out at the end of last year. Even large real estate companies like Mitsui and Mitsubishi are having problems selling their new developments in Tokyo. As you said, it's a good market to buy property to live on but otherwise, especially with the strong yen, I think I would look at places like Bangkok or Kuala Lumpur for investment property in Asia. LA and San Francisco also should have some good buys right now.

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I agree. Well actually there is a report on Philippines (foreclosed) property, and I think that is the best country if you are looking for a growth market scenario. Usually the laggard, the Philippines will be better than most going forward. But Japan is a yield, not a growth proposition really, as long as population growth is subdued (nationally) and reform stagnant.

In other words

So in other words, an investor must be as intimately knowledgeable about the prospective market as the property he/she is purchasing. And he/she must also be prepared to take an active interest in managing the property after purchase. This makes sense--sounds like something Trump would approve.

For those who don't want to work so hard, you can invest in real estate investment trusts (REITs). These are the pros who do all the work for you and you just collect the income from their investments. However, they are dying in Japan because of diminishing income and high debt levels.

I would stict to buying property for my own use--like a villa in Kamakura or a summer home in Karuizawa. I don't know anything about the Phillipines, so I can't comment on that, but California might be very interesting. How about beachfront property on the North Shore of Oahu or on Maui--does anyone know about any good deals there?

I wanted to know how much income tax do you pay on your properties?

I found this website and it says;

RENTAL INCOME TAX

Non-resident individuals earning rental income from Japanese property are taxed at 10%. Taxable income is gross rent less income-generating expenses and depreciation.

Just wondering if it's true.

The effective tax rate is lower.

BTW, the keibaiyasan (foreclosure "helpers") charge high because auctioned places are full of properties with easements and other problems. You can get burned easily if you don't know what you're doing, which is why regular Japanese don't participate.

Base said:

The effective tax rate is lower.

BTW, the keibaiyasan (foreclosure "helpers") charge high because auctioned places are full of properties with easements and other problems. You can get burned easily if you don't know what you're doing, which is why regular Japanese don't participate.

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Problems, problems, problems. Risks are not avoided, they are managed. There is so much 'scary risk' priced into foreclosed property in Japan, only an absolute idiot would lose money. Now, when I think of risk management, I don't consider the Japanese to be among the most prudent in the world. Why? They are risk evaders rather than risk managers. Of course we can all huddle in our parents home until they die, or we can step out in the real world and build/buy our own home. Its hard to finance a property anywhere in the world. Japan offers the promise of buying a reasonable place for cash, and you can actually profit just on the purchase.

You talked about easements. If you think about the actual risk involved, quantify/qualify it, it really is a small risk, and easily managed. For instance:
1. I would not expect new subdivisions to have land boundary problems. Old farms in rural areas will have.
2. I would only expect easements to be a problem if you are building a new place. If you are happy with the existing home, again, so problem exists.

You will come across farm houses which will have unlicensed buildings, underwater water storage banks, septic systems, etc. Do you need to fear? Japan has only been a highly organised society for the last 30 years. Before that it was the 'Wild West'. Do you think the local govt is going to come in and ask you to change something done 30 years ago. Particularly after the court documents (i.e. the govt) did not say it was there. The answer is no because there are many such instances of illegality in the old days.

Nope, foreclosed properties are one of the best kept secrets in Japan, and thinking people are engaging in the market. There is information on the net about how to buy foreclosed property in Japan for 'safety' people. Japan is full of those, but its full of foreclosed houses too, so its quite an opportunity. You don't have to pay thousands for a broker to guide you through the process, you choose to.

PS: Risk is managed, not avoided. One persons perception of risk is another man's opportunity.

Shouganai said:

....
PS: Risk is managed, not avoided. One persons perception of risk is another man's opportunity.

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Scam artist Greg Maddux would be proud of you.

Shouganai said:

you would need to find a court office who is prepared to help you speak in English (sic), and help you fill out the documentation...Risk is managed, not avoided.

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Huh? How is this possibly managing risk?
This is really your advice?

On one end, you can do that, just blindly fill out the forms.
On the other end of the spectrum, you can pay a professional and minimize risk.

Nobody likes real estate agents, but they would be necessary evils if you are actually talking about "managing risk." Just like lawyers, you can represent yourself against a criminal suit or lawsuit, you have the right and you will save a lot of money on legal fees, and there is how-to information on the internet too. Doesn't make it a wise move, and it is not "managing risk."

You are talking about taking risk, not managing it.

I am not talking about "evading risk" either, there are lots of good cheap foreclosures and some are excellent investments. But it is not as happy as you try to make it sound and there are many, many bad ones where you WILL lose money if you buy one and be an "absolute idiot." I don't think you're a scam artist, you are just trying to flog your ebook.

Dogen Z said:

Scam artist Greg Maddux would be proud of you.

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Enlighten me. What's the scam?
Might I suggest your cynicism is a reflection of the fact that:
1. You fear to tread where others take steps
2. You fear the responsibility to make judgements where others recognise the value of doing so.

Base said:

Huh? How is this possibly managing risk?
This is really your advice?
On one end, you can do that, just blindly fill out the forms.
On the other end of the spectrum, you can pay a professional and minimize risk.

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I'm not suggesting that people act blindly. Yes, you can get a professional to help you, though I would suggest unless you find a good deal it will look less attractive after agents take their cut, since they will require 10%+minimum fees rather than 6% for standard agent sales. If you can find an agent who offers a good deal then yeh, go for it. Just I didn't find one.

Base said:

Nobody likes real estate agents, but they would be necessary evils if you are actually talking about "managing risk."

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I like some agents. But really you miss the point. What is the role of an agent? To introduce you to properties, and to offer some advice, if they are so inclined, in order to make money. Do you expect good service (as a foreigner) from them? You are more at risk with them if you don't speak Japanese, as you are signing a contract with a commercial interest. Very risky? Of course you could have a friend, but many Japanese have poor financial literacy, and lack critical thinking skills, or personal involvement.
I would prefer to act through the court system. The Japanese real estate industry was famous 'scams' in the 1980s, and there is still some of that behaviour around. A foreigner who doesn't read Japanese is a ******, so if I was managing risk, I would say the foreclosed property route is safer for that reason. That is not to say all foreclosed properties are great, there are some dogs, but remember the reason they are in foreclosure is because:
1. They were credible enough to get a loan
2. They lost their job or went into net negative equity for often no fault of their own (given the financial manipulation)
3. Their homes were likely built around mid-late 1980s (so 20 years old only)
4. They were foreclosed because their home was not repaid, not because it had engineering flaws.

Base said:

Just like lawyers, you can represent yourself against a criminal suit or lawsuit, you have the right and you will save a lot of money on legal fees, and there is how-to information on the internet too. Doesn't make it a wise move, and it is not "managing risk."

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You have lived a sheltered or unthinking existence because you really have not thought this through or acted. If you had, you would know that yeh, you can employ a lawyer, but you don't renounce judgement upon contracting them. You still carry a risk, and they are less invested than you, so there is a risk if you substitute their thinking for your own.

Base said:

You are talking about taking risk, not managing it.

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You need to act like a critical thinker ALWAYS when employing others to act on your behalf or advise you. That is the risk management tool I am suggesting you use. To understand rather than accept. All you need is resources to judge the situation, so search the internet for resources by people that have bought foreclosed property. There is a lot of info out there for free. Personally I don't mind paying people for information/expertise, but I don't shrug from thinking.

Base said:

I am not talking about "evading risk" either, there are lots of good cheap foreclosures and some are excellent investments. But it is not as happy as you try to make it sound and there are many, many bad ones where you WILL lose money if you buy one and be an "absolute idiot.

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Actually by suggesting going to a lawyer for safety, as if that is going to protect you might suggest some underlying false sense of security. Evasive? Maybe. The well-trodden route I think is more risky than you think.
I don't step back from what I said. An 'absolute idiot' does not think. Never said there was not bad foreclosed properties. But people who think they are protecting themselves by going through the real estate industry are misguided. The Japanese real estate industry will look after its own, it has a collectivist reputation to protect, and as a foreigner, you don't matter. The court system is far less risky because it has:
1. Solid record on procedures
2. Its not ambitiously trying to screw you to make money
3. It has a good track record on disclosure - not perfect but good.
Paying $'000s to a broker to buy a property is a risk. Its the risk of having less savings if some tangible risk arises. Afterall no one is perfect. Everyone has to think.

Watch Out

True scam artists like Maddux can hide their scam until the very end when it's too late for those suckered in.

It would be remiss of me not to warn forum readers of extravagant claims about real estate investment and the considerable risk involved when even pros regularly fail. Downplaying those risks is a clear sign that someone is trying to scam someone, especially if that someone goes to great length in trying to do it.

Sirs, I don't see a real issue in your debate. Leave facts as they are.
There are risks involved in buying property anywhere in the world. It's up to the serious investor to research on the risks, benefits and strategies. There are resources available everywhere, online and in paper. It's up to the investor to filter through the resources. There are resources from credible authors and resources from those just trying to make money. It's very very easy to tell if a person is just blabbering, trying to say something to convey they are smart. There are many people who try to talk without thinking. These are people who make judgements without proper information. However, there are sources of good and reliable information. And yes, these sources of credible information are also advertised. So my suggestion to readers is, before they would make judgments, they need to "think" better. If they aren't very smart, then perhaps they should read more then before speaking.

"You have lived a sheltered or unthinking existence because you really have not thought this through or acted"

You're funny

Possibly could have left this line out...
"You have lived a sheltered or unthinking existence because you really have not thought this through or acted"...
...but apart from that everything you have said is accurate.
Court system (saiban) foreclosures (keibai) are an incredible way to make money. I usually buy large residential blocks. If you are lucky you can get an ugly one really cheaply, then just drop the rent and get people in. You still need estate agents to get people in, but if the price is right and the property is not a complete dump then you can do it.
The best profit I have made is when I buy a property WITHOUT buying the land.
Sometimes they are offered at such cheap prices that you can get a 40% return...although I only have one of those...the others always seem to be "Torisagi" or taken off the market before auction because some agent has done a deal...

i know that when you bid only house without land, you may have get high yield rate.Because bidder can buy real estate which has no property right for land very cheaply.Whey they can buy cheaply ? Cuz,in order to retain house on rental land(shakuchi),you have to contract with owner of land.You have to contract of rent or Chijouken .And you have to negotiate with them before you bid it.Because when you make successful bid ,and you find that land owner refuse to contract with you,you can not use your house on it.You have to remove the house by yourself.You have to be careful when you bid such real estate.But this is why you have a chance to buy real estate very cheaply.If you can not have enough knowledge about japanese law,you had better hire professinal agent.Agent who can negotiate with land owner on behalf of you.And i know that Mizushima corporation is only agent who can be available for foreigners.please search in Google with "foreclose , japan, akiyama" .
you can find "japan foreclosed properties ".this is their blog site.You can see it via your cell phone.

Hi Anpan,
No that is not correct. You don't have to remove your building. You have a right to use the land by precedent. The contract with the land owner is a formality to which he can not refuse. The worst that happens is it has to go through the court system in order to enforce it.
I am talking about a court appointed liquidation sale by "Keibai" the court will give you free legal assistance for 6 months after purchase of a property. My wife doesn't want to pay our lawyer so she submits all relevant documents by herself. So you do need the help of a Japanese person when you run into difficulties. (Mizushima may be good I don't know.)
The main problem usually faced is when some low level wannabe Yakuza or a right winger either rents or occupies one of the apartments and you have to kick them out through the court system. I have had to do this several times. However that was not because I bought a dodgy property, it was because the agent who let the unit didn't check carefully who they were putting in, the right-winger for instance used his sister's name as a front when moving in. Now we use "Mag" which is a debt collection/ rental insurance group that covers us if someone doesn't pay the rent.

Recommended

If you're going to sink a lot of your money in Japanese property, you should deal with people with an established reputation. Here are 2 firms that can be recommended.

Century 21
Century 21 SKY Realty, Inc.

Coldwell Bankers
http://www.coldwellbankerpreviews.com/servlet/ResourceGuide?action=showArticle&articleId=53768

If you're looking for commercial property, contact this firm, CB Richard Ellis, first.
http://www.cbre.co.jp/Pages/Default.aspx

Please be aware of the difference between speculation and investing. As they say, "If you don't know what you are doing, the real estate market can provide with an expensive lesson."

You should also be aware that new fair market accounting rules for real estate will take effect in Japan in April next year, and many firms are trying to unload property that cannot produce revenue.

Finally, don't be fooled by anyone who says a recovery is right around the corner. The recovery may be as weak, feeble, and lengthy as the lost decade.

Thanks for those contacts Dogen. I will contact them.
... and thanks for that good advice, I wasn't aware of the changes to the accounting rules.
I think there will be more bargains coming out slowly.
I am primarily looking at property in the kanto regions outside of Tokyo.

right to use lot

Thank you for your swift reply.And I am sorry for my late reply.
No that is not correct. You don't have to remove your building. You have a right to use the land by precedent. The contract with the land owner is a formality to which he can not refuse. The worst that happens is it has to go through the court system in order to enforce it.
As for this your kind reply, it is not always correct.As you mentioned,when fomer owner have right (for example, rent or chijouken),the contract will succeed to next onwer.If land owner refuse to finish contract , reasonable reason to refuse is necessary.
But in auction by court office, there are cases that house owner have not right for land.
In japanese civil code, we call it "shiyou taishaku".let's say, house owner is Mr,MIzuhima and land owner is his father.in such case, there will not be contract between Mizushima and his father.And in this situation, if the house is seized by lender and begin to auciton, the bidder of house have no right to use lot.
And in other case, rent contract is" teiki shakuchi ken".this is not renewed automatically .And when certain period finished, land owner can refuse to renew contract without reason.
So, in order to participate in japanese foreclosure auction, you need to know several kind of law.So, if you are not professional about law in japan, you have to be careful before participate in auction.Even japanese people may make terrible mistake in auciton.☝
""I am talking about a court appointed liquidation sale by "Keibai" the court will give you free legal assistance for 6 months after purchase of a property. ""
This is not correct,sorry. it is absolutely not free.It cost very high money.when you pay your balance money to court office, you can use "hudousan hikiwatashi meirei" whithin 6 months.But it cost sometime 1000000 yen .Because, bidder have to pay fee for execution officer and transporter of garbage (which former owner leave)and rent warehouse to keep the garbage.What you bid is real estate ,but belongings.so , you can not dispose of belongings by yourself.
So, professional keibai agent will not use such method.And we negotiate with former owner and ask them to dispose their belongings by themselves.And in this time, we need skill of negotiation.Do you have such experice ?
If you do not have such experience, please command us.

please serach for our website with "japan,foreclosed properties , akiyama".

Yes Anpan, I understand what you are saying. That's right there are many difficult points to deal with. But I don't think you need to be a professional if you have a strong will, you can deal with those problems. Although I always research the property and try not to bid on a property that may have problems. But Japanese people shouldn't be fearful about investing in property. This seems to be a scare tactic used to keep people away from the money making investments. I know very highly educated people who seem to be clever and yet they have no confidence to invest money. Why?
Just fear?
Maybe you are right, it might be better to use Akiyama agent. How much commission does Akiyama Keibai bukken charge? I think it would be safer for most people to use Akiyama.

But I think that the court will give a detailed summary of the property and it will be written who is living there and whether they have a contract and so on.

Yes negotiation is the best way and sometimes I had to pay money to the previous owner.

I thought it was free but, yes, it seems that you do have to pay for the court appointed marshal or the garbage removal etc....

thank you for your reply

thank you for your reply.I want to admire your cleverness.
I think you are the person who is knowledgeable and clever and can make profit from investment.If all of foregners who live in japan are clever as much as you, our business will belly up.But fortunately, even most japanese people do not know how to bid foreclosed properties and what point shoud they consider.
our company charge about 5 percent of successful bidding price.
Do you think it is expensive ?
But in ordinal realtors also charge u 3 percent of sales price .
And you have a chance to buy real estate much cheaper than market price.
Especially, in case of foreclosed property which may cause trouble.
As you wrote, we do not want to meet with trouble.But, if we can solve the trouble, you have a chance to get real estate at very lot price.
there is stereotype saying about foreclosure."in auction of real estate, we do not buy real estate ,but case."競売では、私たちは、不動産を買っているのではない。事件を買っているのだ。
So, it is important that we should know whether we can solve the trouble or not.
if you are confident that you can solve the trouble ,it is nice of you to bid it .

I agree with anpan, it can be very difficult to buy foreclosed properties, but if you're used to doing it,and ahve the free cash (or can borrow) to do it, then it can be very lucrative. I'm afraid most of my money will be tied up with renovating the house that we have, so I think that more Japanese real estate is probably off limits for now.

One thing I was wondering, beyond the stated renter types problems, is it difficult to get the proper financing for these deals? Some of the property owners don't like to sell to foreigners, at least from what I've heard from other wannabe foreign buyers.

Also, the zoning in some cases can be complex, as my mother-in-law is finding out to her detriment for some larger tracts of land that she owns in a rural area.

And finally, is there any problem with getting out? Generally on property in Japan where you don't own the land, the value of the building itself only declines, leaving the buyer with no exit strategy. Can be fine if you plan to hold the property for a longer period of time or plan to sell it after a short period, but in Japan, it is usually the value of the land that drives the prices in real estate (unlike in many other Western countries where renovated properties can bring a much larger increased value on a property).