Guide to Buying Real Estate in Japan for First-Time Buyers: Understanding the Process and Important Points to Note. We’ll walk you through the overall procedure and provide essential tips to consider. We hope you find this information helpful and encourage you to read until the end.
The Reliability of This Article
This article was written by someone with the following background:
- Over 15 years of experience in real estate brokerage at a well-known major real estate agency
- Successfully closed more than 300 real estate brokerage cases to date
- A certified 1st Class Financial Planner
- A Certified Financial Planner (CFP)
- A licensed Real Estate Transaction Specialist
1.Financial Planning
Before diving into the real estate market, it’s essential to first establish a solid financial plan. Many people often have a misconception about the proper sequence of steps.
Taking the First Step with Financial Planning
It’s crucial to establish a solid financial plan before diving into the real estate market. Without proper planning, you may find yourself unable to purchase the desired property or burdened with excessive repayment obligations, ultimately leading to unfortunate situations like having to sell the property you bought.
To start off, it’s important to have a clear understanding of your budget, considering what you can afford without straining yourself financially. This forms the starting line for your real estate purchase journey.
When consulting with a real estate agent regarding your purchase, they will inquire about the following aspects of your financial plan at the initial stages. It’s important to be well-prepared and provide thorough answers to these questions:
- Personal savings and available funds for the purchase.
- Whether you plan to utilize a bank loan for the purchase.
- Current employment details, including your employer and annual income.
- Length of employment at your current workplace and any recent job changes.
- Age.
- Existing debts.
- Family composition.
- Any health-related issues that may affect the housing loan assessment.
Understanding Various Expenses Involved
When creating a financial plan, it’s important to consider the additional costs involved apart from the property price. These costs are typically paid in cash. The major expenses to keep in mind include:
- Brokerage Fee: A fee paid to the real estate agent, calculated as 3% of the purchase price plus ¥60,000 and consumption tax.
- Registration Fees: Taxes paid for the transfer of ownership and mortgage registration.
- Financing-related Costs: Fees paid to banks or guarantee companies when obtaining a loan.
- Various Settlement Expenses: Clearing fees for items such as property taxes and management fees.
- Revenue Stamp Duty: The cost of revenue stamps affixed to the sales and purchase agreement.
If you are planning to purchase the property with cash, it’s generally advisable to budget around 5-6% of the property price for these additional costs. However, if you are considering a home loan, it’s recommended to have an estimated budget of around 7-8% of the property price. Keeping these figures in mind will help you plan your finances accordingly and avoid any surprises.
Knowing the Criteria for Loan Approval
There are many convenient home loan simulation websites available online. By simply entering basic information such as annual income and desired loan conditions, you can quickly get an approximate estimate of your borrowing capacity and more. It’s useful to make good use of these resources.
It’s also important to understand the criteria that Japanese banks use when assessing home loan applications. Most banks follow a similar approach in their evaluations. The key factor is whether the estimated annual repayment amount for the housing loan, along with other existing loan repayments (such as car loans or credit card loans), is within approximately 35% of the person’s annual income.
Therefore, if you already have existing loans and are making repayments, it’s advantageous to consider fully repaying or partially paying off those loans before undergoing a home loan assessment, if possible. This can increase your chances of a favorable evaluation.
2.Clearly Defining Your Requirements
Having clear preferences and criteria is essential as a guiding light in your property search. Take the time to carefully define your desired conditions in advance.
Understanding the Importance of Purchase Motivation
There are various preferences and criteria such as location, layout, and pet-friendliness, but the most important aspect is to clarify the motivation behind your decision to buy real estate.
By examining and understanding your motivations, you will gain clarity on what aspects to prioritize during your property search. It will serve as a compass when you feel lost in your search. Confirming your purchasing motivation brings consistency to your property search. It helps you refine your preferences, making it easier to evaluate different properties throughout the process.
Moreover, from the perspective of real estate agents, clients with a clear purchasing motivation are easier to assist and provide suitable property recommendations.
Setting Priorities
When it comes to real estate, everyone has their own preferences and non-negotiable criteria, starting from factors like location, desired move-in date, property type, size, layout, and personal preferences.
That’s why establishing the priority of your preferences becomes crucial when sifting through numerous properties. Without clear priorities, it’s challenging to make a successful purchase. It can lead to continuously searching for that elusive dream property that perfectly aligns with all your desires.
It’s important to recognize that there is no property that will meet 100% of your wish list. Understanding this from the outset is crucial.
Before making a decision, it’s vital to determine what aspects you prioritize and what you are willing to compromise on.
3.Choosing a Real Estate Agent and Seeking Consultation
Once you have reviewed your financial plan and finalized your preferences, it’s time to consult with a real estate agent.
Now, what criteria should you consider when choosing a real estate agent? Let me explain some key points to consider when selecting a real estate agent.
Selecting a Real Estate Agency (Branch) in Your Desired Area
When choosing a real estate agency or branch, it’s important to select one located in the area where you want to purchase a property. It’s a common mistake for some people to consult their local real estate agent, but it’s not the right approach.
In the real estate world, information is everything. And fresh property listings always originate from real estate companies that have a deep understanding of the local area.
While it’s true that any real estate agency can access a shared information platform used by Japanese real estate professionals, the information obtained through such platforms tends to be a step or two behind. Remember that valuable property information often doesn’t appear on these shared platforms exclusively for real estate agents.
Choosing Based on the Agent, Not the Company Size
There is often a debate about whether it’s better to choose a large real estate company or a local, community-based agency. The answer is that the size of the company doesn’t matter when it comes to purchasing a property. It all depends on whether the representative you’re working with is sincere and dedicated in their approach.
In the real estate industry, the size of the company can affect the type of services they specialize in.
Large real estate companies tend to focus more on “selling consultations” rather than “buying consultations” with their experienced and top-performing salespeople. The task of introducing and guiding clients through properties is usually handled by new or junior sales agents. The reason behind this is that selling consultations require less effort but can generate higher profits compared to buying consultations.
On the other hand, local real estate agencies rarely handle selling consultations and instead specialize in buying consultations. This is because sellers tend to choose large real estate companies due to their reputation, resulting in limited availability of selling information for local agencies. As a result, local agencies compete vigorously with each other on a daily basis to secure successful buying consultations.
Both approaches have their merits. Large real estate companies provide a sense of security and a certain level of service due to their brand recognition. Meanwhile, proactive local agencies prioritize closing buying consultations, so they tend to offer speedy and persistent assistance.
However, as mentioned earlier, it ultimately depends on the individual representative. If you encounter a representative who doesn’t meet your expectations, don’t hesitate to discuss the possibility of changing your representative.
4.Property Selection and Viewings
When you consult with a real estate agent, they will promptly provide you with property introductions, often including floor plans and other materials. It’s a good idea to check out properties of interest in advance through websites or other sources and then discuss with the real estate agent whether the property is still available for purchase and arrange a viewing. Let’s also make sure we have some key points in mind when selecting properties and preparing for viewings.
First Impressions Matter During Viewings
In books and online information, you often come across advice on what to pay attention to when selecting a property. While it’s not wrong, and it can be helpful for those who are concerned, it doesn’t address the essence of the matter.
The key to choosing a property without regrets lies in the first impression you get when you visit it. On the flip side, if the initial impression is not positive, there is a high likelihood of failure.
Now, who ultimately decides whether a property is good or not? It’s not the real estate agent. It’s not the property itself. It’s you, the buyer.
A property that you find appealing intuitively is likely to be seen in the same light by others. Regardless of what real estate agents or critics may say, the property that you believe is good is the right choice.
This principle applies when you eventually sell the property in the future as well. A property that an ordinary person finds appealing is the best and most sellable property.
Trust your instincts as an ordinary person. It’s not about logic here; it’s about cherishing your intuition.
Checking for Defects and Verifying Facilities on Site
The more you like a property, the less pleasant it is to discover issues with it later on. Even minor flaws can significantly undermine the buyer’s impression of the property.
When a real estate agency receives a request from the seller to sell a property, they conduct a prior check on any defects or flaws in the property.
Even if the real estate agency that showed you the property didn’t receive a direct selling request from the seller, they can inquire with the agency responsible for the seller to confirm the details.
Make sure to visually inspect and verify any malfunctions or issues on-site. There can be significant differences between confirming something in writing and seeing it in person.
By physically inspecting the property beforehand, you can purchase it with a sense of satisfaction and confidence.
5.Pre-Loan Screening
If you plan to use a housing loan, one crucial step you need to take immediately upon finding a property you like is the pre-approval process for the loan. The pre-approval is a preliminary assessment conducted before the final loan approval, but unless something significant changes, being approved in the pre-approval stage means you won’t be denied in the final approval. It’s important to note that the final approval takes place after signing the real estate purchase agreement.
Speed is Crucial
The most crucial aspect of the pre-approval process for a housing loan is obtaining the approval result as quickly as possible.
This is because without pre-approval from the bank for the housing loan, the seller won’t secure the property for you.
Let’s say you’ve found a property you like and submitted a purchase application. In most cases, the seller will respond by saying, “I will reserve the property for you until the signing of the sales contract once your housing loan pre-approval is obtained.” From the seller’s perspective, it’s a reasonable decision not to enter into a contract with a buyer who might not be able to borrow money. It’s a matter of common sense.
While you’re delaying the housing loan pre-approval process, another buyer could apply for the same property and obtain pre-approval from the bank before you, resulting in losing the property to that buyer, and ultimately, you won’t be able to purchase the property.
Therefore, it’s crucial to obtain the approval for the housing loan pre-approval as quickly as possible. Remember this point well and act with a sense of urgency.
Make sure to prepare the necessary documents in advance so that you can submit them promptly. The required documents include:
- Proof of identification
- Withholding tax statement (for employed individuals)
- Income tax returns for the past three years (for self-employed individuals)
Applying to Multiple Lenders If You Have Concerns
If you have concerns about the housing loan approval due to existing loans or low reported profits as a self-employed individual, it’s advisable to apply for pre-approval from multiple financial institutions simultaneously.
Waiting for the results of one bank’s assessment before proceeding with the evaluations of other banks can be time-consuming and may lead to missing out on a property.
Obtaining pre-approval from a bank does not necessarily mean you must borrow from that specific institution. Instead, choose the financial institution that offers the most favorable conditions for your situation from among the approved banks.
6.Submitting a Purchase Application
Once you have chosen a property, it is important to promptly express your formal intention to purchase to the seller while simultaneously applying for the pre-approval of the housing loan. Typically, this is done by submitting a written offer to the seller, outlining the purchase conditions.
Securing the Property
One of the most crucial aspects during the purchase application stage is to ensure that you don’t miss out on the opportunity to buy the property.
Once the pre-approval for the housing loan has been obtained and you have reached an agreement on the conditions with the seller, it is recommended to request the real estate agency to temporarily halt the sale of the property until the contract signing date and give your application “top priority.” In other words, ask them to decline any other purchase inquiries until the contract signing date.
Additionally, convey your preference for arranging the contract signing date as soon as possible.
A lengthy period until the contract signing date may not be well-received by the seller. This is because during the time leading up to the contract signing, the seller would have to turn down any other potential buyers with better conditions, resulting in significant missed opportunities.
If You Truly Want a Property, Don’t Negotiate the Price
During the purchase application, you have the opportunity to negotiate the conditions, including the price. If you wish to engage in price negotiations, you can try to obtain concessions from the seller.
However, if the property is truly the one you want to acquire, it is advisable not to engage in price negotiations. The property you desire is likely to be desired by others as well. While you are in the process of negotiating a price, someone else may submit a full-price offer and you could miss out on the opportunity to purchase the property.
The fundamental principle of real estate purchase is to buy without engaging in price negotiations.
Price negotiations can be a supporting factor in the purchase process, but they are not the essence. What truly matters is your desire to own the property. Encountering a property is a matter of chance. To reiterate, when you come across a property that you believe is the one, it is crucial to focus on not missing out on the purchase opportunity before considering price-related matters.
If you are interested in learning more about effective price negotiation techniques and the detailed rules for making a purchase offer, please refer to the article below for further information.
7.Real Estate Sales and Purchase Agreement
Once an agreement is reached with the seller, it’s time for the real estate sales contract. In the real estate sales contract, the buyer receives an explanation about the purchased property from the real estate agent in the presence of the seller, and then proceeds to sign and stamp the contract.
At this time, the buyer pays a deposit to the seller. The deposit generally amounts to around 5-10% of the purchase price, and the specific amount is determined through consultation between the seller and the buyer.
Requesting Pre-Contract Explanations from the Real Estate Agent
Make sure to request an explanation of the contents of the Important Matters Statement and the Real Estate Sales Contract from the real estate agent before the contract signing date.
The explanations and the content of the contract often include unfamiliar terms and difficult interpretations that may not be part of your everyday vocabulary. Furthermore, it can be challenging to ask questions on the day of the contract signing when the seller is present.
Prior to the contract signing, ensure that you receive a thorough explanation of the content and ask for clarification until you fully understand any unclear points.
Reviewing the Contract Content Based on Acquisition Objectives
When listening to the pre-explanation, make sure to confirm from the perspective of whether it will not hinder your intended use.
For example, if you are buying a condominium with the condition of having parking space, check the size restrictions of the mechanical parking system to ensure that your car will fit. If you have pets, thoroughly confirm if there are any restrictions on the number or size of pets allowed.
Inquire about these specific details to ensure that they align with your requirements and needs.
Special Provisions are Key in the Sales and Purchase Agreement
The real estate purchase agreement is based on a predetermined template, and specific conditions tailored to each transaction are documented in the special provisions clause. Therefore, it is important to thoroughly review the special provisions clause in the real estate purchase agreement.
For contracts that include termination conditions, such as contracts with conditions that, if not met by a certain deadline, would result in termination, it is crucial to pay attention to and confirm the specific conditions and timelines that would lead to contract termination.
8.Preparation before Handover
Once the purchase agreement is finalized, you will proceed with the formal application for a home loan. Additionally, to ensure a smooth handover, it is important to conduct preliminary checks on property boundaries and the current condition of the property to avoid any potential issues.
Loan Final Approval Has a Deadline
When using a home loan, it is common to include a loan contingency clause in the real estate purchase agreement. This clause allows the buyer to cancel the agreement and receive a refund of the earnest money without any penalties if they are unable to secure the loan due to reasons such as loan denial by the bank.
The loan contingency clause has a specific deadline, typically around three weeks from the date of the real estate purchase agreement, during which the buyer must obtain formal approval for the home loan.
In other words, if the buyer fails to obtain formal loan approval by the deadline, they will need to discuss with the seller whether to cancel the contract or explore other financial institutions.
Therefore, it is important to promptly proceed with the home loan process once the real estate purchase agreement is signed.
Conducting Boundary and Interior Checks is Essential
Before the handover, it is essential to always verify the boundaries with neighboring properties for land, as well as conduct an interior inspection for properties like apartments or houses.
Unfortunately, some real estate agencies may skip or forget these inspections. In such cases, be sure to insist on conducting the necessary verifications.
Particularly, boundary disputes can be highly risky. They can lead to long-standing conflicts with neighbors, so it’s crucial to exercise extra caution. Make sure to clearly identify the boundary points.
For the interior, as mentioned earlier, review the equipment list and compare it with the actual condition on-site. Check for any malfunctions or items that the seller may leave behind, as well as ensure that the seller has removed any items they should have taken away.
9.Settlement
Once the preparations before the handover are complete, it’s time for the settlement. During the settlement process, the housing loan is disbursed, the remaining balance is paid, and the ownership is transferred to the buyer. At the same time, the keys to the property are handed over, officially making it the buyer’s possession.
Settlement involves executing the loan, making bank transfers, and submitting applications to the registration office, all of which need to be done on the same day. Therefore, as a general rule, the parties involved (seller, buyer, judicial scrivener, real estate agent) gather together on a weekday morning. If the buyer is using a housing loan, the settlement takes place at the branch of the bank providing the loan. Otherwise, it can be done anywhere.
Ensuring Perfect Preparation
The most important thing for the buyer to pay attention to during the settlement is “perfect preparation,” that’s the only key point. In other words, if there are any deficiencies in the preparation, it will not be possible to proceed with the settlement on that day. This can lead to a very inconvenient situation where all parties involved need to reschedule and set a new date for the settlement.
Required Documents for Settlement:
- Hanko (personal seal)
- Jitsuin (official seal) – in case of using a housing loan
- Inkan Shomeisho (seal certificate) – in case of using a housing loan
- Ginko-in (bank seal)
- Bankbook
- Juminhyo (residence certificate)
- Identification documents
- Prepare funds in the bank account
- Affidavit(required for foreigners)
Make sure to prepare all of these items perfectly and without any deficiencies.
10.After Handover
Real estate transactions don’t end with the settlement. After the settlement is completed and you take a breath, there are some final touches to be made.
Checking for Equipment Defects
If you have purchased a condominium or a used detached house, it’s important to check for any defects in the interior facilities right after receiving the property.
Apart from the defects disclosed by the seller in the facility list prior to the purchase agreement, the seller is responsible for repairing any defects discovered within 7 days after the handover.
Be sure to conduct a thorough check. If the 7-day period elapses, the buyer will be responsible for the repair costs, so please be mindful of this.
Building a Good Relationship with the Real Estate Agent
It would be a waste to end the relationship with the person who handled the transaction, even after making a high-value deal worth millions of yen.
The agent who supported your property purchase will continue to be a reliable ally for your real estate matters. Whether it’s selling your property in the future, considering a new purchase, or seeking advice from friends and family about real estate, they will surely be there to support you.
If the agent has been exceptional, it’s a good idea to exchange personal contact information or maintain communication through letters to stay connected.
Real estate agents value their customers even after the transaction is completed. They will undoubtedly be of assistance to you at some point.
Final Thoughts
I have explained the process of real estate purchase and highlighted important points to consider from a professional perspective. I hope this serves as a guide for those who are completely new to real estate purchasing and helps them grasp the overall picture.
Real estate purchase involves various processes, from property searching to completing the transaction, and it takes time. In such a challenging task, real estate agents are there to support you as your partner.
By building a strong mutual trust and resolving real estate concerns together in the long run, the value generated will far exceed the brokerage fees paid.
I hope that all of you will be blessed with great properties and wonderful encounters. With that, I would like to conclude this article.
Thank you for reading until the end once again.
