How to Sell Your Residential Property in Japan (Timing Your Decision)
So far as the market is concerned, it may seem to be slightly late to sell real estate, but actually, it’s an excellent time to consider selling. The best timing will depend immensely on the type of property you wish to sell; whether that be land, detached houses, or previously owned condos, and the purpose of the sale, including organizing assets or relocating. If you are considering selling some time in the near future, it may be a good idea to consider selling in 2019, while the market isn’t fluctuating too heavily.
For example, one reason for instability is interest rates for housing loans. Two years ago Bank of Japan Governor, Kuroda, announced that it would “continue strong monetary easing.” However, even the interest rates for housing loans (Flat 35) have been climbing slowly since bottoming out in the summer of 2016.
When interest rates rise, naturally consumers lose interest in buying, so ideally you would want to sell before that happens. On the other hand, it’s a possibility that prices will take a temporary rise due to last-minute demand in anticipation of the increase in consumption tax scheduled for October 2019.
In addition, the most critical point in deciding to sell your real estate is to have a clear image of the objective of the sale; Why are you selling? What will you do with the proceeds?
It can be challenging and risky for a consumer to dictate price and seek a sale at a high price. Ensuring a decent sale all comes down to delivering (assigning) your valued property “safely”, at an “appropriate price”, to a good “buyer” at the right “timing”. If you lack even one of these four requirements, you will not be able to get a satisfying sale.
Selling Your Investment Property and Timing Your Decision
Unlike residential properties, sale prices for investment properties are profoundly affected by yield.
Appraisals to establish a sale price are also generally conducted by back-calculating from yield. However, due to the current rise in property prices, prices for investment properties have been soaring. As the possibility of realizing a higher than expected capital gain is large, we suggest that you submit your property for an appraisal.
The following cases are also good times to consider selling:
1. Five years have passed since the initial purchase
Although this will be explained in detail under #5, a high tax rate is imposed if real estate is sold less than five years after it has been acquired. Therefore, when a minimum of five years has passed since obtaining the real-estate, it becomes a good time to begin selling.
2. When there have been significant changes to the surrounding environment
If there is a major change to the surroundings, such as a relocation decision by a large corporation nearby, selling considerations must be made quickly. This is because there is a risk that an imbalance between demand and supply will lead to a significant drop in prices.
3. If large-scale renovation costs are required
If any extensive renovations are required due to deterioration, it will be necessary to reconsider your investment strategy, including considering selling. For example, if the costs to renovate are higher than purchasing a new property, there are cases where selling will be a better investment in the long run.
4. If the property has been vacant for a long time
If a property has been vacant for an extensive amount of time, you need to consider lowering the rent or selling the real estate entirely. If you lower the rent due to a long vacancy, the yield after the reduction will go down considerably. If the yield goes down, this will have a significant direct impact on the sale price. It’s worth considering selling before the yield goes down instead.
Market Trends after the Tokyo 2020 Olympics
Properties bought by overseas investors have started going on the market near the end of 2018. This has caused some areas to see a slight downward trend in real estate prices. Going forward, it is predicted that prices of pre-owned condominiums will enter a correction phase, going up and down for a while, with a shift into downward trends in the countryside where demand for housing is low.
It is not 100% certain that things will go as anticipated above. After all, the market is never completely predictable. However, it is highly probable that property prices will start trending down without waiting for the Olympics. These are only some of the many aspects you must consider when looking at the market, but there are several other factors that could cause declines in selling prices, and overall, it is predicted that property prices will start falling by the end of 2019.
However, it is unlikely that all properties are headed downwards. For example, there are people who predict that prices for valuable properties in Tokyo will go up rather than down, so we believe that it is important to first evaluate your own properties as objectively as possible.
Things that You Should Ask in order to Find a Good Agent
In order to improve your chances of selling and to increase the sale price as much as possible, you should confirm whether your sales channels are capable of contacting the foreigner market or overseas investors and whether the agent has experience dealing with foreigners. We recommend confirming this especially if you have luxury properties, residential properties that are located in the city center, or investment properties.
In respect to real estate deals in 2017, the price of purchases by foreigners exceeded over one trillion yen, which makes up approximately 25% of all real estate deals in Japan. And it is predicted that this number will only continue to grow.
It has become quite difficult even for Japanese nationals to take out loans for high-value properties, hence why it is more likely that a foreigner will be the one looking to buy. This is why it is important when selecting an agent when you enter the market as a seller, so it is important that you ensure you choose one with channels that can reach foreigners and is knowledgeable in foreign business customs.
Pricing a Property with a Real Estate Agent
It is possible to put real estate up for sale at the price that you want to sell, but it is important first to clarify how much you want to sell for. However, properties do have market prices, so it is important to have a firm grasp of these and understand your market as well.
All real estate companies are capable of examining deals made in the past and current prices of nearby properties that are going on the market. Therefore, they can figure out the market from objective data, and provide an estimated appraisal for your property. Any real estate agent will be able to assist you with your sale, but it is important to find a real estate agency that will appraise a sale price based on solid, objective data.
The Taxes and Fees Associated with Selling A Property
The sale of land or buildings is subject to the following three types of taxes:
- Stamp Duty
- Capital Gains Tax
- Resident Tax
Stamp Duty is paid at the time of the contract for sale, while Capital Gains Tax and Resident Tax are paid when filing an income tax return after the sale.
One of the taxes imposed on the sale of real estate is Stamp Duty.
A revenue stamp corresponding to the amount of the contract is affixed to the contract for the sale of real estate. In order for the seller and buyer each to hold a copy of the contract for sale, it is common practice for each to bear the stamp fee. In the case of a general tract of land or condominium with a sale price of 5 million to 100 million yen, you should expect to pay 5,000–30,000 yen in Stamp Duty.
The second and third type of tax imposed on the sale of real estate is Capital Gains Tax and Resident Tax. These two taxes are payable only when a profit has been made through the sale. There is no need to pay these if the sale has resulted in a loss, such as when the sale price is lower than the purchase price.
Capital Gains Tax and Resident Tax are taxes that are imposed on capital gain, which is the sale price of the real estate. Therefore, the amount of capital gain is a significant factor when calculating these taxes. In addition, income is categorized and taxed at different rates depending on the period of ownership.
“Capital gain” should be understood as “the ultimate profits or losses after deducting all of the costs incurred from the acquisition to the sale of the real estate from the disposition price of said real estate”. The cost of acquiring the building, which is used to calculate capital gain, is sought by deducting “depreciation cost” from the price at which the building was purchased.
The amount of tax is obtained by multiplying the taxable capital gain by the tax rate. However, this tax rate is not fixed and will depend on the period of ownership of the real estate.
If the period of ownership exceeds five years as of January 1st of the year in which the real estate is bought, it is considered “Long-Term Capital Gain”; if this period is not up to five years, it is considered “Short-Term Capital Gain”, with tax rates for each as follows:
Long-Term Capital Gain (period of ownership exceeds five years): 20% (Income Tax 15% ＋ Resident Tax 5%)
Short-Term Capital Gain (period of ownership is no longer than five years): 39% (Income Tax 30% ＋ Resident Tax 9%)
In addition, an additional 2.1% will be added to the income tax from January 1st, 2013–December 31st, 2037 as Special Income Tax for Reconstruction, so tax rates are as set out in the following table:
Long-Term Capital Gain (period of ownership exceeds five years): 20.315%
Short-Term Capital Gain (period of ownership is no longer than five years): 39.63%
In addition, the following costs will be required as miscellaneous expenses at the time of the sale:
・Registration fees (fees to cancel mortgages; judicial scrivener fee)
・Other expenses paid as necessary (surveying fees; demolition fees; waste disposal fees)
Whether these costs are required and specific costs will depend on the condition of the property.
High Demand Properties in Tokyo and Buying A Condominium as the Primary Residence
Demand for residential properties is high in Tokyo. You will not fail to sell so long as you do not place an exorbitantly high price on the property. Even outside the 23 wards, any location within Tokyo that is close to the station will be pretty high in demand.
Although there are numerous large cities throughout Japan, Tokyo is the only city where the population is expected to continue to grow at a constant rate, causing demand for residential properties in Tokyo to be fairly stable.
Although real estate prices are expected to fall throughout Japan going forward, it is unlikely that prices will take a drastic plunge in Tokyo, rather they will most likely remain level or fall moderately. Since demand is now high among foreigners who are eager to buy, marketing activities that target foreigners will also be important, as we mentioned earlier.
The Type of Residential Property to Sell in Japan (Tokyo)
Investment properties are heavily affected by housing loans. It is now relatively easy to obtain a loan, and demand for properties that are around 20 years old are high.
In terms of location, within Tokyo; Koto-Ku, Setagaya-Ku, and Sumida-Ku have low vacancy rates and maintain a fairly high demand. However, when viewed globally, properties in Japan have high yields and low prices compared with Singapore and other developed nations around the world, so demand is high not only for Tokyo. Since demand among foreigners is high both within and outside Tokyo, it is important to confirm the demand for your property with an agent who has an eye on the overseas market, in the same way as with residential properties.
My company LINC specializes in activities utilizing the sales route to foreigners as a real estate agent specialized for foreigners. When you want to assess your precious property, please ask our agent.
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