Japan’s land prices haven’t increased as much as in developing Asian countries in the past years. The country suffered from an economic downturn in the early 1990s and the real estate market never really recovered since.
With that said, the market has started to gain more interest and Tokyo currently has one of the most active markets, according to PwC. It’s predicted to see great rental growths as it gains interest locally and from overseas.
In this article, we focus on land investments and where I explain the basics if you plan to buy land as a foreign corporation or individual.
Topics covered:
- Can foreigners buy land in Japan?
- Land Prices in Japan
- The Process When Buying Land
- Taxes when Buying Land
- Finding Land for Sales in Japan
- Commercial Real Estate Agents in Japan
Can foreigners buy land in Japan?
Japan is one of a few Asian countries that allow foreigners to own land on both a freehold and leasehold basis. This comes as a surprise to many overseas investors, especially as habitable land is limited.
The only other Asian countries where foreigners can truly own land on a freehold basis are Malaysia and Korea. In countries like Vietnam, Indonesia, and the Philippines landownership is restricted.
Even if foreigners are treated similarly to Japanese citizens, the buying process can seem bureaucratic and it’s recommended to work with local partners that speak Japanese.
This is the baseline if you plan to acquire large land plots for commercial or industrial purposes.
1. Buying Freehold Land
Freehold ownership is called Shoryuken (所有権) in Japanese and is the most popular type of ownership. If you buy an apartment or condominium unit, you will be entitled to ownership of a part of the land below the building.
You can own a house with land in metropolises like Tokyo, as well as the land located under a ski-resort in Niseko.
Benefits:
- You can enjoy the price appreciations of the land
- No need to pay leasing fees
- The process is faster
- You own the land outright and don’t have to renew leases
Drawbacks:
- More expensive than leasehold land on average
- Higher property taxes for land that is subject to high taxes
- Additional taxes
2. Leasing Land
As you’re probably aware by now, foreigners tend to acquire leasehold land in Asian countries as freehold ownership is rarely granted. In Japan, leasehold ownership is called Shakuchicken (借地権).
Despite being less popular than freehold land, leasehold land is around 30% cheaper, thus being more suitable to some investors.
Benefits:
- Cheaper than freehold (30% to 40%)
- The landowner generally pays the taxes
- Higher yields if you sublet, as the initial price is lower
Drawbacks:
- You don’t own the land outright
- You have to renew the lease
- You cannot enjoy the price increases
- Harder to apply for local loans
- Harder to find buyers as freehold property is most popular
Old Leasehold vs. New Leasehold
Japan has old leasehold laws called Kyushakuchiken (旧借地権) as well as a new leasehold land called Futsushakuchiken (普通借地権), introduced in 1992.
The old leasehold land explains that properties built of wooden structures have a leasehold term of just 20 years. Properties with concrete structures, on the other hand, have a leasehold period of 30 years.
Besides, the owner can refuse to renew the lease without any reason given.
Under the new law, the leasehold period is 30 years for all kinds of properties, at the same time as the lease can be renewed by the tenant for additional 20 years. The lease will then be automatically renewed by 10 years at a time.
The tenant is also more protected under the new laws in the sense that the landlord has to provide a valid reason for how he or she will use the land in case the renewal is rejected.
As mentioned, freehold land is by far more popular but also comes with a higher price tag. You should weigh your goals with the best options and consult with a local partner.
Land Prices in Japan
Land prices have increased in Japan in the past years, backed by increased tourism, investments in tourism, and increases in commercial property rents.
Land prices started to rise for the first time in 27 years in 2018, but saw a dip in 2020, primarily due to the COVID-19 crisis. Prices declined by 0.6% on average nationally, following the lowered demand due to the pandemic.
One reason why land prices haven’t increased is also due to the collapse of Japan’s Japanese asset price bubble, which started in 1992.
For a better overview, I’ve included examples of land prices for different land plots in Japanese cities below.
Nishiasakusa, Taito-ku, Tokyo (2 min. walk from Asakusa station)
- Size: 147 sq.m.
- Price: JPY 478,000,000 (around USD 4,345,454)
- Price per sq.m.: USD 29,560 / JPY 3,251,700
Minato-ku, Tokyo (8 min. walk from Roppongi station)
- Size: 102 sq.m.
- Price: JPY 200,000,000 (around USD 1,818,181)
- Price per sq.m.: USD 17,825 / JPY 1,960,784
Abuta-Gun, Niseko
- Size: 971.71 sq.m.
- Price: JPY 35,000,000 (around USD 318,181)
- Price per sq.m.: USD 327 / JPY 36,018
The Process When Buying Land
Let’s review the process when buying freehold land in Japan. This is just a general description and additional steps might be required.
1. Application (Interest)
When you have found a land plot that you like, you can submit an application form to the land seller. The document is referred to as Kaitsuke Shomeisho (買付証明書) and shows your interest in the land.
2. Explanation of Important Matters
When the seller has approved your application, the real estate will prepare a document called “Explanation of Important Matters”. The document will guide you through the remaining parts of the process.
3. Sales & Purchase Agreement (SPA)
Now, it’s time to sign the Sales & Purchase Agreement, sometimes just called the Sales Agreement Contract. In Japanese, it’s called Tetsukekin (手付金). You should also decide when the transfer of ownership will take part.
4. Transfer of ownership
The balance is paid and other outstanding fees, including the commission to the real estate agent, insurance fees, and more. You will now be registered as the official owner of the land, supported by a judicial scrivener.
Taxes
Below I have listed taxes you have to pay when buying land in Japan. Keep in mind that additional taxes might apply and that rates change frequently.
Stamp Duty
The stamp duty increases progressively depending on the property value as follows:
- JPY 5 ~ 10 million: JPY 5,000
- JPY 10 ~ 50 million: JPY 10,000
- JPY 50 ~ 100 million: JPY 30,000
- JPY 100 ~ 500 million: JPY 60,000
Registration Tax
This tax is paid when transferring the ownership of the property or when taking out a mortgage. The rates are as follows:
- Land: 1.5% of the fixed asset value
- Building: 0.3% of the fixed asset value
Real Estate Acquisition Tax
- Land: 1.5% of the fixed asset value
- Building: 3.0% of the fixed asset value
Fixed Asset & City Tax
- Fixed asset: 1.4% of the base taxation amount
- City tax: 0.3% of the base taxation amount
Keep in mind that additional fees are charged such as mortgage fees, real estate agent’s commission, fire and earthquake insurance, and more.
Finding Land for Sales in Japan
Working with realtors in Asian countries is generally not difficult and they are often more than willing to help foreigners.
It mostly boils down to finding a credible partner, avoid being scammed, and making sure that your priorities are put first.
With that said, working with realtors in Japan and Korea isn’t as easy as in countries like Thailand, for example. In most Southeast Asian countries, you can find a heap of foreign-owned agencies that have a long experience in helping foreigners.
In Japan, on the other hand, most agencies are owned by the Japanese, and they primarily cater to Japanese buyers, might they be individuals or institutions. Communicating in English is not always possible and it can take time before you find a helping agent.
You can also look for land plots on listing websites online. However, the number of listings is often limited in number and it takes time to do the research.
Instead of scrolling through listings with single objects and contacting agents one-by-one, it’s comparably easier to work with a foreign partner that can present multiple properties at once.
Commercial Real Estate Agents in Japan
Most of the largest international real estate companies have offices in Japan and cater to institutional and corporate clients. You’ll also find local agencies that have become well-known names in the Japanese market.
Some of the companies you can have a look at include:
- Knight Frank Japan
- CBRE Japan
- Sumitomo Real Estate
- Ken Corporation
For more information, I recommend you to visit the company websites.
Asia Property HQ also works with reputable partners that can help you finding land plots instantly. For more information, feel free to fill in the form below in this article.
