HOW THE 2019 CONSUMPTION TAX INCREASE WILL AFFECT HOME BUYERS AND SELLERS IN JAPAN

background on what happened in the residential real estate market the last time the government raised the consumption tax

According to the apartment supply and demand situation in 2014 graph below at the time of the consumption increase tax increase in 2014, the rush demand did not occur just before April 2014 when the tax was actually increased. You can see that it peaked from July to September 2013 before that. Looking at the figures, the number of units sold was 19,249 units, + 42.9% compared with the same period last year, and the first month sales rate was 78.0%.

Reference: Realnet

The reason is considered to be due to the application of the special case “transitional measure”. For the property to be delivered after April 1, 2014, it is a measure that you can purchase at a consumption tax rate of 5% by contracting sales contract by September 30, 2013.

Also, the average price between July and September 2013 was the highest. This is partly due to the fact that a relatively large amount of properties were sold as a result of the rushing demand.

 The consumption tax increase to 10% planned on 1st October 2019, but if the tax increase is carried out as planned, the transitional measures will be subject to the property contract concluded by March 31, 2019 . It seems that attention will be gathered in future supply and demand trends.

Things that happened in general to listing prices and actual sales prices after the previous consumption tax increase

In the year when the consumption tax 3% was first introduced (1989), the sales price did not decrease as the sale prices continued to soar rapidly.

Rather, the impact of the collapse of the bubble afterwards is greater. It took three years to recover to the number of units sold before the collapse of the bubble economy.

Next year, the number of units sold decreased by 21% (82,861 units → 65,470 units) from the year when the tax was increased from 3% to 5% (1997).

It takes two years to recover to the level before the consumption tax increase.

In fiscal year 2002 (tax increase from 5% to 8%), the number of units sold decreased by 19% (55,245 units → 44,529 units) than the previous year.

It has not yet recovered to the level before the consumption tax increase.

In the past two sales tax hike (1997 and 2014), the number of units sold has decreased by about 20% from the previous year.

Affection of the upcoming consumption tax increase

There is no doubt that the number of properties and the price of properties will increase from the past case. It is conceivable that both good and bad items will increase. Therefore, it is important to have an eye to identify good properties.

At the same time, however, price increases will have a significant impact on the number of units sold.

Therefore, although the number of properties will increase, it is doubtful whether the number of sales will increase.

Affection of the consumption tax increase for final price of a property and its costs involved

Actually, consumption tax is not charged to the land. Also see the table below.

In the case of used property, there are cases where consumption tax is not applied.

Types	Consumption tax
Newly build	8%
Second-hand housing (Private Owner)	Tax-free
Second-hand housing (Corporate Owner)	8%

However, sales expenses are subject to consumption tax. For example, a consumption tax is applied to brokerage fee, but from the total amount it will have little impact.

Before purchasing, we recommend that you confirm that the property is an individual seller or a corporate seller. And, in case of a corporation, or in case of new construction, please check how much it will rise.

Advice for buying a residential property

Currently, we are asked about whether or not to buy a house. Indeed, house prices are at a fairly high standard. However, at the same time, the interest rate on mortgage loans has dropped to below the 1% level. In addition, the government is taking various measures to boost home purchase. Mortgage deduction is one of them. It is a measure deducted up to 4 million yen when a loan is assembled to purchase houses. There are also many people who are going to purchase while the mortgage rate is low.

If you are thinking about purchasing a house, please also use the time to select the mortgage that suits you at the same time.