How to sell your property in Japan

Good timing to sell your residential property and some things to think about in terms of the timing of the decision

So far as the market is concerned, it may even be slightly late to sell real estate, but still it could be a good time to consider selling.

The timing and scenarios for selling will depend on the type of property, such as land, detached houses, and pre-owned condos, and the purpose of the sale, such as organizing assets or relocating, but if you are considering selling in the near future, it may be a good idea to consider selling during 2019, while the market is stable.

For example, one reason for instability is interest rates for housing loans. The year before last, 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, general consumers tend to lose their appetite for buying, so ideally you would want to sell before that happens. On the other hand, it is possible that prices will rise temporarily due to last-minute demand in anticipation of the increase in consumption tax scheduled for October 2019. However, if you miss the opportunity to sell in the last-minute market situation, prices will drop sharply on the rebound. In that sense, market rates will likely swing up and down wildly from this year onwards.

In addition, the most basic and 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 is very difficult and risky for a general consumer to dictate price and seek a sale at a high price. Ensure a sale with no regrets 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 effect an acceptable sale (a satisfactory result).

Good timing to sell your investment property and some things to think about in terms of the timing of the decision

Unlike residential properties, sale prices for investment properties are heavily 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 are also soaring.

As the possibility of realizing a higher than expected capital gain is high, we recommend that you try submitting your property for an appraisal.

The following cases are also times to consider selling, which we hope you will find to be informative.

(i) Five years have passed since purchase

Although this will be explained in detail under Question 5, a high tax rate is imposed if real estate is sold less than five years after it has been acquired. Therefore, when at least five years have passed since obtaining the real estate, it could be a good opportunity to consider selling.

(ii) When there have been major changes to the surrounding environment

If there is a major change to the surroundings, such as a decision to relocate by a large corporation nearby, no time must be wasted in considering a sale. This is because there is a risk that an imbalance between demand and supply will lead to a significant drop in prices.

(iii) If large-scale renovation costs are required

If large-scale renovations come to be required due to deterioration with age, it will be necessary to reconsider your investment strategy with a view to selling. If the costs required are too high, there are cases where selling will improve return on investment in the long run.

(iv) If the property has been vacant for a long time

If a property has been vacant for a long time, you need to consider lowering the rent or selling the real estate. If you lower the rent due to a long vacancy, the yield after the reduction will go down considerably. If yield goes down, this will have a significant direct impact on the sale price. It is worth considering selling before yield goes down.

Market trends after the Tokyo 2020 Olympics

It is said that properties bought by overseas investors have started going on the market starting from last year.

Therefore, it is said that some areas have seen downward trends in real estate prices, albeit slight.

Going forward, it is predicted that prices of pre-owned condominiums will enter a correction phase, going up and down for a while, and shifting into downward trends in the countryside and the suburbs where demand for housing is low.

It is not 100% certain that things will actually go as predicted above. However, it is highly probable that property prices will start trending down without waiting for the Olympics.

These are only some of the aspects when looking at the market, but there are several other factors that could cause declines in 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 down.

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 try evaluating your own property objectively.

Things that you should ask in order to find a good agent.

In order to improve your chances of selling, and to raise the sale price as much as possible, you should confirm whether sales channels have media capable of contacting foreigners and overseas investors, and whether the agent can deal with foreigners. We recommend confirming this particularly if you have residential properties that are in the city center or are luxury properties, or if you have investment properties.

In respect of real estate deals in 2017, the price of purchases by foreigners exceeded one trillion yen, which comprises approximately 25% of all of the real estate deals in Japan. It is expected that this number will continue to go up.

This is characterized particularly by the high ratio of properties in the city center and high-value properties.

Since it has become quite difficult even for Japanese nationals to take out loans for high-value properties, it is more likely that a foreigner will be the one buying from you if you have such properties.

Therefore, when selecting an agent as a seller, it is considered essential that you choose one with channels that can reach foreigners, and is capable of dealing with foreigners.

Pricing a property and support that a seller’s agent with pricing

It is possible to put real estate up for sale at the price that you want to sell, so it is important to first 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 as well.

All real estate companies are able to look at past deal data and the prices of nearby properties that are on the market.

Therefore, they can figure out the market from objective data, and provide an appraisal.

A real estate agency that submits a high appraisal or a low price without looking at objective data cannot be called a very good agency.

Any real estate agency will be able to assist you with your sale, but it is important to select a real estate agency that will appraise a sale price based on solid, objective data.

main taxes and fees taxes associated with selling a property

The sale of land or buildings is subject to the following three types of taxes:

1. Stamp Duty

2. Capital Gains Tax

3. 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 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 types of tax imposed on the sale of real estate are Capital Gains Tax and Resident Tax.

These two taxes are only payable only when a profit has been realized 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, which requires attention.

“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 1^st of the year in which the real estate is sold, it is considered “Long-Term Capital Gain”; if this period is no longer than 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 1^st, 2013–December 31^st, 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:

・Agent’s commission

・Registration fees (fees to cancel mortgages; judicial scrivener fee)

・Other expenses paid as necessary (surveying fees; demolition fees; waste disposal fees)

・Moving costs

Whether these costs are required and specific costs will depend on the condition of the property.

If you wish to know more about the taxes and miscellaneous costs relevant to your property, please inquire with an agent.

Particular types of properties that are in especially high demand now in Tokyo and particular areas that are in particular high demand for people buying a condominium as a primary residence

Demand within Tokyo, especially for the 23 wards, is high. 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 have high demand.

Although there are numerous large cities in Japan in addition to Tokyo, Tokyo is the only city where the population is expected to continue to grow, and demand for residential properties in Tokyo is stable.

The same can be said for detached houses, with demand high in Tokyo, especially within the 23 wards.

Although real estate prices are expected to fall throughout Japan going forward, it is unlikely that prices will plunge steeply in Tokyo, especially within the 23 wards, and 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.

Therefore, we recommend consulting with an agent who is capable of dealing with demand from foreigners in the future.

Particular types of properties that are in especially high demand now in Tokyo and particular areas where investors are looking to buy

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, which are reasonably priced, is high.

As for location, within Tokyo, Koto-ku, Setagaya-ku, and Sumida-ku have particularly low vacancy rates and 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.