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Applying for a mortgage can be a cumbersome process in any country. For many non-Japanese looking to buy real estate in Japan, trying to get a loan from a Japanese bank is a daunting task. But with the right information and help, that job becomes much easier.
Even before you begin, however, there is a question of timing — is this the right moment to invest? Prices have risen 18% over the past three years and yields have dropped to the 4–6% range. When yields fall, it can be sign of a pending correction. But in the September 2016 edition of UBS’s Global Real Estate Bubble Index, the top four cities were listed as Vancouver, London, Stockholm and Sydney. Tokyo was regarded as experiencing a price boom, but not in risk territory.
Meanwhile, a Bloomberg article last October highlighted the turnaround in bond yields, which have sent fixed mortgage rates higher. A Deutsche Bank analyst has forecast that real estate prices will fall 20% by 2018.
It is perhaps fair to say, then, that purchasing is still a good consideration, but buyers need to be careful of liquidity, avoid areas with over supply and consider their exit strategy.
Money matters
Mortgage rates have been falling steadily. According to a spokesperson from a mainstream lender Mizuho, fixed rates have fallen approximately 0.4% over the past two years. Last month, a client settled on a three-year fixed-term rate of 0.4%, which is the lowest I have ever seen. The remaining 32 years of the loan are fixed at 1%. This was a so-called Flat 35 loan, which carries a guarantee by a Japanese government institution.
Long-term fixed rates are affected by Japanese government bond yields, since banks cover their mortgage book by purchasing government bonds. This means that if short-term interest rates are negative but long-term yields increase, fixed-term rates can become more expensive.
For non-Japanese, there are a few added complications when it comes to securing a mortgage. Applicants must have been in Japan for at least three years and have a valid "zairyu" (residence) card. Mortgages are not extended to those covered by the U.S.–Japan Status of Forces Agreement without a guarantor. For foreign nationals and Japanese alike, it is more difficult if you are self-employed or a company president, but the choice is wider if you have permanent residence or a Japanese spouse who can act as loan guarantor.
Proper approach
Overall, there are more choices available these days, and banks are more familiar with applications lodged by non-Japanese, so they are a bit more flexible than before. Some banks have responded to the demand from overseas buyers, especially in jurisdictions where the banks have a presence and are comfortable with reciprocal laws such as Taiwan and Singapore.
That said, many foreigners underestimate the level of documentation required by banks in Japan and assume that lending practices common in their home country are the same in Japan. For example, in Japan it is difficult to refinance a property bought for cash, but in many countries it is not.
The most important factors, however, are visa status, length of time in Japan and salary — all more so than an applicant’s asset base. Some clients may want a big loan, but through tax mitigation strategies keep their salary low. This makes lending difficult, especially for representative directors of companies, where the bank usually wants to see three years of positive company tax returns and criteria is stricter.
Not having permanent residence, a Japanese spouse or sufficient language skills can limit the choice of banks and influence rates. Further, some banks can be reluctant to lend to applicants who cannot fully understand the loan contract in Japanese for fear of potential liability.
What you get
Having met all the criteria, what is available?
It is sometimes possible to get a full loan, that is, 100% of the money required for residential and investment property. However, most banks are more comfortable if the borrower can make a down payment of 10–20% of the property value.
Most banks in Japan offer variable rates and fixed rates, both for up to 35 years for residential property. In October 2016, high street banks such as Mizuho typically offered variable residential rates of 0.625% and 1.47% for fixed rates over a term of 35 years.
For investments in real estate, these rates will vary according to the property, the size of the down payment and the loan size, but some common rates are between 1.5–2.65% per year.
Custom Media publishes BCCJ ACUMEN for the British Chamber of Commerce in Japan.
© Japan Today
14 Comments
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theeastisred
In my day, you didn't need to have permanent residency, but you needed to have applied for it. At first this seemed bizarre, until I realised that it meant you needed to be eligible to apply for permanent residency, which then meant at least five years living in Japan on a spouse visa. The bank wanted to see evidence of income, of course, but were surprisingly unbothered that theeast had in fact just changed jobs and so the record with the new place wasn't even measured in the months at the time. They also did not require any guarantor, but instead had their loan guarantor group company charge a fee to do the guarantee. Again, this seemed a bit bizarre at the time, but they were fine with if of course and so therefore was I. A lot may have changed since then - this is approx 20 yrs ago now.
ebisen
10 years ago, you would need a permanent residency, a guarantor, and a very steady income to get a loan for a house. Illegal as it might be..
theeastisred
Ebi:
So, are you saying the requirements got more difficult rather than easier, comparing 20 yrs ago vs 10 yrs ago? That sounds a bit unlikely unless there is some other factor like not having been on a spouse visa.
M3M3M3
The low rates in Japan are great but anyone who buys a property at today's prices might be in for a big disappointment after the Olympics. The huge spike in property values seems to be driven mostly by construction labour shortages for new projects rather than actual housing demand. Yesterday, I got a real-estate flyer advertising apartments in my building that are being sold for over 50% of what they would have cost when the building was new in 2006.
Striker10
In the process of closing a Flat-35 loan this month. I have permanent residency and I don't think the banks really treated me any differently than a Japanese national. The biggest hiccup was over where to write my middle name on the application forms - there's no space for it of course since Japanese people don't have middle names. Initially I wrote it after my first name in the first name slot, as you usually would in my home country, but they had me rewrite the application with it after my last name in the slot for my last name. It all seemed very strange to me, but that's how they wanted it. However, now whenever they send me a letter they address it Mr. ... oh well, as long as I get the money I'm not too bothered!
ebisen
Theeastisred: Well, I`ve only done it once, when I've built my house in Japan, so I can't compare the situations.. But in my case, on a spouse visa, and with half the loan on my Japanese wife's name, the MUFG, after promising a loan approval and letting us wait 6 months, finally declined it (even with me having already a permanent residency). I'll never d business with that s*it bank again, and advise all gaijin here not to bother with MUFG. BTW, I have a very good job, in a big multinational company (non-Japanese) with a salary more than double the average for my age, after 5 years of employment there, then.. Still, they refused it, and ruined our construction schedules, in a process I can only describe as racist.
What we did then was to go to a smaller, local bank. They seemed much more open towards foreigners and gave us extremely good rates, everything approved in one week.
So, to everyone planning to take a loan, try it with local banks first. You will be surprised of how good they might treat you, even if you're a foreigner.
JeffLee
Isn't age an issue? A friend who was around 50 was turned away because he was deemed too old. This discrimination is illegal in my country, naturally but obviously not in Japan.
Well, the BOJ has recently announced a "yield curve control" policy aimed at keeping the 10 year JGB near zero. So I guess that means mortgages are gonna stay cheap for a while.
nath
who knows what is actually needed to get a loan or mortgage in japan.
i think the one thing everyone with a brain understands is that the moment you get married with a japanese woman everything becomes easier. if you're even smarter you just take out everything in her name because the terms of the credit or loan will be more favorable than for you regardless of how much you earn.
a few years ago i was earning over 1million a month, stable income for years, i tried to apply for a credit card and was declined; dabbled in a loan for real estate and they laughed me out of the office.
permanent residence or japanese spouse or you don't exist in this country
ebisen
You're strongly limiting your options on what size the loan can be this way. They will check her salary as well, and will give her a maximal sum that might well be under what you ant or need. Most couples where both work combine two loans and purchase something bigger.
theeastisred
ebisen:
Sorry to hear about your tribulations but at least you got there in the end. Maybe the deal depends on which bank and which branch etc.
I was offered a loan by my own bank but on less favourable terms so ended up using a different bank introduced by the developer. So they didn't know me, and I had just changed jobs, but they were still OK with it. I couldn't have done it in my wife's name because she had no current or historical income. I couldn't even put it partially in her name until we had been married for a certain period (15 years I think) because otherwise that would have counted as a taxable gift from me to her! Bizarre again. I later moved the loan back to my own bank, and the original lender did nothing to try and keep my business. I think a lot depends on how their loan book looks at the time and whether they want to expand or contract it.
In my case, I never felt I was being discriminated against in any way for being a foreigner. I would not have been eligible for a government loan as a foreigner but I exceeded the floorspace/cost maximum for that anyway. A non-working Japanese wife married to a foreigner is discriminated against by her own government versus a non-working Japanese wife married to a Japanese, but that didn't affect us so no reason to complain.
Striker10
In my experience this is completely untrue. The rates I was quoted were the same as Japanese nationals would receive. This goes for private banks as well as for the government-backed Flat 35 loan. It might be a different story for foreigners without permanent residency though.
Strangerland
I haven't taken any housing loans in Japan, but I've taken a few business loans, and the rates I received were the same as for Japanese.
kurisupisu
I'd never invest in real estate here as the quality of building and the ever present earthquakes ensure that after 30 years it will be impossible to close most of the windows and some doors in the house!There is no true capital appreciation outside of Tokyo (Olympic fever) and the Japanese government is vehemently opposed to immigration. This all makes property investment something of a very dull pastime.....