Living in a cramped space in Hong Kong is nothing to be ashamed of. Most of the middle class finds it difficult to own even a miniscule apartment, let alone to invest. But with the Hong Kong dollar appreciating significantly against the Japanese Yen over the past few years, the potential value of Japanese property continues to unfold.
Frustrated by the city’s skyrocketing flat prices, a growing number of Hong Kong people have turned their eyes to the Japanese property market, where starting prices are much lower. Yet it doesn’t always mean a good deal. If you are thinking about buying Japanese property, don’t forget to consider the following:
The social challenges facing Japan reveal the underlying risks in its property market. Japan has one of the fastest aging populations in the world and is also facing a low birth rate as more married couples choose not to have children. Low productivity and huge social welfare expenditure has been a heavy burden to the economy. Housing demand is dropping. It was estimated that one out of five apartments in Japan was vacant in 2013. Is that the reason behind Japanese developers looking to overseas buyers? Maybe. Estate duty is high in Japan too, which discourages parents from owning property and passing it to next generation.
When it comes to overseas investment, currency rates are as important as prices. If the value of a property increases by 20 percent, but Yen depreciates against the Hong Kong dollar by 30 percent, the capital gain will all be eaten by a weakened Yen. In addition, the net loss hasn’t been included the additional charges imposed on oversea buyers.
If you are investing in Japanese property, second-hand flats usually present higher yields. The reason is that be it first-hand or second-hand, rental rates in the same area are more or less the same. But you can buy second-hand flats at lower prices.
Buying overseas property without viewing it in person is risky. Unlike places in Europe or the Americas, Japan is not so far away from Hong Kong. Daily flights to Japan are frequent and tickets are cheap too.
Take a look at the area around your prospective property if you plan to visit it beforehand. Flats sitting in convenient locations, like CBD and tourist areas, and with high population inflow have a higher chance of leasing out. Tokyo, Osaka and Fukuoka are popular markets among Hong Kong buyers, particularly Tokyo for the 2020 Summer Olympic Games.
Trust is the basis for any trade and it is especially the case when dealing with Japanese owners. It is disrespectful to negotiate agreed price again or cancel a promised deal upon payment or signing contract.
As for taking a mortgage loan, foreign banks have fewer restrictions on overseas buyers than domestic ones. More than 70 percent of purchases by overseas buyers are flats priced below HK$1 million and many of them pay cash.
Taxes and Fees
Taxes for buying property in Japan include a property acquisition tax, stamp duty and registration tax. Property can be leased through a property agent. When calculating rental yield, remember to deduct brokerage and management fees. Capital gains tax applies when selling second-hand property.
Japanese property is vulnerable to earthquake and has more maintenance concerns. It is wise to take out earthquake insurance along with fire insurance as a precaution to cover any maintenance costs. Flats made of steel reinforced concrete are more resilient and can be worth the higher prices.
Unlike Hong Kong, most first-hand properties in Japan are completed flats. Choosing residential projects by reliable developers can lower investment risk. Some property agencies even set up show flats in Hong Kong for prospective buyers.