Foreclosed property: Is it right for you?
The economic downturn that began with the collapse of Lehman Brothers in September 2008 created a spike in Japan’s unemployment rate. That, in turn, saw a growing number of foreclosed properties for sale.
Today, you can find listings—covering everything from foreclosed condominiums and detached houses to commercial and industrial property and vacant land—on the Japanese-language Bit Sikkou Website (http://bit.sikkou.jp). Newspapers publish foreclosure notices and companies provide English-language listings and assistance for people interested in buying these properties.
So, with increased supply and more information and resources available, should you buy a foreclosed home? Like many things in life, the answer is “maybe.”
As in other countries, foreclosed property in Japan sells at a discount. The size of the price reduction is heavily dependent on the property’s location. Fire sale prices are far more common in rural areas and in secondary and tertiary cities than in Tokyo, where a 10% discount is more typical.
One reason for the price difference is that Tokyo continues to attract the nation’s best and brightest, while other areas struggle with an aging, shrinking population and the loss of manufacturing jobs to low-wage countries such as China. These trends have long-term implications for the viability of cities and towns outside Tokyo and for property values in these locations.
Foreclosed homes are popular among investors, including real estate professionals hoping to flip them for a quick profit. Many investors buy properties in neighborhoods that they know well. That’s a big advantage in a market that lacks detailed, freely available pricing information.
These investors usually have cash, which brings us to another issue: Financing. Banks and other lenders rarely provide mortgages for foreclosed homes, although you may be able to arrange an equity-release loan after you’ve completed the purchase.
Japan’s tenant-protection laws add another wrinkle. You cannot inspect the inside of a home with a sitting tenant before you bid. Pictures of a home’s interior may be available, but there is no guarantee that these images reflect the unit’s current condition. Furthermore, evicting a tenant is a long, cumbersome and unpleasant process that can be complicated by the presence of criminal gangs.
You will want to have a clear idea of what you are buying and the liabilities that you are assuming. For example, you could be responsible for refunding the deposit paid by sitting tenants. And you may have to pay taxes and other outstanding bills. You should also confirm that the home complies with local zoning regulations and check to see if the laws have changed since the home was built. Zoning problems can limit your ability to rebuild, redevelop or refinance a property.
There are bargains to be found in foreclosed property, especially if you are a hands-on investor. But given the limited discounts available in prime neighborhoods, the lack of financing options and other potential complications, a conventional purchase is a better choice for most people. That’s particularly true if you’re looking to buy a home quickly and with a minimum of hassles.
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Christopher Dillon is the author of Landed: The guide to buying property in Japan (www.landedbook.com).