Every foreigner in Japan has heard the horror stories from a friend, colleague, English magazine or website around foreigners attempting to get finance from Japanese banks to help them buy their little piece of Japan.

The lack of clarity, the moving goal posts, the last minute issues the local bank brings up around residency status, life insurance requirements, time spent in Japan, proof that you can read a contract in Japanese just to name a few.

The good news is that a small number of foreign banks like the Commonwealth Bank of Australia; one of the 20 largest banks in the world by Market Capitalisations, have entered the Japanese market with foreigner friendly mortgage products which take the fear and uncertainty out of what is already a stressful time in your life- the purchase of property in a foreign country.

The trade-off in dealing with a foreign bank is the product range will be more limited and the interest rate will be slightly higher for primary residence while being very competitive for second homes and investment properties, but still incredibly low by international standards (for example the CBA rate 2.16% as at 2nd of June 2010).

The remainder of this article will provide you insight into what a Japanese bank will be looking for, what banks like the Commonwealth Bank can provide you simply & swiftly and what you would need to do quickly get your mortgage pre-approval so you can confidently start looking at purchasing real estate in Japan.

Firstly let’s have a look at some key checklist items for a Japanese bank in considering a foreign national for a mortgage-

What Japanese Bank will expect

• You live in Japan
• You have Permanent Residency or are you married to a Japanese Citizen
• You speak, read and write Japanese fluently
• You a full time employee (as opposed to run your own business)
• You been continuously employed for over 3 years with the same company
• You have / can procure Japanese life insurance
• You will sell the property if you move from Japan
• You are comfortable with legal documents in Japanese

What are my options if I do not meet the above criteria?

On an exception basis some Japanese banks will waive some of the above criteria. This however may not be clear until weeks if not months into the process.

The simplest and easiest way to proceed is to contact a foreign bank such as the Commonwealth Bank who has experience in dealing with people in your situation in English or Japanese.

What does the Commonwealth Bank offer and who is eligible?

The Commonwealth Bank of Australia Tokyo branch offers an English and Japanese mortgage for both owner occupied and investment home loans at a competitive variable rate. (2.16%p.a. variable as of the 2nd of June 2010).
CBA Tokyo offers very Loan to Value (LTV) of 80% for properties in the urban areas of Japan. The reverse way to view this is the borrower will need a 20% down payment of there own.

The swift application process has seen many of our clients settle their loan within one month of their first conversation with CBA.

How can I quickly obtain a pre-approval for my loan?

We can also provide an indicative approval within 48 hours for eligible customers.

The quickest way to get started is to contact me with any of your questions:

by phone on 03 5400 7859 or by email on Hank.Daaboul@cba.com.au

Looking forward to hearing from you soon,

Kind regards,

Hank

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.

————
Christopher Dillon is the author of Landed: The guide to buying property in Japan (www.landedbook.com).

This company is called UR housing and they have locations nationwide. In Tokyo’s 23 main wards alone, UR operates over 100 buildings and is expanding rapidly. The buildings consist of new buildings like the Atlas Tower finished 2009 in Naka Meguro where UR bought the 1st to the 14th floors and middle aged buildings like Ebisu View Tower located beside the Westin Hotel and behind Ebisu Garden Place. In Ebisu’s case, UR operates the entire building consisting of 32 floors of apartments ranging from 1K’s to 3LDK’s.

Despite the lack of extra expenses like key money and no agency fee, the rents in UR buildings are par with the market place and in some high demand locations, rents can be up to 20% lower than market rates.

You may ask the question if there is no agency fee then why would a real estate agent promoting these kinds of properties. The answer is simple; if you contract for a UR apartment through an UR licensed agency like Coldwell Banker Aoyama, UR pays us a 1 month fee for introducing you.
This makes UR properties the most win-win rental situation out there for budgets between ¥100,000 – ¥350,000 a month. Agents win by offering clients the best deal out there and clients win by having the option of obtaining a well maintained apartment without the massive upfront costs.

You might think that these properties are in inconvenient locations but not at all. In addition to the above mentioned Naka-Meguro and Ebisu locations, UR operates buildings in Aoyama Itchome, Shibuya, Tamachi, Shibaura and other well sought after locations in central, southwest Tokyo.
As mentioned before, not all real estate agents can introduce these properties and even fewer can facilitate an English speaking client. UR strictly screens agents wishing to introduce their properties and if the agent passes the scrutiny of the government, then that agent is able to introduce UR properties.

In order to contract with a UR apartment, the entire process is done in Japanese and if you can’t speak Japanese you will need to enlist the help of an UR licensed, English speaking agent. Coldwell Banker Aoyama is UR licensed agent so if you would like to learn more about UR properties or reserve a viewing, please don’t hesitate to contact us today.
In order to reserve a viewing, you will need to submit to your agent copies of your Alien Registration Card (both sides). This allows the agent you are working with to then turn around and reserve your viewing as your representative. Remember, UR is government affiliated and they are pretty strict on their policies. That said they are the fairest deal out there in terms of rentals for foreign people.

To address the first issue, why they are so strict, we have to look back to the end of World War II. Japan was in ruins and living space was in short demand. The remaining buildings that were livable were capitalized heavily by landlords by charging 礼金 (key money and if you can read kanji, basically means “thanks” money) to prospective tenants. The Japanese people at the time too thought it was garbage but since the choice was either pay or live on the street, there were no shortage of people willing to pay.

However, once in the apartment, the next thing tenants needed to do was find jobs to provide income. It’s tough to find a job in the midst of someplace that has been bombed to the stone ages so therefore many tenants found it difficult to pay their rent on time.

Landlords, seeing the opportunity to make another couple months of Key Money with a new tenant gave no patience to existing tenants late with their rent and thus evicted them immediately. This cycle was extremely profitable for the landlords but horrible for tenants.

As Japan rebuilt itself, the government realized that a thriving economy can’t be rebuilt without the common man having stable living arrangements. Hence the government stepped in to stop this exploitation by creating tenant laws that very much favor the occupants rather than the landlord.

This put tenants in a very strong position. Hypothetically, once a tenant signed a lease agreement and then decided to not pay rent, it now would take a landlord anywhere between 4 – 6 months to legally evict a non-paying tenant. Landlords now had to obtain government permission to serve a first warning to a non-paying tenant, wait a month, go back to the government to serve a second notice, wait another month, then go back to the government for a third notice, wait another month, then finally receive permission to formally evict the non paying tenant. During this whole process, the non paying tenant is living on the premises for free.

In response to these new laws, landlords and property managers had no choice but to do everything they could to make sure the person applying to rent their apartment is as risk free as possible. This is why landlords and property managers want to see income details, letters of employment, need a guarantor, etc… Once you’re in the apartment, then you’re in.

In the case of reluctant rental to foreign people, many times the cry “racism” is thrown about and it is debatable whether this is true or not. The reason it is still debatable is because we foreign people have one option open to us that Japanese citizens don’t have. If everything goes wrong for us here financially, given the closed nature of the Japanese financial and credit systems, we can simply leave the country without a word to anyone and the Japanese landlords can do nothing to our credit ratings like they can with Japanese citizens.

What I do believe is that when a foreign person has their apartment application rejected, the lack of their agent’s English language ability prevents clear communication as to why. Therefore the Japanese English speaking agent relies on what they know how to say which is “No Foreigners”.

If you can’t speak Japanese then simply walking in to the local real estate agent can elicit the same response as soon as you walk in the door, “No Foreigners”. Again, by and large what this means is the particular agent you are trying to speak to can’t understand English at all and since he is bound by laws to make sure you understand everything about the apartment you’re renting, he simply rejects service right then and there.

For example, if your apartment is a non renewable 1 year contract and your non-English speaking agent doesn’t make this point clear before you sign the lease, you theoretically can sue and win, thereby destroying his real estate license and killing his livelihood.

Whether you agree with it or not, this is the system here in Japan. Certainly there are things that need to change as times have changed but unfortunately that is beyond your power when looking to rent an apartment. Knowing the existing system and how it works can make your process smoother and then once you secure your living space, then you can set about getting on your soap box voicing your opinion…just make sure you have your keys in hand first though.

Coming to Tokyo can be a daunting task. You have to basically cut the cord from your home country (or the last country you set roots in) and re root here in Tokyo. for many, this involves finding a place to live in a rental situation.

However Tokyo does have a reputation for not being very foreigner friendly when it comes to servicing the foreign community. A well deserved reputation if I might add in my opinion.

However, despite not being able to speak Japanese, there are things you can do to make your rental process smoother;

1) Figure out your budget – your maximum budget for your rental property is 1/3rd your JAPAN EARNED monthly income. For example, if you want an apartment that is listed at ￥100,000 / month then you have to prove you make at least ￥300,000 / month.

2) Get your paperwork ready ahead of time before contacting an agent – The paperwork you need to get prepared are as follows;

a) Color copies of your passport picture page, visa, and both sides of your alien registration card.

b) A letter of employment from your company (or companies) with salary information (in Japanese a 在籍証明書 or zai-seki-sho-mei-sho)

c) If you have been in Japan longer than 1 year then it would be prudent to prepare a copy of your yearly income slip (in Japanese your 源泉徴収表；gen – sen – cho – shu- hyo)

If you have a Japanese guarantor, then they will have to prepare the following as well;

a) Their Jyu-min-hyo (住民票 or proof of residence)
b) Their Gen-sen-chu-hyo (Same as yours but only theirs)
c) Their In-kan-sho-mei-sho (印鑑証明書 or proof of registered hanko)

Be certain to give your guarantor PLENTY of time to get these things ready as they will have to go to their local government office to obtain A and B listed above.

Please note that to have a successful guarantor they will be evaluated the same way you will be; they must show that the rent of the apartment they want to guarantee does not exceed 1/3rd their monthly income. If it does then they can not be your guarantor and you will not have an apartment.

In this case you can use a guarantor company. A guarantor company is a third party insurance company that agrees to act in lieu of a guarantor. The property manager of the apartment you wish to apply for will be able to efficiently introduce their preferred guarantor company and there is no extra paperwork necessary as the same information to apply to the property manager is used to apply for the guarantor company.

However the guarantor company will need an Emergency Contact person listed in order to contract with you. An emergency contact is NOT the guarantor but is someone the guarantor company can call in case you don’t pay your rent (hospitalization or sudden departure of the country for example). They are not in anyway personally responsible for your lease at all.

The emergency contact person must provide the following information to the guarantor company through your realtor in email format;

- Name in Kanji (this person must be a Japanese citizen)
- Home and Cellular telephone numbers
- Work telephone number
- Home postal address
- Work postal address
- Birth date
- email address

Please note that most when most Japanese people hear the word “Guarantor” as in “I need an emergency contact person for my guarantor company.” they will be apprehensive to agree. Reason is despite being Japan, the average Japanese person does not understand well the system of renting an apartment.

Your way around this is saying what you need in Japanese. “Emergency Contact Person” in Japanese is 緊急連絡先(kin-kyu-ren-raku-saki). Literally saying the following sentence “I need someone to be my 緊急連絡先 for the guarantor company” will make your conversation go a lot smoother.

Collect all the information above and THEN start contacting real estate agents. If all of the above information is ready by the time you start looking then it will be a much smoother and painless process in getting through the paperwork necessary and getting your keys!

Next time, the reason why you need so much god-damn paperwork just to rent an apartment! Stay tuned!!