Buying Land in Japan: What Are The Types of Ownership Rights?

Japan offers many forms of quality real estate, ranging from residential properties such as houses and apartments, to commercial properties such as office buildings and shopping malls.

It is also important to note the ownership of each form of real estate varies, and so does its advantages and disadvantages. This article will introduce the two types of ownership for Japan properties.

Can foreigners buy land in Japan?

Yes, foreigners can buy land in Japan. In fact, due to the upcoming 2020 Tokyo Olympics, foreigners are increasingly becoming landowners.

As there are no restrictions to owning land in Japan, investing in the country’s land, and properties is attractive to foreigners.

The two main categories of land ownership rights in Japan are “freehold” and “leasehold”.

1. Freehold Ownership

Freehold (所有権 shoyuken) rights involve the absolute ownership of the land property and the structure built on the land. In cases of apartment complexes, each unit comes with the ownership of a rationed portion of the land below the building.

Freehold rights are the most common and preferred form of land ownership as there is full and absolute possession of both land and building properties.

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Advantages and Disadvantages

Advantages

• Absolute possession of land and property
• Long-term residual land value, which does not diminish the the building’s age
• The process is faster than that of a leasehold real estate.

  Disadvantages

  • More expensive compared to leasehold estates
  • Includes higher property taxes on shares of land with high tax values
  • Includes other taxes that would not be required for a leasehold real estate

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Buying Process

1. Application

Submit an application form (買付証明書 <i>kaitsuke-shomeisho</i>) to the seller. This is not the official contract, and is only to show your interest in the land.

2. Explanation of Important Matters

Once your application is approved, a real estate agent will give an “Explanation of Important Matters,” which will guide you with the remaining buying process.

3. Contract

Next, you and the seller will sign a Sales Agreement Contract, acknowledging your ownership of the real estate. Upon signing the contract, you are required to pay a deposit (手付金 tetsukekin) and set the date of the transfer of ownership.

4. Transfer of ownership

During this stage, you will pay the remaining land price, and other remaining fees such as commission fee for the real estate agency, and insurance fees. You will also register your name as the new owner of the land, which will be supported by a judicial scrivener.

2. Leasehold Ownership

A leasehold (借地権 shakuchiken) is a type of ownership where you do not have absolute ownership of the land you purchase.

Instead, if you buy a leasehold property, you will be a leaseholder (借地人 shakuchinin). A leaseholder can own the property, but not always the land, upon which the real estate was built.

For example, Mr. Yamamoto is a landlord (地主 jinushi) who owns residual land property. He allows Mr. Fujikawa, the leaseholder, to lease the house on his real estate. In this case, the landlord continues to own the land, while a separate party leases the real estate property on the landlord’s land.

Although freehold is the most common type of ownership in Japan, there are properties available as leasehold properties. You will see many on the market that are sold at a cheap price, especially in large Japanese cities such as Tokyo. Prices in these areas could be approximately 30% cheaper than freehold properties.

Furthermore, it is important to note that there are various types of leasehold ownership. When considering this option, it is necessary to compare and understand the multiple aspects of the varying types in order to make the best decision that suits your needs.

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Types of Leasehold

1. Old Leasehold (旧借地権 kyushakuchiken)

Under Old Leasehold laws, strong concrete structure types often used in building apartment complexes had a lease term of thirty years, while real estate comprised of wooden structures included a lease term of twenty years.

Additionally, the landowner can refuse to renew a lease holder’s lease. Using our previous example, if Mr. Fujikawa leased the real estate on Mr. Yamamoto’s land for twenty-nine years, and upon the thirtieth year Mr. Yamamoto decides to not renew Mr. Fujikawa’s lease for another term, the agreement between the two parties discontinues once the lease term expires.

2. New Leasehold (普通借地権 futsushakuchiken)

In 1992, a new leasehold law was established to set lease terms to thirty years regardless of the property type. The new law states that after the thirty year lease term, the first renewal will be a twenty year term. After this initial renewal, all consequent renewals will be automatic in ten year terms.

In spite of the new law’s automatic renewals feature, the landowner still reserves the ability to refuse to renew a lease. However, unlike the old law, the new law requires the landowner to provide a justifiable reason for which they intend to use the land.

Types of New Leasehold

1. Fixed-term (定期借地権 teikishakuchiken)

The fixed-term leasehold sets a period of leasehold for fifty years. Some fixed-term leaseholds usually require the building to be demolished at the end of the term at the building owner’s expense.

2. Normal

The two types of Normal Leaseholds are “Surface Rights” and “Rights to Lease”.

2a. Surface Rights (地上権 chijoken) allows a leaseholder to sell or rent out the building property constructed on the landlord’s property. Because this form or property ownership is commonly used for leasehold apartments, surface rights are freely bought and sold.

2b. Right to Lease (賃借権 chinshakuken) means that the leaseholder is required to obtain the landowner’s approval before they transfer or sublease the real estate property on the landowner’s land. A leaseholder also needs to obtain the landowner’s permission before rebuilding or redeveloping the structure on the land. This form is more commonly used for houses on the leasehold land.

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Advantages and Disadvantages

Advantages:

• The price is approximately 30% to 40% lower than freehold property
• Because it belongs to the landowner, there are no annual land acquisition taxes, fixed asset taxes, or city planning taxes
• Because prices are lower, renting would yield higher rates of return

Disadvantages:

• The land does not own to you
• You will need to pay a monthly land rent to the owner
• It may be difficult to find buyers when reselling
• It is difficult to apply for a loan from banks due to the lower property value

Buying Process

Buying a land with an existing landowner requires heavy negotiations, such as getting approval and settling fees. Therefore, it is highly recommended to consult with a real estate agency who will support you in gaining approval, negotiating prices, and signing the lease agreement.

It is also important to note that, when seeking approval to be a leaseholder, generally the landlord will ask for an “transfer approval fee” (譲渡承諾料 joto-shodakuryo). The price is determined by the landlord.

Conclusion

It might seem like a good idea to buy leasehold property in the short-run, but perhaps leaseholds are not the best housing option if you are looking to own the property throughout your, or your children’s, life.

Source: Japan Property Central

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