Differences between Japan VS U.S.A. (mainly New York) Real estate transaction

Japan

U.S.A.

Real Estate Market

Overseas investors have been focusing on the Japanese property market
since the announcement of the 2020 Tokyo Olympic Games. These investors have been mainly from Asia. On the other hand, Japanese investors pay attention to overseas property investment in response to rising domestic property prices and declining yields. Interest especially accelerates when the yen becomes stronger.

Stable market

Approximately 20% of Manhattan’s housing transactions are initiated by foreign investors, making it a significant part of overall real estate investment. This interest from overseas investors is due to market stability and transparency.

Fixed property tax
income tax deduction
(For residential use)

Not available

Available
Loan interest + property tax is subject to an income tax deduction.
In addition, if the after tax income is from real estate in the United States and is negative, it is possible to aggregate the profit and loss from Japanese income.

Depreciation

The amount of depreciation is small and the evaluation of land is large.

Service life is different according to the material of the structure. 22 years for a wooden property, 38 years for a brick block property, 47 years for steel reinforced concrete (RC). The amount of depreciation is calculated by the straight-line method (in the case of a corporation).

Wooden property that exceeds the service life is amortized in 4 years and steel reinforced concrete property, for 9 years.

The amount of depreciation is large and the evaluation of the building is large.

The ratio of land to buildings is generally land:buildings = 2:8, and the value of the building is very high in a used property, and the amount of depreciation increases. It is calculated by the declining balance method in a short period of 39 years for commercial use and in 27.5 years for residential use. It is possible to record the amount divided by the service life every year from the purchase as a depreciation expense.

Depreciation years and property values

Remaining time of purchase is applied.

The remaining period at the time of purchase is determined by the building structure and age at which the value decreases over the duration of the adjustment period, and the remaining time of purchase is applied.

Depreciation starts all over again when owner changes.

The value of a building appreciates rapidly, and property values decrease over time.
Long-term borrowings for over 22 years are difficult to obtain. New cost depreciation corresponds to age adjustment in the case of a housing property, the new 27.5 year threshold starts all over again when the owner changes. It’s also easy to get a 30-year loan from the bank because the value of the asset increases when the property is renovated.

Vacancy rate

High vacancy rates

More than 10% vacancy rate in Tokyo’s 23 wards.
There is a concern that there will be an increase in the vacancy rate in the future.

Low vacancy rate

In 2017, the rate of home ownership in the United States was 63%, while in Manhattan rentals were 69%. In addition, because there is strong demand for leasing from permanent residents, expatriates, and students from overseas, it is possible to maintain low vacancy rates. While population growth is expected to be unusually low in developed countries, Manhattan is a place where people gather from all over the world, so you can expect stable increases in rent due to demand.

Surface yields

Approximately 5%

Approximately 2 to 4%

Capital Gain Tax

Short-term (less than 5 years): 40% taxation

Long term (over 5 years): 20% taxation

(If the property is for residential use, the maximum income deduction is $300,000.)

If one person owns and resides in the property for more than two years then the owner is eligible for a $250,000 tax deduction. (A married couple is eligible for a $500,000) Investment: taxes can be deferred.

Type of transaction

Potential issues

Real estate agents, financial institutions, and judicial scriveners are involved like in the United States however the process lacks transparency so there can be money problems.

A fair and transparent process

Real estate agents, real estate appraisers, building status investigators, and specialists focus on different areas according to the law. The establishment of third party depository escrow has mitigated risk of money loss during the transaction. In addition, the sales history and the property information are open to the public, and anyone can easily obtain information about the property.

Buyer’s building status survey period

The transaction to be conducted in April 2018 will begin.

The survey period　in order to do Due Diligence is given to the buyer after the contract is given. Research on facilities, repair points, electrical systems, termites, etc. is conducted by a specialist called the Home Inspector. The cost is paid by the buyer.

Defect Collateral

Seller could be held accountable.

Not liable to seller

because it is the responsibility of the buyer to do due diligence and investigate the overall health of the building.

Percentage of used Houses

Approx. 30 ~ 40%

Approx. 70 ~ 80%

Demand for used properties

The value of a used property is not very high.

Newly built properties are the main properties in the market.

Demand for used property is high.

There is always a demand for used property, and there is high liquidity because buys tend to invest in housing when the market is strong.

Value of Used property

As the number of years elapses, the value of the building falls.

Gradual rise with age

The rental and sales prices are stable, and the price is adjusted to the market, but in the long run it will be more gradual and the asset formation can be realized.

Real estate Agent

Real estate trading leader

Real Estate broker

All of them do not have to be qualified holders.

In the case of real estate transactions, an expert in real estate law, who conducts fair and sincere legal affairs (explanation of important matters, etc.). One sales office or one of the five persons may be a qualified holder. Once you get credentialed, there’s no need for an update. A Japanese holder can work anywhere in the country.

All of them must be qualified holders.

Leasing and exchanging real estate for their clients based on the law of eligibility. There are two types of qualifications: a real estate broker with a senior qualification and a real estate sales person. Brokers can have an office. A salesperson can only work as an employee of a broker. All who do business must possess qualifications. The qualification is updated once every two years, the course is required to take 22.5 hours. We need to re-qualify by state. A license issued by a real estate agency in each state.

Broker’s Fee
(Sales)

3% of the sales price from both seller and buyer and 6 million yen (highest)

6% of sales price, and seller pays full

Broker’s fee
(Rental)

There are many cases where both tenants and landlords pay for fee.

The tenant pays 15% of the annual rent in New York for a one-year contract. A short period may be a fee of one month’s rent.

Broker’s fee
(Commercial)

There are many cases where both tenants and landlords pay a fee.

Usually the landlord pays in full.　

Deposit and key money

The tenant pays the deposit plus key money to the lender.

The tenant only pays the security deposit to the lender.