When we first decided to build a house in Japan, we had no idea what we were in for. Finding land, choosing a builder, getting a loan. . . All these things (naively) sounded straightforward.
Not so much.
There have been so many steps to this process that I struggled with as a foreigner unused to the system. And, of course, this was the first time for my wife as well, so neither of us really knew what we were doing until we were partway into the process.
I hope that by sharing what we learned, I can make this easier for other international residents in the future!
Why do you want to build a house in Japan?
Hint: It is not a good investment
I’m originally from America and, as long as I can remember, my financial advisors have urged me to own my own home. Renting is just throwing away money. Paying a mortgage is building a financial asset that will retain value in the future. In America, it’s a no-brainer: Owning a home is better than renting, if you can afford it.
That is not the case in Japan.
In Japan, a house is little better an investment than a car. If you buy a new car, the adage is that it loses half of it’s value the minute you drive it off the lot.
In Japan, houses lose value at a precipitous rate, as well. In fact, a normal wood-built house is considered to have zero value after 20 years (for tax assessment purposes). A steel and concrete home will retain value for 50 years.
There are several reasons for this. One is the national predisposition to build new homes rather than buy old ones, with each generation rebuilding to meet its needs. This, in turn, has led to construction that is not meant to stand the test of time. Many 20+ year-old houses are falling in on themselves unless they’ve been refurbished in the meantime. They really do have no value.
There is practically no house resale market here.
There are other environmental factors, like humidity and earthquakes, but that’s not what I meant to focus on with this post. The important thing to remember is: houses are not an investment in Japan.
Even land is a lousy investment in Japan.
Mark Twain supposedly advised, “Invest in land: They’re not making any more of it.”
That may be true, but in Japan, they’re using less of it, so demand is decreasing just the same.
With the population aging and falling, there is less demand for land. Rural towns are disappearing as their populations die off.
My in-laws explained to me recently that it is not uncommon for rural families to own huge tracts of mountain land, but that the land is only a tax sink. It can’t be used for forestry, since the cost of hiring someone to harvest the trees is more than the profit from selling the lumber. Nobody wants to buy it to live there, since there are no facilities anywhere nearby. They literally can’t do anything with it.
Although I live in a medium-sized city, for the last several years, the value of land has been falling each year. With no indication that the population will ever rebound, I don’t expect to see a reversal any time soon.
So, Seriously, Why Do You Want to Build a House in Japan?
We’ve eliminated financial reasons, so you need your own reasons to build.
In our case, we’d found a city we wanted to settle down in and I had secured one of the disappearing, coveted lifetime employment positions Japan was once so famous for.
We had been living in a rental for two years, and really liked the house, but we were suddenly asked to leave because the owner had been transferred back into town and wanted his house.
After going through the chaotic process of locating a new (down-grade) rental with decent proximity to my job and my kids’ schools and moving in under a month, we decided that we didn’t want to be at the mercy of landlords’ demands any longer. We wanted stability for our kids – both in not moving and in staying in the same school district – and for our own sanity.
We’d also had a long-term plan to build since my wife want to open a piano school in our home and you don’t find many rentals with a sound-proof room that can accommodate a grand piano.
Other Pros to Building a House in Japan
Besides stability and the custom features I mentioned in our case, there are several other good reasons to build:
- Home Quality: I mentioned that houses in Japan aren’t usually built to last. This is even more true with rental properties. Houses that are built to be rented typically use cheaper materials and cut corners. That means more decay, more humidity, potentially poisonous building materials, no insulation. . .
- Maintenance and Customization: I have a friend whose hobby is carpentry and it drives him nuts that he can’t even put up a shelf in his rental. He has to call the real estate agent who has to get permission from the landlord, then they have to hire a contractor to do it instead.
- Pets: Many rentals won’t allow them or charge extra.
- Sense of Self-Worth: I grew up feeling like I couldn’t consider myself a success in life unless I provided my family with our own house, the way my father had done.
You probably have your own reasons, too. Let me know why in the comments below!
Who Can Build a House in Japan?
If you are a resident of Japan, including foreign nationals on mid-to-long-term residence statuses you are allowed to buy land and build a house. But to qualify for most loans you need to be a permanent resident or citizen.
That qualification applies to the primary breadwinner. So, if you are married to a Japanese national or permanent resident and your spouse has the higher salary and will apply for the loan, you can qualify.
For many loans, you would have to be a permanent employee, as well. Some companies will accept applications from temp staff or contract employees, but you can be sure that you’ll get a lower loan offer and higher interest rate in those situations. (The best interest rates are reserved for government bureaucrats, but more about that in another article).
Your loan amount is going to be based on your salary from your previous year, so you want a solid salary, as well. Again, more on that in the upcoming article on loans.
Building a House vs. Buying a Used House
Remember what I said earlier about houses losing value. If you purchase a used house, you should be able to get it fairly cheap. After 20 years, you’re really only paying for the property and the house is a free bonus (or, if you want to build, it’s an annoying obstacle that you have to pay to get rid of).
While the house is going to be a lot cheaper than building your own, you don’t have the same control over the initial quality of the build and materials used, and you’re going to face significantly higher maintenance costs right off the bat. It seems like 10 years is the magic number for a wave of maintenance requirements to come due all at once. Appliances, heating and ventilation, galvanized aluminum siding all need hefty maintenance or replacement after 10 year.
Believe me, I am renting a 10-year-old house as I write this. This is not just a ballpark figure, it really does all happen at once.
Building a House
If you build your own home, you get it built to your specifications, especially for construction materials, heating and insulation, size, special requirements, etc.
In many cases, you’ll be able to get materials and appliances that are longer lasting than the 10-year lifespan devices you find in 10-year-old homes. There’s a lot to be said for that.
On the other hand, there is a lot more work and worry that goes into building a house, particularly if you want to be picky about it. It can be challenging to find open land in a good area (good school district) that doesn’t have a building contract condition on it. You also have to deal with multiple builders, define your needs, and spend hours in meetings. There’ll be a longer delay before you can move in, as well. Don’t worry, I’ll talk about all of those steps in detail, and how we went through them, in subsequent articles.
Of course, it also comes with a price, but the price really isn’t that bad with mortgage interest rates being as low as they are. The loan we ended up getting to build a new house has a lower monthly payment than the rent on the 10-year-old house I’m living in now.
Cheap mortgages are probably part of the reason why there is zero market for used houses and why Japan has the world’s highest rate of unoccupied housing.
Still Interested in Building a House?
In the next several articles in this series, I’ll share our experience and lessons learned from:
- Finding land
- Selecting a builder
- Securing a mortgage
If you want to know when the next articles are available, please sign up for my mailing list below and I’ll let you know as soon as they are posted!