# Pro's & Con's of buying a home in Japan, Does it make sense?



## Ricardo Martinez

Wife is pressuring me to buy a house. Have been paying rent my whole life but now with a baby on the way, thinking about owning a home. 

What is swaying me away from buying a house in Japan is the lack of re-sell value. It's sort of throwing money down the drain. 

Live in a house for a few years and sell it but unlike most countries here I'll lose A LOT OF MONEY. Whereas abroad I can actually have a chance of profit. 

Just doesn't make sense I feel. The cons by far outweigh pro's. 

Anyone here a real estate expert in Japan?


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## larabell

I'm not an expert but I own a house and went through the same thought process. If you literally mean "a few years" then you're right that it doesn't make sense but I would contend that there are very few markets where you're likely to come out ahead after only a short ownership tenure. There are fixed costs involved in both the purchase and the sale that you only recoup after living in a place for a significant time (usually more than a few years ).

On the other hand... the mortgage interest rate in Japan is fairly low, assuming you have decent credit. And if you're living in the house, you get 1% of the mortgage balance as a tax credit at the end of each year for the first 10 years. So, depending on the interest rate you get, you could be living in your own place for basically just the principle payments. That makes ownership a lot more attractive than in a country with much higher rates.

So I wouldn't necessarily say it's money down the drain. After all, you have to pay rent anyway so if your house payment comes out to be around the same as your rent would have been and half of that is pure loss in the end, you're still spending only half of what you would be spending if you remained a renter. When you rent, none of your monthly payment comes back when you leave so, in a sense, it's all "down the drain". The key parameters, of course, are your interest rate, the total mortgage payment compared to the cost of renting the same amount of space, and the time you intend to live in the place. Also remember that, in the larger Japanese cities, most of the price is going to be land and land doesn't usually depreciate like the actual building does. So there may be less downside there over time.

Some other things to keep in mind are: property tax (which isn't so bad here, depending on where you happen to buy), maintenance (assuming you live in the place for a while or buy something that's not brand new), and expenses due to unexpected emergencies or natural disasters. I guess, too, you have to factor in any weakened demand for housing given the population decline. Since my place is in Tokyo, I'm less worried about that but in more rural areas that could be a real concern.

There are calculators available online that can help determine the break-even point between renting and buying. But, in general, you shouldn't be thinking about buying a place unless you plan to own it for a while.


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## BBCWatcher

I agree with Larabell. There's no particular reason why homes should appreciate in value. In many places, at many times, they don't. Much like cars. You can rent/lease a car, or you can buy a car. It's just two different ways to pay for something.

You need housing. At least, I assume so! So just sit down and figure out what makes sense in your situation. Practically everything you buy does not appreciate in value, but you still buy many things. Why should housing be any different? It doesn't have to be different. But whether buying or renting makes better sense depends on your situation.

It'll toss in one more consideration that applies to some, although probably less so in Japan (with its comparatively high income tax rates). Fairly highly compensated (or higher) U.S. persons living outside the United States are often financially better off renting because of a U.S. tax provision called the Foreign Housing Exclusion. That provision provides a U.S. tax break on certain overseas rental payments. It's an odd sort of tax break because it works best for U.S. persons who earn relatively high incomes, who live in high rent areas (generally meaning quite nice rental housing), and who live in comparatively lower tax jurisdictions. The tax break only kicks in when you're paying rent above a certain minimum threshold. (There is still a mortgage interest deduction in the U.S. tax code, but the Foreign Housing Exclusion often skews the decision in favor of renting, even with that deduction.) That's just another example of how tax considerations can influence which choice is best.

Also, I don't think it ever makes sense to buy (on credit or with cash) a home unless there's a reasonable prospect you're going to live there for some years. There are transaction, moving, and other fixed costs associated with any home. Moreover, it's also extremely risky to buy a home without living in a neighborhood for at least a few months. I know there are some people that do that, but I don't understand it. There are at least 1,000 things that you just cannot know or understand without being "on the ground," like the siren next to your home that sounds every second Sunday of every month at 1:00 a.m. (or whatever).

Japan's housing market and housing consumers place greater value than in most other residential markets on newer homes, in part for earthquake-related reasons. There are a lot of building lots where homes are torn down and then build again, loop repeat every three decades or so. (With some notable exceptions. Much of Kyoto, for example.) Housing is just more of a _consumption_ good than an appreciating asset in Japan. That's just how the market works, and that's fine. You can and probably should also take a look at old home/land/design/build opportunities, to see what those costs are like. There are some advantages in working with a home designer, and you can choose building materials (like steel framing) for safety and for other reasons.


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