New housing will always be a prime economic mover in Japan even as the population drops, so the sector needs all the help it can get. Right now new housing is seeing a boost due to the expected consumption tax increase next year. Buyers are trying to make deals before the tax goes into effect, but what happens afterwards? Real estate and housing companies are worried there will be an even bigger slump once that happens, so the government says it plans to allow financing rates of up to 100 percent for long-term fixed rate loans, or so-called Flat 35 mortgages. That means borrowers who qualify don’t have to put any money down. At present, a borrower has to put at least 10 percent down.
This happened once before. In 2009, when the recession was at its worst, the government allowed no-down-payment loans but it was a temporary measure and ended in March 2012. Of course, some people are worried since such loans are considered risky, so as part of the proposal screening of applicants will be made stricter, though the details have yet to be worked out. In addition, some of the Liberal Democratic Party’s ruling coalition partners want to provide handouts of up to ¥300,000 to people who are approved for housing loans but whose income is less than ¥5.1 million a year. This handout would offset the effect of the consumption tax increase.
Also, the Mainichi Shimbun ran an article recently that said competition amoung major banks for housing loans has heated up. Earlier this summer some banks increased their interest rates slightly in anticipation of the success of Abenomics, which calls for a steady inflation rate of 2 percent. However, it’s become clear that any inflationary trends have been caused by the higher dollar and fuel prices, and not government policy, so these banks are reducing their interest rates again so as to compete with other banks for those customers who want to beat the consumption rate hike. Again, the consumption tax only applies to new houses since older houses are usually sold by owners who are not companies and therefore do not have the minimum incomes necessary to pay consumption tax (unless you’re buying an old house from a large real estate company). So if the buyer is getting a brand new house that’s already built, as long as he or she signs the contract before the end of March, he or she still pays the old consumption tax rate. If the buyer is having a house or condo built, then he or she has to sign the contract before the end of September, since the consumption tax applies when the new owner moves in.
Time’s getting tight, so some banks are even reducing their rates in the middle of the month. Usually, they do so right at the start of the month, but Mitsubishi Tokyo UFJ changed its variable rate from 0.875 to 0.775 percent on August 16, mainly because Mizuho and Mitsui Sumitomo Trust reduced their interest rates on the 12th. One banker told Mainichi that there’s “no more room” to lower rates, so some banks are offering other incentives. Mizuho, for instance, has a service that allows borrowers to increase or decrease the amounts of their monthly payments in accordance with changes in their home finances (kids changing schools, wife taking maternity leave, etc.) without any additional penalties or fees. Resona Bank started a special service in June aimed at women borrowers that allows them to set whatever down payment they want and provides a special card for discounts at restaurants and hotels. Mainichi says the response has been good.