Last year we wrote a Home Truths column about real estate schemes being promoted to property owners whose legacies would be subjected to higher inheritance taxes under new government rules. Since the government also is in thrall to the construction industry, it offers tax cuts and deductions to people who build on their property or improve it. The focus of our report was on rental apartment buildings that property owners could have built by companies that would then manage them for the owners, thus killing two birds with one loan: greatly reducing the inheritance tax burden for the owners’ children, and bringing in income from the property itself.

However, according to a special report that NHK aired a few months ago, these schemes have turned out to be a great deal of trouble for property owners. Typically, a real estate company gets a landowner to build an apartment building on his piece of land and helps the landowner secure a loan. The company then guarantees a certain amount of “rent” to the landowner for the next thirty years and subleases the apartments. The company does all the work: solicting tenants, maintaining the building, collecting rents, etc. The owner simply pays for the structure and sits back and collects money. Or, at least, that’s how the scheme is sold.

The NHK program profiled an elderly farm couple living in Gunma Prefecture. Though both are in their 70s, they continue to work the land, but don’t have the energy to work all of their land any more. However, if they let part of it go fallow, the property taxes for that portion will go up. And then there was the inheritance taxes to think about when they died. Ten years ago they were approached by a real estate company who had a plan that would solve all their problems and set them up with a monthly income for the rest of their lives. All they had to do was take out a ¥100 million loan to build an apartment building on the unused portion of their land. They took the offer. Read More