Month: January 2025

Starting to get it

Posted on by catforehead

In an article we wrote for the Number 1 Shimbun last year we talked about a new government scheme called Sozoku Tochi Kokko Kizoku Seido, a “system for returning inherited land to the state,” which makes it possible someone who has inherited land they don’t want to transfer title to the central government. We expressed doubt as to whether the scheme would at all be effective in resolving the huge unmanaged land issue in Japan because the conditions for the government accepting the land in question seemed onerous. In order for the land to pass approval for acquisition, the nominal owners would be subject to a screening process that most would not be able to pass. 

It’s been more than a year since the plan went into effect, and according to a YouTube interview with the real estate lawyer Tatsuya Arai, who specializes in abandoned properties, the system seems to be working better than expected, even if the number of cases accepted by the government is still pretty small. Arai says that the prognosis for the government scheme “is unexpectedly good,” according to lawyers and notaries he talked to. 

The Ministry of Justice (MOJ) released statistics related to the 1,905 applications it had received for the ssystem as of April of 2024. Land registered for agricultural use accounted for the largest number of applications, 721. After that, 698 applications were for residential land, 280 for “forested” land in mountainous areas, and 206 for “others.” The reason residential land and forested land were not represented more, Arai believes, is because the conditions for application made it difficult. Applications must be accompanied by photographs of the property in question showing border markers (kui), which in the case of forested land in remote mountainous areas is difficult—most owners of such land don’t even live close to it and, in some cases, may not even know exactly where it is. In the case of residential land, the property must be completely cleared, meaning any structures that were built on it must be torn down and the land “cleared.” Moreover, many residential lots developed just after the war were not surveyed properly and/or the lots were built in cities where laws were later passed designating road widths and other infrastructure regulations, so the border markers may not be legal. But farmland is relatively easy because it usually contains no structures and the borders are usually easy to discern because owners needed to distinguish their land from their neighbors’. 

Of the 1,905 applications received, 248 (107 residential, 57 farm, 6 mountain, 78 others) were approved, which may not sound like a lot, but one has to take into consideration that it requires at least 8 months to screen the applications, according to the MOJ. Then, after the screening, there is another process that must be carried out before the government decides to acquire the land. For Arai, the important aspect is not how many applications have so far been approved, but how many have not been approved, and that number is only 18. That means the approval rate for the applications initially submitted is 93 percent, which is much higher than Arai and his colleagues in the legal professsion thought it would be.

Of course, the main obstacle is, as already mentioned, the set of conditions for the application, and Arai is positive that there are many more than 1,905 people—he estimates the number is in the millions—who want to get rid of the land they have inherited or will inherit. In that regard, he thinks more people should make the effort to apply. In addition, the ministry has not promoted the new scheme very much, so many people who could take advantage of it may not even know about it. But that aspect could also be hiding a less convenient truth, which is that the central government is not really enthusiastic about acquiring land it cannot use easily. He has the feeling that once the number of approvals reaches a certain level, the ministry may tack on new conditions that will make it more difficult for approval. Also, it costs money: ¥14,000 for the application itself and then, once the application is approved and the government decides to acquire the land, a much larger fee to actually execute the transfer of title. He mentions that 212 applications were actually withdrawn during the screening process, which could indicate several things: the applicant found a buyer for the land, or the applicant realized how much it would cost them if the application was approved. But even factoring in these withdrawals, the approval rate is still quite good.

Arai recommends that anyone who wishes to take advantage of the system call the Ministry of Justice and explain their situation. The MOJ will tell them outright if their application even has a chance because they don’t want to waste time either. He says that the ministry received more than 10,000 inquiry calls as of April 2024, so since only 1,905 applications were made, it indicates many of the callers had already been discouraged from applying. That said, if the MOJ thinks you have a case for an application, the chances are good it will be successful. He also adds that the MOJ is “the strictest of all the government ministries,” so make sure the applications are properly filled out. Even an incorrectly written kanji might mean a rejection.

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Crimes of commission

Posted on by catforehead

Last spring, the National Association of Realtors in the U.S. announced that it was eliminating its rule on realtor commissions in the wake of settling a suit brought against it by homeseller groups. The main result of the new rules put in place is that commission rates charged to sellers, which formerly hovered around 6 percent, would be done away with. Under that system, the seller often had to pay a commission not only to their own realtor, but to that of the buyer.

Realtor fees are still a normal part of the property transaction in Japan, and also tend to be 6 percent, though in Japan’s case that fee is divided between the buyer and the seller, meaning each side pays their own realtor 3 percent, which is the limit as prescribed by the government. However, on top of this commission realtors charge a flat ¥60,000 per transaction from each party, a fee we’ve never fully understood until we read an article in the Dec. 25 edition of the Asahi Shimbun.

The article covered a new rule that goes into effect this month with regards to information about properties for sale. As background, the article points out that when a property is put on sale, the seller will in all likelihood hire a realtor to manage the sale. The realtor typically sends the information pertaining to the property to the Real Estate Information Network System (REINS), a database that shares such information with member realtors, who can use it to find buyers for the listed properties. However, some realtors do not want to share such information with other realtors, preferring to find potential buyers themselves. In such cases, the REINS listing may say that the sale has been “temporarily suspended.” The reason is obvious. Since it is common for both sides of the transaction in Japan to pay realtor fees, the listing company is hoping to grab the full 6 percent commission allowed by law by being the agent for both the seller and the buyer.

This practice is called ryote torihiki, meaning “charging both parties,” and while it is not illegal, it is clearly a conflict of interest. If the realtor in question represents both sides of the transaction then its incentive will be to keep the price of the property as high as possible in order to maximize its commission. Normally, buyers of properties insist their realtor negotiate the price as low as they can, but in this case the realtor will not do so because it is also representing the seller, who wants to get the highest price possible.

The new regulations require all realtors to register all properties they are representing with REINS, after which they receive a certificate that is passed on to the seller, who can use the QR code on the certificate to check their agent’s REINS page, thus confirming the progress of the sale. As one agent told the Asahi, this move is important because in the past realtors might post false information on the REINS listing in order to discourage other realtors from looking for potential buyers. They would do this by posting an altered floor plan that might show less floor area or otherwise post information that indicated the property was flawed. Meanwhile, the posting realtor would look for buyers on its own with the real information about the property. According to the new rules, any realtor who posts false information would be penalized. The agent who talked to Asahi went on to say that this “exclusionary” practice is one of the reasons why the secondary house market in Japan “doesn’t grow,” since it makes the cost of buying and selling such properties artificially high. 

The article was very informative, but while it mentions the ¥60,000 surcharge (+ consumption tax) that realtors regularly attach to the transaction, it doesn’t explain it in detail, so we dug a bit further and came across a real estate blog called Rakumachi that did. What we found was interesting, and a bit surprising.

Apparently, the 3 percent ceiling on commissions is qualified. The 3 percent limit is for properties whose price is above ¥4 million. A realtor can charge up to 5 percent for properties priced at less than ¥2 million, and up to 4 percent for properties priced at less than ¥4 million. Since very few properties in Japan—or, at least, very few properties that a real estate agent will agree to handle—are priced at less than ¥4 million, the higher commission fees would, it seem, never come into play, but the actual procedure is tricky.

Realtors essentially “interpret” these regulations to mean that the first ¥2 million of a sale price extracts a commission of 5 percent, the portion between ¥2 million and ¥4 million extracts 4 percent, and the rest of the price extracts 3 percent. So, in practice, if a property is being sold for ¥20 million, the commission would be ¥100,000 (¥2 million x .05) plus ¥80,000 (¥2 million x .04) plus ¥480,000 (¥16 million x .03), for a total of ¥660,000. If the commission for the entire sale price was set at 3 percent, than the total fee would be ¥600,000. So what realtors do, in order to appear as if they’re applying only the 3 percent commission fee, is charge that fee and then add the surcharge of ¥60,000 to make up the difference. (It always works out to ¥60,000 regardless of the actual price of the house) No one has ever legally challenged this practice, which every real estate agent in Japan employs. As Rakumachi points out, the surcharge is merely a “custom,” and both brokers in a transaction demand it, so if the seller’s agent is also the buyer’s agent, that agent can make even more money. As for the legality, Rakumachi says, “It isn’t clear.”

Noto earthquake as harbinger

Posted on by catforehead

(Mainichi Shimbun)

Just before Christmas, the Asahi Shimbun ran a story in preparation for the first anniversary of the Noto Peninsula earthquake, whose effects still weigh heavily on residents of the area. Demolition work on structures damaged in the quake continues because many of the houses in the areas most affected were already abandoned and thus local authorities couldn’t contact owners easily. The article first focuses on the city of Suzu in Ichikawa Prefecture. The coastal residential zone was badly damaged, and since houses were densely packed and the streets only wide enough for one car to pass through at a time, cleaning up the area has been very difficult. 

According to Asahi’s investigation, many of the houses in this area were not only already vacant when the quake hit, some were in such bad condition that they were uninhabitable, mainly because the houses had no value whatsoever. A survey conducted in 2022 found that 1,365 houses in Suzu were abandoned, of which 60 had insurmountable structural problems. The quake caused more than 3,000 houses to collapse, but this number only covers houses that were occupied, and the city has yet to carry out a more extensive survey to comprehend the full story with regard to vacant houses that collapsed or were fully damaged. 

The problem for the city is that tearing down a house requires consent from the owner, and if local authorities cannot contact the owner they usually do nothing; but even if they do find the owner, it doesn’t mean that person can be compelled to either renovate the house or demolish it, both of which cost a lot of money.

The situation is even worse in nearby Wajima, where 30 percent of the houses in the “urban” part of the municipality are vacant. Local leaders told Asahi that some of the owners of these houses do occasionally stop by to visit their properties when they come to pay their respect at family graves in the vicinity, which makes these leaders reluctant to tell these owners they have to do something with their properties. “It might be difficult for them to part with the house,” said one official. 

Asahi extrapolated these issues to talk about fears regarding the long predicted Nankai Trough or Tokyo earthquakes, which would affect a huge area from the capital all the way to the western edge of the Kansai region. If a quake with the intensity of at least minus 6 on the Japanese scale struck this area, it could be a bigger mess than anticipated, since about 1.45 million houses in the region are vacant wooden structures, a number that increases every year. Asahi’s own research found that about 750,000 of these houses are abandoned, meaning the owners of more than half do not even visit or keep up the property. Even in Tokyo’s 23 wards, where real estate values are the most expensive in Japan, there are 55,000 abandoned wooden houses, the most being in Setagaya Ward (7,500). One Setagaya official said the problem will only get worse because the boomer cohort will soon die out, leaving their children with properties those children likely don’t want to take over.

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