taxes & financing

Slipping away

Posted on by catforehead

That first step is a doozy: First world elderly problems.

Here’s a fairly common retirement strategy: The kids are gone and have families of their own, so the house you bought so long ago and which is likely paid for by now becomes too big, so you sell it and use the money to buy a condo somewhere in or near an urban center where public transportation and retail resources are easy to access. However, a recent feature in the weekly magazine Shukan Gendai warned people who are thinking of doing this to think twice. It may not be as easy as you think, and, in fact, it could end up being a disaster.

The number of people in Japan over the age of 65 recently exceeded 35 million, an expanding demographic that has become a target for real estate agents who are selling used or new condos, which tend to retain their value more readily than single-family homes. As it stands, many of these new retirees probably live in single-family homes in the suburbs of large cities to which the heads-of-household used to commute. These houses are likely two stories, a structural feature that becomes more of an inconvenience the older you get, and they are also probably far from public transportation hubs, meaning the people who live in them require a car to get around. Realtors use such reasonings to convince people to sell their homes and buy condos, and it makes sense, but not as much sense as it used to. First of all, there are just too many single family houses on the market and not enough people who want to buy them, and that disadvantageous ratio will only get worse as the population greys further.

Gendai also brings up the magic amount of ¥20 million, which is what a retired couple should have in savings to supplement their pensions. Actually, ¥20 million is probably not enough unless the couple is able to invest in some kind of financial instrument that can guarantee a small income, but most people still have their savings in time deposits, which generate almost no income, so the thinking here is that the couple lives off their pensions and doesn’t touch their savings since they may need it for emergencies. It’s a precarious way to live. Read More

Heirs? Apparently

Posted on by catforehead

This land is your land?: Property marker in the middle of a residential street

An ongoing headache for the government, in particular the land and justice ministries, is all the land in Japan whose titleholders are only vaguely determined. The reason this is a problem, of course, is that the central and local tax authorities don’t know to whom they should send property tax bills, but also when public works projects are being planned that involve the appropriation of land the relevant authorities don’t know whom to deal with. For a more detailed discussion of this problem see here, but suffice to say that the volume of property nationwide with undetermined owners amounts to a piece of land the size of Kyushu.

The reason for this confusion has to do with inheritance laws. When a title holder dies, if no formal transfer of the property has taken place, their property automatically passes to their heirs, meaning spouse first and then children. If those heirs never properly register the land in their names, then it then passes on to all their heirs when they die, and so on. According to a Nov. 18 article in the Nihon Keizai Shimbun, there is one piece of land—location undisclosed—that has up to 700 potential titleholders since the land has not been re-registered since the registered titleholder died many years ago. The amount of money and resuources needed to sort out these matters is beyond the ability of local governments. Of course, in most cases, the land is worth probably nothing to the family—maybe it’s on the top of a mountain or in a remote forest—and they simply don’t want to be taxed for it. However, a good portion is located in already developed areas. In any case, the local government or maybe a developer may want to exploit that land someday. The central government would like to have everything properly registered.

The Civil Code states that the titleholder must be consulted in order to dispose of the land or any portion of it, so if the government really wants to solve this problem it should amend the law, and that seems to be the plan. The Nikkei article says the government is now considering an amendment to the law that will allow the sale of plots of land or any portions of it if a certain number of heirs agree to the sale. At present, all titleholders must agree to such disposal. The land and law ministries plan to send this bill to the Diet in 2020, and are currently carrying out research that will better define vague property lines. As of 2017, about 16 percent of the land in 80,000 “locations” classifed as “urban,” meaning designated for residences and commercial businesses, does not have a definite titleholder in accordance with existing records. The portion of undetermined land is probably more, since the 16 percent mainly represents lots that are being disputed for some reason—either neighbors want to buy the land for expansion or local governments want to use it for parks and other public facilities or a developer wants to build a condominium on it. None of these entities have the money to negotiate with all the heirs, and according to most local laws any property line disputes have to be mediated through the consultation of surveyors and other experts, and those services have to be paid for by the parties involved.

On the surface, passing such a law should be easy. All the government has to do is specify the problem and how many of the identifiable heirs or titleholders must be located in order to dispose of the land. But because Japan has such a weak concept of eminent domain, it’s likely there will still be limitations to what the government can do unilaterally. And it’s apparent that people who have rights to a piece of land but are coy about being located have a reason for being coy. The main obstacle will be defining how much work should be involved in “notifying” all the interested parties. They must also determine if unpaid back taxes can be waived. One solution, according to Nikkei, would be a condition that the land in question must be sorted out within a certain timeframe due to health or safety concerns, and while that may sound like a limiting condition itself, the government has never been averse to bending such laws when it serves them.

Yen for Living: Houses As (non-)Assets

Posted on by catforehead

For sale? Good luck.

The following article was submitted as the July entry in our Yen for Living column for the Japan Times. However, it was rejected by the editors.

One of the issues facing voters in this month’s Upper House election is the national pension system. The government received criticism after the Financial Services Agency announced that a couple would need at least ¥20 million in savings when they retire to supplement their pensions. Opposition parties are using this figure to point out flaws in the pension system, and the ruling Liberal Democratic Party is challenging the FSA, saying that current pension benefits are adequate to support people after they retire.

In a letter published in the Asahi Shimbun on July 1, a 63-year-old dentist wrote about the ¥20 million figure, saying that when he was 30 he started saving for his old age. As a self-employed person he knew a public pension would not be enough when he retired, and so he joined a cooperative that, in return for monthly premiums, guaranteed a one-time payment when he reached a certain age. Over the course of 30 years, he paid a total of ¥18 million into the fund in the belief that he would receive ¥40 million in the end. But he received only ¥20 million. He also paid into a private pension plan, convinced that when he turned 60 he would start receiving ¥280,000 a month for a limited time. As it turns out, he is only getting ¥120,000, because interest rates have plummetted since he was 30. When he’s 65, he will start receiving benefits from his national pension, but since he belongs to the kokumin nenkin system for the self-employed and others who weren’t employed by large companies, he will only receive ¥65,000 a month. So even though he basically “invested” in private plans and paid his obligatory national pension premiums, he is not going to have as much income in his retirement as he once thought he would receive. Read More

Last resorts redux

Posted on by catforehead

file_6_18_1Several times on this blog we’ve written about the collapsed market for resort condominiums, which are conveniently called “rizoman” (for “resort mansions”) in Japanese. The majority of these apartments were built during the asset-inflated bubble period of the late 80s and the hangover from that period in the early 90s. Many, but not all, were attendant to the ski boom, and after the bubble burst and people’s interest in skiing deflated, more and more of these condos were abandoned by their owners, the result being thousands of empty units in vacation areas throughout Japan. More importantly, however, it also meant huge losses in property taxes for local governments and the deterioration of condo complexes that were no longer collecting management fees from absent owners, most of whom lived in major cities. These specific circumstances led to an unusual phenomenon. The units themselves dropped dramatically in price on the resale market and could be had for a song (or even a verse), but they could hardly be sold because even if the market price was only a million yen or cheaper, whoever bought them would also have to cover the back taxes owed, not to mention the unpaid management fees, and together these two debts could run into milions and millions of yen.

At the end of last month, Asahi Shimbun ran a series of articles about a turnaround in Yuzawa, Niigata Prefecture, which is the closest town to one of Japan’s most famous ski and hot spring resorts. (It’s also where the Fuji Rock Festival is held in July.) Yuzawa has been for years the poster child for the crippled rizoman market, a place that saw a huge amount of construction in the late 80s/early 90s and which later stood as a symbol of pointless extravagance. According to a realtor quoted in one article, there are some 15,000 empty condo units in Yuzawa, accounting for 20 percent of all the empty resort condos in Japan. During the bubble period, when these units were new, they were so popular they could be sold at auction, and many went for as much at ¥100 million. Now, many are going for less than ¥500,000, depending on the size. Management fees, however, are still high owing to the fact that many buildings have large communal baths, swimming pools, recreation rooms, and exercise facilities. Read More

Three’s a crowd

Posted on by catforehead

CIMG3465

A model Hebel House “nisetai jutaku” by Asahi Kasei

In the Japanese government’s neverending quest to realign the economy through tax incentives, a new proposal is about to go into effect with little fanfare. On the surface, this scheme seems both harmless and inconsequential. Starting in April, families will receive tax breaks when they remodel their homes to accommodate “three generations,” meaning grandparents, parents, and children. In order to qualify for the deduction, the renovation has to incorporate a doubling of household functions–at least one additional bathtub, toilet, kitchen, and foyer. The amount of the deduction would be equal to 10 percent of the total cost of the renovation up to a maximum of ¥250,000, which means if the total cost of the work is ¥2.5 million you get a ¥250,000 deduction, and if the work costs more you still get a deduction of only ¥250,000. Still, that’s quit a bit since this amount is subtracted from the total tax owed to the government. Moreover, if you take out a loan for the renovation, you get another tax cut for that. In addition, there’s talk about a subsidy system, much in the same vein as the subsidy system for home improvements that incorporate barrier-free functions and energy conservation measures.

What’s interesting about this scheme is that it doesn’t follow the usual Liberal Democratic Party thinking when it comes to consumer-oriented tax breaks, especially those involving homes. Usually, the purpose of such schemes is to prop up the housing market or the construction industry, but according to the Asahi Shimbun, a representative of the Housing Renovation Promoting Council said that while the council “welcomes” the tax cut and hopes it will stimulate sales, it had nothing to do with it and, in fact, didn’t know anything about it until the media reported it.

The government, specifically the cabinet office, which is handling the wording and implementation of the directive, says that the purpose of the tax break is to “reduce social welfare.” By encouraging extended families to live together the government hopes to relieve some of the burden on social welfare functions related to nursing care for the elderly and daycare for preschool children, two issues that require immediate attention. Read More