Part 1 - Building a House in Japan

I mentioned in a previous post that we've been thinking about building a house here in Japan. We're not in a rush; we're thinking at least two years out. But we've talked to some people to begin learning about the process. We've never bought a house before. In fact, I've never seriously considered owning a house before. In addition, we're excited about the idea of running a small business on the second floor (not an English school, although "English" may come into play -- it's at least an asset we have). Any suggestions or advice about starting a small business in Japan would be welcome.

This post is focused more on buying/building a house in Japan. Like most things here, it's very expensive, and houses tend to lose value quickly. But that doesn't mean it's unwise to go for it. I'm too early in the process to offer any expert insights, but here are a few impressions and lessons I've picked up so far.

1. Everyone I've talked with who has bought a house here says now they pay less (for their mortgage payment, taxes, etc) than they previously paid in rent. Rent is expensive. Renting gives you the freedom to move anytime, but if you'll be living in the same place for a long time why not consider the pros and cons of buying?

2. Buying or building a new home is very expensive, and houses in Japan tend NOT to retain their value. The average life of a typical Japanese home is about 26 years compared with 44 years in the USA (according to this article). That means that when people buy older houses they may merely be paying for the land, and the house is essentially free. That's because the buyer must count the cost of tearing out the old house eventually and rebuilding. Why do houses built in Japan last such a short time? You can blame it on the weather (humidity, etc), but my impression is that construction methods and materials account for most of the disparity (see the article I linked to above).

3. Many foreigners recommend buying an old Japanese home. That may work in certain places, but Tokyo is overdue for a major earthquake. I personally wouldn't want to be living in an older Japanese home. Maybe if I were single and carefree, but as a father I'm making decisions for my kids, too. To be fair, I would feel comfortable living in a relatively new Japanese home (or "mansion"/apartment), I just wouldn't want to buy one. Homes and buidings constructed after the Kobe earthquake in 1995 had to meet much higher construction standards than homes built before then. (In the Kobe earthquake about 6,500 people died and 250,000 homes were destroyed.) Again, in reference to the article I linked to above, I don't really trust the Japanese construction industry in general.

4. Many Japanese are "importing" homes from the USA, Canada and other countries. A typical house (all the materials, down to the last nail) can be sent from the USA or Canada to Japan in two large shipping containers (costing about $2200 each for shipping from port to port). Most imported homes come with 2x4 construction, and (from all I hear) better, more durable materials than typical Japanese homes. I talked with someone who built a house this way, and I talked with a representative from the company he worked with. He built a relatively large, nice home for less than $100,000 (less than 1000 Mon yen). He did NOT work with a Japanese company that specializes in imported homes (that would have cost much more), but he worked directly with the US company. That company sent a crew over to "frame the house" (put up the walls and roof), then he hired his own people and worked with Japanese contractors to finish the job. Japan is a service oriented economy, so one key to saving money on a major project like this is to avoid working with companies that offer a complete, effortless package. Obviously, that means the owner will expend effort coordinating the project, working with contractors, making sure all the legalities and paperwork are covered, etc. That last part is very, very important. If your home is completed and THEN you discover it's not meeting a required standard, you could have a REAL problem.

5. Buying land in Tokyo will cost much more than the cost of building a house on it. Like I said above, when you buy an old Japanese house, you may be paying for the land and essentially getting the house for free. Whether you build or buy a house, in the long run you are investing in the land. By the way, you can buy a "mansion" (condo/apartment) for much less than you would pay for a house. Keep in mind that when all is said and done, you won't own any land this way. The value may appreciate for a few years, but in the long run it will eventually depreciate significantly.

6. One practical risk when buying a house is that land prices will continue to fall. Land prices in Tokyo have been falling for many years now. Some say they are bottoming out now; others would disagree. I'm don't know enough about the financial side of things to go into this any further, but the basic principle is that it's best to buy when land prices are low. If prices fall significantly after you buy, you can lose lots of money (at least on paper, though it may not bother you unless you're hoping to sell at some point).

7. Finally, if you can qualify for a loan, the interest rates are very low. We haven't applied for a loan (too early for that), but I've been told that rates are somewhere between 1.5 and 2 percent. That's compared with 5 or 6 percent in the USA. Some would say it's more like being given money if you can borrow at such low rates. Again, I'm not a financial expert, so someone feel free to explain that in layman's terms if you can.

About the pictures above, I took them a week ago in Tokorozawa: a Japanese Johnny Depp character, a masked man at the start of flu season, and a couple of glances cast my way (the young woman on the lower left was passing out flyers for a pachinko parlor).

That's all for now. I'll post a "Part Two" when there's more to say. Again, your input is appreciate. By the way, you can comment on this site without providing your name, email, or any other information. Give it a try.

==== UPDATE ====

Here's a great link contributed by a reader -- a step-by-step description of how one person built a home in Japan.

Posted by jw at February 10, 2005 08:12 PM