Foreign Investors Alert! Impact of the "Vacant House Countermeasures Special Measures Law Amendment" on Real Estate Investment
2024-01-20
Real Estate Investment in Japan
In the real estate sector, a significant concern for the Japanese government and local authorities is the growing issue of “vacant houses,” expected to further increase in the future.
As conventional measures alone have not proven effective in resolving the vacant house problem, the government took a step to amend the “Vacant House Countermeasures Special Measures Law” in December 2023.
This amendment will not only affect foreign investors owning vacant houses but will also have a considerable impact on the overall real estate market in Japan. Therefore, those considering investments in the future should not overlook this development.
So, what is the “Vacant House Countermeasures Special Measures Law,” how has it been amended, and what impact can be expected? We will explain this in a straightforward manner targeting foreign investors, so please read on to the end.
“Vacant House Countermeasures Special Measures Law” and Key Amendments
- Vacant House Countermeasures Special Measures Law: According to a survey by the Ministry of Land, Infrastructure, Transport, and Tourism, approximately 8% of the current housing in Japan is vacant, and this number is expected to increase further in the future. In response to this issue, the government enacted the “Vacant House Countermeasures Special Measures Law” in 2015. This law designates vacant houses at high risk of collapse as “specified vacant houses” and aims to encourage appropriate management by raising the fixed property tax to six times that of ordinary residences.
- Key Amendment: “Insufficiently Managed Vacant Houses” also subject to six times fixed property tax: While the original law made some progress in resolving the issue of vacant houses at risk of collapse, it did not act as a deterrent to the overall increase in vacant houses. To address this, the government amended the Vacant House Countermeasures Special Measures Law to define not only vacant houses at high risk of collapse but also those “likely to become specified vacant houses in the future” as “insufficiently managed vacant houses.” In the case of certification, the fixed property tax for these houses will also be increased to six times. The amendment aims to address the increasing number of vacant houses effectively.
Example: Case of Shinagawa Ward, Tokyo
As for the definition of “insufficiently managed vacant houses,” guidelines are provided by the national government, but the final judgment and certification are left to local governments (municipalities). As an example of certification criteria, let’s consider the case of Shinagawa Ward in Tokyo.
In Shinagawa Ward, examples of conditions considered for the state of the building include:
- Unlocked gates
- Broken window glass
Such conditions where vacant houses are left in a state where anyone can easily enter are cited as examples of “insufficiently managed vacant houses.” However, this example is just one case, and Shinagawa Ward states that they comprehensively consider factors such as the state of the building, its impact on the surroundings, and the situation of the owner when making judgments.
This means that the final judgment is influenced by individual circumstances, such as “the impact on the surroundings,” making it not a mechanical judgment based on standards. Therefore, even if you inquire in advance with local governments, including Shinagawa Ward, you probably won’t get an accurate answer. Moreover, relying solely on national guidelines to self-assess whether a house is an “insufficiently managed vacant house” is an action to be avoided.
What Vacant House Owners Should Be Aware Of
If you own vacant houses in Japan, what points should you be aware of in light of this amendment?
The most important thing to note is “self-assessment is risky.” In the case of foreign investors, there is often a perception that “self-management of owned real estate is natural.” As explained earlier, the final judgment of whether a house is an “insufficiently managed vacant house” is left to each local government, so the judgment criteria are not uniform and clear.
Especially for foreign investors living abroad, there is a high likelihood of being evaluated by local governments as “owners difficult to contact.” Therefore, making unilateral judgments like “this level of management is acceptable” may not be applicable.
Also, the notion of “no need for management as I will sell it immediately” is ill-advised. Whether you plan to sell it immediately or not, if it is evaluated as “insufficiently managed,” the fixed property tax will increase sixfold. In that case, it may be avoided by potential buyers, and the sale may not proceed as smoothly as expected.
Therefore, if you own a vacant house that you are managing yourself or leaving it unmanaged with plans for sale, it is advisable to promptly establish a management system through a reliable Japanese property management company or a trustworthy third party residing in Japan to reassure the local government.
Is Vacant House Investment Risky? Benefits of the Amendment to the Real Estate Market
With this amendment, should Japan’s vacant houses be excluded from real estate investment? The answer is “NO.” The situation of “being able to purchase properties at a lower cost than the market price” in Japan’s vacant house market remains unchanged and may even increase the number of hidden gems with this amendment.
With this amendment, the elimination of insufficiently managed vacant houses can improve the local environment and stimulate real estate development, potentially leading to future increases in property prices in certain regions.
Furthermore, if the administration sorts out insufficiently managed vacant houses and only “houses with certain management in place” remain, it could contribute to the overall health of Japan’s vacant house market.
In other words, vacant houses in Japan are likely to become a “target” for future real estate investment.
Utilizing Established Real Estate Companies is Essential!
So, how can one succeed in investing in Japan’s vacant house market? The key is to partner with a reliable “Japanese” real estate company with extensive experience and a track record in real estate brokerage and management.
The reasons are clear. Firstly, because the judgment of insufficiently managed vacant houses varies by local government, and localizing and collecting detailed regional information and analysis becomes crucial. Such initiatives are difficult for even large overseas real estate companies.
Secondly, due to this amendment, a management system is required at the time of acquiring vacant houses. The type of vacant houses that local governments are most cautious about is those with owners who are difficult to contact or cannot be contacted. If the management of vacant houses is entrusted to a Japanese real estate company, it can alleviate such concerns on the part of local governments.
Therefore, if you want to succeed in the potentially treasure-filled market of Japan’s vacant houses, partnering with a “Japanese” real estate company is essential.
wagaya Japan provides total support for the purchase, sale, and management of real estate in Japan in multiple languages. Whether you are considering the purchase or sale of a property, including tax management after the purchase of an investment property, please feel free to contact us.
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