To Overseas Investors Considering Japanese Real Estate Investment

Structure of Japanese Real Estate Transactions

The first step in buying real estate in Japan is finding a good real estate agency. A real estate agency will locate potential investment properties and explain important information about the properties to potential investors. Once you have found an investment property that you like with an acceptable purchase price, the real estate agency will commence the purchase application process. However, at this point, the purchase and sale of the property is not yet finished.

After that, if agreement can be reached about the terms and condition, both the purchaser and the seller attend the signing of the purchase agreement. The real estate agent will take the lead on the purchase agreement as well. At the time the purchase agreement is signed, the purchaser must pay a deposit equal to 10-20% of the real estate’s purchase price to the seller. At this time, the real estate agent will disclose important information about the real property to the purchaser.

During this process, you will likely come to Japan to inspect the property and make a contract with the real estate agency.

The actual closing will occur within 1-2 months after signing the purchase agreement.

Kobe Legal Partner’s shiho-shoshi lawyers will attend the closing with you or on your behalf. If the shiho-shoshi lawyer confirms that everything is in order to transfer the title of the real estate to the purchaser, the purchaser will pay the remainder of the purchase price to the seller, who will then deliver all documents necessary to complete registration of the title in the buyer’s name.

Once the registration is completed, you will be the new owner of the property.

Role of the Shihoshosh-Lawyer

At the closing, since the payment of the remaining purchase price must be paid immediately after confirmation of the seller’s documents, the shiho-shoshi lawyer will confirm that the seller’s documents are in proper order and then direct the buyer to pay the remainder of the purchase price.

In Japan, a property owner can only assert its ownership rights against third parties if the owner’s title to the property is registered. In this sense, the concept of registering your title is similar to recording your title in other countries. A shiho-shoshi is a legal professional who submits documents to Japan’s Legal Affairs Bureau to facilitate the smooth completion of the registration process. If there are defects in the document or full payment cannot be made, then the closing cannot occur. Although the real estate agent takes the lead up to the signing of the purchase agreement, the shisho-shoshi lawyer takes the lead from that point until the closing of transaction.

Risks of Remitting Purchase Price from Abroad

The procedures for a bank-to-bank transfer of the purchase price from overseas can take several days or longer depending on the banks. However, to make sure that the purchase price can actually be paid on the closing date following the confirmation of the documents from the seller, you will need to ensure that the remaining purchase price has been transferred in advance of the closing date. If the foreign purchaser has a bank account in Japan there should be no problem. However, for those who do not have a bank account in Japan, it is necessary to have a person to whom you can temporarily entrust the purchase price.

Is there a person to whom you can entrust such a substantial sum?

Even if there is such a person or business to whom you can entrust this substantial sum, there is a significant risk that the funds you transferred and entrusted would be difficult to distinguish from this person or businesses’ personal assets in the case of death or bankruptcy.

In other words, how the money should be held until the closing date conceivably poses a large problem.

In some countries, there is an escrow arrangement where purchase funds are entrusted to an escrow agent who has custody of such funds until the closing; however, this kind of escrow arrangement is rarely used in Japan. Even if you do use an escrow service, since the fees only will exceed one million yen, it really only makes sense for large transactions involving hundreds of millions of yen.

As an alternative, Kobe Legal Partners maintains a trust account at a trust company. This gives you the convenient solution of transferring the purchase price to the Kobe Legal Partner’s trust account where the funds will be reliably managed until the closing date, when the purchase price will be transferred to the seller’s bank account after confirmation of the seller’s documents by us.

Kobe Legal Partners’ Support

Kobe Legal Partners can provide the following services to you in English (or through an interpreter for other languages, if you wish):

• Introduce a real estate company, including a large company and English-speaking real estate agent
• Provide explanation and translation of the purchase agreement
• Pay deposit on your behalf with funds entrusted to and safely managed by our trust account if you cannot come to Japan
• Prepare necessary documents for the closing
• Send you the documents requiring your signature
• Forward the important documents to you after the closing.

Further, if you are unable to attend the closing in Japan in person, we would be happy to act on your behalf at the closing and report back to you. Following registration of your name as the new owner of the real property, we will send you all the important documents. Although you will need to come to Japan to inspect the property you wish to buy and to conclude the contract with the real estate agent, we are happy to handle matters from that point going forward on your behalf so that you will need to come to Japan again.