Applying for a mortgage can be a cumbersome process in any country. For many foreigners looking to buy real estate in Japan, trying to get a loan from a Japanese bank is a daunting task. But that task is made a lot easier by the presence of IFG Asia Mortgages, an independent company that specializes in arranging property finance.
Established in 1989, IFG Group is listed on the Dublin and London stock exchanges. It has been operating in Japan since 2004. Managed by Tony Collins, IFG Asia Mortgages offers advice and assistance from initial application through to settlement.
Please tell us about yourself and your company.
My name is Tony Collins. I am from Bath, England and I have been in Japan for 11 years. The name of our company is IFG Asia Mortgages. IFG has been in Japan for three years and we specialize in helping foreigners get financing for real estate in and outside of Japan.
Has 2007 been a good year for IFG Asia Mortgages?
Yes, it has been a good year. More people are becoming aware of us. We have placed some good high quality loans and we’ve had very positive feedback from our clients. As that filters through and people talk about it, that’s the most effective way of marketing ourselves.
Is this a good time to buy in Japan?
I think so. Interest rates are still very low and it is nearly always cheaper to repay a loan than to pay rent.
On balance, is it better to rent or buy in Japan?
It really depends on personal circumstances and how long you will likely remain in Japan or hold the property. If you think you will move and sell the property within the next 5 years, it might be better to rent. The advantage of renting is that you can move more easily and you don’t tie up your money. Property purchase is usually a better investment than renting.
If I leave Japan, can I still keep my property?
Yes. As long as the property is registered and purchased before you leave, this should pose no problem. You would still need to pay ongoing annual property taxes and presumably find a property management company to rent the property. It is important to check the consequences with the bank who has given you the loan since policy varies on residential / investment loans.
Is it better to buy land and build a house or to buy an apartment?
I would say a mansion makes more sense in central Tokyo since they are often easier to live in, but for areas in the suburbs, a house could be a good option.
Has the mortgage market been affected by subprime loans?
Not really, although the losses incurred by banks in this area has been a reminder of risk. Most banks see lending to foreigners as a higher risk, so it could potentially have an effect, particularly for lending institutions who securitize their
loan books.
Is it justified to say that lending to foreigners is more risky?
Yes and no. No because one should judge lending against the financials of the applicant, which is separate from nationality. In fact, many foreign residents in Japan have an excellent credit status and good salaries. The problem is the risk of the bank not being able to recover the asset and foreclose in case of non-payment of the loan. If the borrower leaves the country and the bank cannot contact them, this may make it difficult for the bank to repossess. This is one of the reasons why banks prefer lending to foreigners with the Eijuken (Permanent Residents Visa) or those with a Japanese spouse. But there are now many options for non PR holders.
OK, I think I want to buy somewhere in Japan. What should be my first step and what is the process?
Find out how much you can borrow first and start the mortgage application early. After finding out and checking your loan eligibility, find a real estate agent you can work with. Have a list of property section criteria and be strict with your agent to only show you properties which are in line with your needs. If you don’t, you are likely to waste a lot of time. Also, give positive feedback on what you like and what you don’t. Our company can recommend some professional real estate agents. Make sure you have a realistic time frame for settlement on the sales contract. If you have been thorough with your loan application, then settlement wont need to be a panicked rush.
Do Japanese banks lend to foreigners?
Yes, but it depends on status and also who you speak to in each institution and how the application is put together and packaged. There are also other lending institutions such as New City and GE but their rates are higher than the high street banks.
Which banks do you deal with?
A variety of lenders who can lend to foreigners in Japan as well as the main high street banks. That is for financing in Japan. If the applicant wants to buy outside Japan, then we use different lenders.
- Name: Peter W.
- Position: Business owner. Entrepreneur.
- Nationality: Australia
- Where in Japan: Yamanashi
Space & the surrounding nature. Located in Japan’s wine country, the house is extremely well designed & HUGE! Very decadent for Japan. 14 rooms. 330 m2 and an amazing view of the Kofu valley. It’s my revenge on meekness and having to eek out a living in Japan for last 13 years. I started out my life here in a 4 mat tatami gaijin house. Now I’m here. It won’t be the the pinnacle of my success but it’s a heavenly reward for the hard yards of the past years. I love my house and I love Japan. I was phenomenally lucky to find the distressed owner who essentially just needed to clear his loan. I was glad I could to help!
Can I get a mortgage here in Japan to finance my purchase overseas?
Japanese banks do not provide finance for overseas property purchases. However, we have access to a variety of international lenders that offer yen finance for overseas properties. We are able to arrange finance in over 23 countries at JPY rates of 2.01%
Tell us more about your company?
We are an independent mortgage broker and use large renowned lending institutions offering mortgage advice to individuals, companies or clients wishing to use trust or corporate holding structures.
What is your philosophy?
The company operates according to the principals of choice, quality and individual service and we represent the client, not the bank. We are committed to securing the best mortgage package for our clients and take pride in carefully packaging mortgage applications to optimize the chances of success.
Who are your clients?
A wide variety of foreign professionals working in Japan. We also work with clients outside of Japan but more on the commercial side. About 80% of our clients are foreigners, both individuals and corporate. We are seeing growth in corporate clients, particular from outside Japan because there are a lot of companies who want to buy in Japan and they don’t know how to do it. The positive yield is an attraction. In other countries, the yield won’t cover the mortgage.
Is educating clients a big part of your job?
Yes. Many foreign people have an understanding of how mortgages work in their own country but here the rules of lending differ. Also, different products are available, for example, cross currency loans. Explaining and helping people understand is an important part of the job.
How do you help clients get a loan and what are the advantages of using your company.
We know what each bank needs for underwriting so we help explain and collect all the documents you need for pre-approval. We package the mortgage application very carefully and make sure it goes to the right people. That means the chances of success are greatly increased. We approach a number of lenders to give choice and negotiate with the bank on the clients behalf. We also provide a lot of translation and advisory support throughout the whole process literally from first meeting to loan completion day.
Do you only do mortgages?
No, we can also help with property valuations, fire and earthquake insurance with explanations in English. Referrals to real estate agents, tax advisers and help with establishing corporate structures.
Tell me one of the most difficult cases you have handled?
We once had a loan application from a client based in one of the former states of the USSR, married to a Japanese spouse wishing to buy property in Japan.
What was the outcome?
We managed to place the loan by using the Japanese spouse as a guarantor but not without a significant amount of paperwork.
What are some common mistakes foreigners make when buying property in Japan?
Many foreigners underestimate the level of documentation required by Japanese banks. Our staff are able to advise the required documents, how to obtain them and in some cases, can even collect some of these on their behalf. Other mistakes include assuming common lending practices in home country are the same as in Japan and underestimating the upfront purchase costs.
To give an example about upfront purchase cost in Japan: For a secondhand property, the cost is typically 7%-8% of the purchase price in fees, plus the deposit. It is important to remember that the bank uses the appraisal value on which to base their lending amount.
In Japan, it is common for the appraisal value to be lower than the purchase price. So, if one purchases a property for ¥100,000,000, the bank finances up to 100% and the property is appraised at ¥90,000,000, the bank will only lend up to the latter amount. Hence, the client must come up with an additional ¥10 million for the purchase.
Is it becoming easier for foreigners to buy property in Japan?
Yes, there are more choices available these days. Also, banks are more familiar with foreigners’ applications, so they are a bit more flexible than before, but there are still challenges. Recently some banks have started to offer loan products to applicants
without permanent residency, realizing the opportunity that exists in that market. Although some of the loan terms may not be as attractive, there are still very competitive deals available.
In your opinion, what is the biggest obstacle for foreigners looking to buy?
In Japan, one of the most important things is basically your salary, which is more important than your asset base. Some clients may want a big loan but through tax mitigation strategies keep a low salary. This makes lending difficult. In addition to salary some banks are concerned about one’s commitment to staying in Japan. Applicants should know the difference between various banks’ offers and the underwriting process in Japan. Not having permanent residency or Japanese spouse and the language barrier limit the choice of banks and this effects the amount one can borrow and the rates. Banks that only lend to PRs typically offer higher loan to value ratios than other lenders. Furthermore, some banks that write their loan contracts in Japanese only can be reluctant to lend to applicants who cannot fully understand in fear of potential liability.
How big a loan can I get?
Borrowing capacity depends on factors such as visa type, financial status, valuation and bank lending criteria. Even without PR, it is possible to obtain 90%-95% loan to value ratio with competitive interest rates. As banks underwrite loans differently, it is important to approach a variety of banks, by yourself or through a broker, as it increases your chances of firstly obtaining a loan and then finding the most flexible and competitive package.
What interest rates are available?
Some banks in Japan offer variable rates and fixed rates up to 35 years. High street banks like MUFG offer 2.8% fixed over 20 years to some clients. Even without PR, it is still possible to obtain attractive long term interest rates. Some banks publish their rates and others use risk based pricing when determining interest rates, so they much depend on the applicant’s status and financial capacity.
Where should one buy?
This decision depends on numerous factors, including, proximity to work, children’s school and amenities, potential for capital growth and preference of area. Each of these must be carefully considered when purchasing. In addition, banks are generally more comfortable with newer property in urban areas. It can be more difficult to obtain finance for property in rural areas as banks typically value these properties much lower, reducing the amount of finance they are willing to extend.
What type/age of property should one buy?
New buildings in Japan tend to be viewed more favorably by the banks for valuation purposes. Japan introduced earthquake building regulations in 1981 to improve the stability of new buildings. Properties built after this time should in theory be safer should an earthquake occur and be easier to re-sell.
What do I need to look out for?
It is recommended you seek pre-approval prior searching for property seriously. This pre-approval provides an indication of your borrowing capacity and is also a good negotiation tool when dealing with real estate agents. As soon as the property has been found and purchase contract signed, it is important to tell the bank straight away so they can instruct the valuation. As bank valuations can be quite variable, one needs to find out the amount of finance available before the expiration of the finance date.
Tell us about a great work experience you have had.
The most satisfying part of this job is when you can help your clients. For example, there was one inquiry we received through the Internet from a client who needed some financing options. He had been told by his real estate agent that he had to do the loan through a bank with high rates. After a lot of work and persuasion, we managed to place the loan through a high street back for a rate of around 3.2% fixed for 35 years. The clients were extremely happy and thanked us for our help. That is always very satisfying.