Ownership of real property and trust beneficial interest representing real property can be acquired. Ownership, includes, without limitation, ownership of strata title (not a whole building). In addition to exclusive ownership, joint ownership is possible. There is no ownership of real property for certain period of each year. Therefore, timeshares are often structured using not ownership but ‘use right’ of real property.
Last modified 22 Mar 2024
There are no discrepancies between the legal restrictions applicable to foreign investors and those applicable to domestic investors other than the followings.
Under the Foreign Exchange and Foreign Trade Act, a foreign (non-Japan resident) investor who purchases real estate from a Japan resident seller for profit must report the purchase to the Bank of Japan within 20 days of the purchase.
Under the Act on the Review and Regulation of the Use of Real Estate Surrounding Important Facilities and on Remote Territorial Islands, the authority may designate certain areas surrounding important facilities or on remote territorial islands that need to be monitored for national security purposes as ‘Monitored Areas’ (chushi-kuiki) or ‘Special Monitored Areas’ (tokubetsu-chushi-kuiki). If real estate is located in the Monitored Areas, the authority may (i) investigate the use status of such real estate, (ii) require the relevant local authority to provide information relating to such real estate (eg the names of the user, and the like (User, etc.) of such real estate), (iii) require the User, etc, to provide reports and materials with regard to the use of such real estate and (iv) if there is an apparent potential for such real estate being used to interfere with the functions of defence facilities, remote islands (such as to define any border of Japan), or the like, prohibit the use of such real estate or order other necessary measures. If real estate is located in the Special Monitored Areas, in addition to the authority’s rights relating to the Monitored Areas above, any investor intending to acquire such real estate is required to prior to the acquisition, notify the authority of its name and address, the purpose of the acquisition and any other matters specified in the relevant ordinances.
Last modified 22 Mar 2024
Under the Act for Promotion of Expansion of Public Land, when a seller intends to sell for consideration lands larger than certain areas which depend on the designation of the lands under the City Planning Act, the government has the right to negotiate with the seller to purchase the lands. However, in practice such right is not often exercised.
Last modified 22 Mar 2024
The primary legislation applicable to property transactions in Japan are the following:
Last modified 22 Mar 2024
No. The legislation mentioned in the ‘Real estate legislation’ section applies to the transfer of all types of real estate.
Last modified 22 Mar 2024
Transfer of ownership is effected through an intended agreement between the purchaser and the seller, evidenced by the execution of a written sale and purchase agreement.
Last modified 22 Mar 2024
Yes. Title to real estate is evidenced in the real estate registry maintained by the Legal Affairs Bureau.
Since the purchaser cannot assert the title to third parties without registration of the transfer, the transfer of real estate is almost invariably registered at the time of the closing of a sale and purchase agreement (SPA).
No, title insurance is not common in Japan.
Last modified 22 Mar 2024
General steps in the Japanese commercial real estate transaction processes are as follows:
Real estate is sought by investors/purchasers. The most popular method of doing so is through consultation with a real estate broker.
The purchasers then conduct a basic investigation of the target real estate. If purchasers are seriously interested in buying the property after a basic investigation such as an initial property tour or evaluation of a simple rent-based cash flow, the interested purchaser would then submit a letter of intent (LOI) proposing a tentative purchase price along with a confidentiality agreement (CA) to the sellers in order to begin the due diligence process. The LOI is not considered a legally binding document but does generally represent a commitment to purchase the property subject to execution of an SPA.
Due diligence is undertaken in order to estimate the physical and legal risk of the subject property. For further details, please see the ‘Due diligence’ section below.
Documents are then executed. The purchaser usually enters into a real estate SPA with the seller and receives a property disclosure statement regarding important matters from the real estate broker.
The sale and purchase then closes. The closing is completed once the seller has received payment from the purchaser and the purchaser has received from the seller the documents required for registration of the transfer of the ownership.
Last modified 22 Mar 2024
Yes. In many cases, the purchaser obtains an engineering report (ER) prior to purchase. An ER contains information regarding the real property condition, legal compliance, environmental risks, soil contamination risks, earthquake risks etc. In addition, due diligence covers review of title documents, agreements such as lease agreements etc.
Last modified 22 Mar 2024
When purchasing agricultural lands, the purchaser must obtain the consent of the local government's agricultural committee. In the case of purchasing jointly-owned property, the purchaser must obtain consent from all of the joint-owners.
Last modified 22 Mar 2024
No. There are no formal legal requirements regarding the content and structure of an SPA relating to real estate. The parties are therefore free to determine the content and structure of the SPA. The real estate broker must explain to the parties all important matters relevant to the property in writing before execution of the SPA, and must deliver to the parties a document containing certain information specified by the Real Estate Brokerage Act upon execution of the SPA.
Last modified 22 Mar 2024
A seller is liable for defects in the property under the Civil Code. Where there are physical or legal defects in the property, the buyer can claim damages or terminate the SPA on account of the seller's breach.
Last modified 22 Mar 2024
Buyer's remedies against misrepresentation are:
Last modified 22 Mar 2024
There are, among others, two public laws an investor should consider when purchasing real estate: the City Planning Act and the Building Standards Act.
The City Planning Act defines ‘Urbanization Promotion Areas’ as areas where development is actively promoted and ‘Urbanization Restricted Areas’ as areas where development is restricted. Generally, construction of residential, office and retail property is not permitted in Urbanization Restricted Areas. This act also defines the types of ‘Zoning Districts’ which are classifications of Urbanization Promotion Areas.
The Building Standards Act stipulates the types of properties and structures permitted in each Zoning District, as specified by the City Planning Act.
Last modified 22 Mar 2024
Yes. Under the Soil Contamination Countermeasures Act, a buyer of a property (new property owner) may be held responsible for soil pollution or contamination having occurred in the days of the old property owner. Therefore, when purchasing real estate, a buyer should pay careful attention to this risk and take any recommended preventative measures.
Last modified 22 Mar 2024
Information about the permitted use of particular lands can be obtained from the local government.
Regarding construction compliance, the buyer typically is provided with a ‘Building Inspection Certificate’ from the seller, which is the legal document certifying that the building meets all requirements under the Building Standards Act. With this document, the buyer can confirm that the building was constructed in compliance with the Act.
Last modified 22 Mar 2024
Yes. For development on real estate owned by public entities, developers must enter into a development agreement with such public entity.
Last modified 22 Mar 2024
Yes. The national and local governments have the right to acquire properties for certain public projects on a compulsory basis pursuant to the Land Expropriation Act and/or other relevant acts. The owner of the property is entitled to receive certain compensation for the expropriation.
Last modified 22 Mar 2024
For asset deals, the relevant tax and transaction costs are as follows:
Real estate acquisition tax is imposed on persons which acquire real estate in Japan.
This tax rate ranges from 3 to 4% of the tax-assessed value of lands and buildings. However, this tax is not imposed on an acquisition of trust beneficial interests representing real property (TBI). If certain types of acquisition vehicles are used, lower tax rates will apply.
Registration tax is imposed on persons when they register transfer of the title to real estate. This tax rate ranges from 1.5 to 2% of the tax-assessed value of lands and buildings. In the case of an acquisition of TBI, JPY1,000 per registration. If certain types of acquisition vehicles are used, lower tax rates will apply.
Typically, since the registration is arranged by a judicial scrivener (shihoshoshi) representing the purchaser, a fee for their services is required. The aforementioned tax and accompanying fees are usually payable by the purchaser.
Stamp tax is imposed on each sets of an SPA. The amount of this tax depends on the purchase price of the real estate and can amount to JPY600,000 (JPY480,000 under the reduced tax rate currently available) per each set. In the case of an acquisition of TBI, it is JPY200 per each set. Each party usually bears the stamp tax for the set of an SPA kept by such party.
The sale and purchase of buildings (not lands) are subject to Japanese consumption tax at a rate of 10%. The same rates will apply in the case of an acquisition of TBI. The amount of the consumption tax is usually added on the purchase price.
The fixed asset tax and city planning tax are payable by persons owning real estate as of January 1st of each year.
The fixed asset tax rate is usually 1.4% of the tax-assessed value of the property and the City Planning Tax rate is usually 0.3% of the tax-assessed value of the property.
If a transaction is conducted in the middle of a year, since these taxes for such whole year are imposed on the seller owning the real estate as of 1 January of such year, the buyer usually pays to the seller the amount of the taxes for the period from the closing date until 31 December of such year.
When a broker assists a buyer or a seller to execute an SPA, the buyer or the seller must pay respectively a brokerage fee. The maximum legally permissible fee is 3% of the purchase price plus JPY60,000 from each party.
In Japan, it is not unusual for one broker to receive a brokerage fee from both the seller and the buyer.
Last modified 22 Mar 2024
For share deals, most of the relevant taxes applicable to asset deals are not imposed. The relevant one for such deals are as follows:
When a broker assists a buyer or a seller to execute an SPA, the buyer or the seller must pay respectively a brokerage fee. In Japan, it is not unusual for one broker to receive a brokerage fee from both the seller and the buyer.
Last modified 22 Mar 2024
Do mandatory pre-emption rights apply to the sale of real estate assets in this country?
Under the Act for Promotion of Expansion of Public Land, when a seller intends to sell for consideration lands larger than certain areas which depend on the designation of the lands under the City Planning Act, the government has the right to negotiate with the seller to purchase the lands. However, in practice such right is not often exercised.
Last modified 22 Mar 2024