Why Overseas Buyers Fail in Japanese Real Estate Projects
Most failures are due to strategic errors
The number of people from overseas who wish to purchase real estate in Japan, renovate it, and utilize it for business purposes is steadily increasing. However, there are many cases where plans stall midway or unexpected problems arise.
In most cases, the cause is a strategic error, and there are typical, patterned mistakes in the background.
In this article, I will identify five major mistakes and examine the issues.
1: Basing the budget on portal sites or online advertisements
It is very common for the basis of a budget to be property prices listed on portal sites, online videos, or social media. In these cases, the budget tends to be significantly lower than the realistically required expenses. In particular, the promotion and introduction of low-priced housing generally follow a style of "selling a dream," which tends to give an unrealistic and optimistic image.
A budget should be designed as a result of strategy and research, not hope, and the property price should be appropriately set based on the strategy of the entire project.
2: Starting with the property search
Many people start searching for properties based on an "ideal amount created by an image" as mentioned in point 1, and treat this as the first step of the project. However, searching for a property is not the first step. The moment you make the real estate purchase your starting point, the risk of failure skyrockets. This is because, for international buyers, purchasing real estate in Japan is merely one stage of an international real estate project.
The starting point of a project is the process of aligning ideas with reality. This is the same even for personal use, such as a vacation home.
Starting a property search without confirming the intended use, regulations, regional conditions, maintenance costs, procedures, and management, or conducting a realistic simulation for profit-making purposes puts the entire project at risk.
3: Believing that a property will be found if you just keep looking
Sometimes, people spend a long time searching for a property without finding one that meets their desires. There are only three simple reasons why a property cannot be found:
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The budget is too low for the requirements.
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Personal hopes are prioritized over a project perspective.
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You are looking for conditions that rarely appear on the market.
In most cases, the reason is #1, which is also strongly related to #2. Both occur due to typical strategic errors. No matter how much time is spent searching for a property, the market will not adjust to an individual’s desires or convenience.
4: Expecting the real estate company to find a property suitable for the project
In some overseas cases, real estate agents cover a wide range of responsibilities. However, the job of a Japanese real estate brokerage company is the conclusion of the sales contract and closing; it does not include investigating or judging whether a property is suitable for a project. Real estate brokers introduce properties that match conditions such as budget, location, and layout and mediate the transaction, but they do not bear responsibility or duty of investigation for the project, nor do they provide any guarantees.
Failing by blindly believing a broker’s words regarding repairs or utilization is a common trouble even within Japan, but the broker is not the only cause. One should understand the professional scope of the broker and seek opinions from experts in each field.
5: Thinking the problem is the language barrier
Many people tend to think that the language gap is the biggest hurdle. They assume that if they understand the procedures through interpretation or translation and meet the necessary conditions for contracts and formalities, no problems will occur. However, the problem lies in dismissing "cultural differences" and "Japanese common sense" at a deep level. There are many cases where property searches are started based on plans that depend on the common sense and experiences of countries other than Japan.
In Japan, where invisible cultural elements such as customs, common sense, implicit rules, manners, values, relationships, and communication styles exert a strong influence, attempting to proceed with a project based on the common sense of other countries should be avoided. For example, for business purposes, the feelings of local residents and the relationship with them are extremely important, yet they are an element easily overlooked.
Recent movements regarding minpaku (private lodging) regulations are a clear example. Friction with local residents in various areas has triggered movements to tighten regulations or prohibit new entries, affecting the entire minpaku business. Closing the language gap is not the same as closing these invisible gaps.
Furthermore, a project involves multiple experts and institutions, including real estate companies, architects, contractors, and government offices, as well as administrative scriveners, tax accountants, and sometimes English-speaking lawyers. The project progresses as these different categories of specialized fields influence one another.
However, these experts do not get involved in fields outside their expertise, nor do they coordinate with each other on their own initiative. Also, in Japan, services that provide cross-sectoral support for a project hardly exist.
For someone living overseas who does not speak Japanese and is unfamiliar with Japanese culture, coordinating everything themselves is a very high hurdle and an unrealistic approach. It is also important to assign a role to consolidate the whole or, if that is impossible, to decide how to manage it before purchasing the real estate.
Particularly in Kominka Projects
While the content so far applies to Japanese real estate projects as a whole, it becomes particularly prominent in kominka projects. Since the kominka market is not standardized and each building has high individuality, and because craftsman networks and relationships with the local community are vital, lack of preparation or misperception of the budget becomes a greater risk.
Because it is a specialized market, a local partner is necessary; however, the fact that work in Japan is fundamentally divided among various experts should be seriously considered. In Japan, "cross-cultural liaisons" who bridge different cultures, which are common in overseas projects, hardly exist. While there are a few PM-like services in kominka projects specializing in renovation and construction, such as the construction process or relocation, they mainly do little more than bridge the language gap. The important point is that language support does not bridge the cross-cultural gap.
Particularly in kominka projects where old customs, values, regionality, and craftsman culture remain strong, this point should not be overlooked.