Project Preparation Before the Property Purchase Phase
Early Project Preparation Is an Important Risk Mitigation Step
Many people who consider purchasing property in Japan begin by searching for properties.
However, purchasing property is only one phase of a larger real estate project. It is neither the objective nor the final goal.
Because it is a project, there are many assumptions and considerations that should be clarified before entering the purchase phase. Addressing these points before beginning a property search is an important way to reduce risk.
After conducting preliminary research, you may decide not to proceed with the project or to postpone it.
But there are situations where deciding not to proceed is necessary to protect your assets.
The worst-case scenario in a real estate project is that both the money invested in purchasing or repairing a property and the time spent on the project are ultimately wasted.
This article provides an overview of key preparations that should be undertaken before purchasing property when planning a real estate project in Japan.
1 Define the Project Purpose
Clarify how the property will be used, including possible future options. The required conditions and considerations vary depending on the purpose, such as residential use, a vacation home, hospitality, business activities, and many other possibilities.
2 Confirm Required Regulations and Procedures
Confirm the permits, zoning regulations, local ordinances, and infrastructure requirements necessary for the project. In Japan, these conditions often vary depending on the municipality or administrative authority, so it is important to investigate and confirm them from the perspective of the project itself, not only from the standpoint of a real estate transaction.
3 Estimate the Total Cost Required for the Project
Through market research and simulations, estimate the approximate total cost required to carry out the project.
This includes not only the property price but also repair or renovation costs, equipment investment, and expenses related to various procedures.
Of course, estimates at this stage have limitations, but they should help reveal the general level of costs involved.
Using this level as a reference, you can develop a realistic understanding of the total project cost.
Designing a realistic budget is extremely important when planning a project.
To do so, it is necessary to understand the price range of properties that meet the project’s conditions and the level of investment required, while also investigating operating costs and expenses related to procedures from a comprehensive perspective.
If the estimated total cost required for the project does not match your available budget, adjusting the location or property conditions may reveal more realistic options.
In some cases, it may even be necessary to reconsider the project’s original purpose.
4 Begin the Property Search Based on the Defined Conditions and Budget
Through the research conducted so far, the location requirements, property conditions, and a realistic property budget should become clearer.
Based on these conditions and budget, you can finally move into the property search and purchase phase.
This is the stage where communication with a real estate broker typically begins in earnest.
Real estate brokers generally do not handle steps 1–3.
Key Point
Working with Relevant Professionals
It is recommended to begin communicating with the various professionals responsible for procedures, permits, construction, or management depending on the purpose of the project before purchasing a property.
The scope of a real estate broker’s role is limited to the property transaction process, and matters related to the use or operation of the property generally fall outside their expertise.
Starting communication with the relevant professionals early allows you to gather a wide range of information, including advice on procedures, confirmation of regulatory requirements, and preliminary cost estimates.
This preparation can also help ensure that the post-purchase process proceeds more smoothly.
How to Think About Budgeting
A budget for a real estate project should not be a simple “desired budget.”
Instead, it should be a realistic budget carefully designed based on preliminary research and strategy before entering the property purchase phase.
In practice, however, a very common approach is to set a “desired budget” based on the price ranges seen on property portal sites and begin directly with the property purchase phase.
In such cases, because sufficient preliminary research for the project has not been conducted, the budget is very likely to fall below what is realistically required.
Budgets in these situations are also often inflexible, which can lead to problems such as being unable to secure the funds necessary for essential expenses.
For this reason, it is strongly recommended to design a realistic budget for the project as a whole before starting the property search.
A Real Estate Broker Is Not a Project Manager
The role of a real estate broker in Japan is to facilitate the property transaction.
Tasks such as preliminary research or confirming conditions specific to each project generally fall outside their scope, and brokers do not necessarily introduce properties that are suitable for the intended use of the project.
The information provided during the contract process as part of brokerage services is limited to what is legally required under Japan’s Real Estate Transaction Business Act, such as zoning classifications and basic facility information.
These disclosures are not designed to address all the considerations required for a project.
This is particularly important when a residential property is intended for business use or revenue-generating purposes. In such cases, relying only on the information presented during the sales contract process may be insufficient, which can significantly increase uncertainty.
For this reason, it is strongly recommended to approach property transactions as just one phase of a larger project, and to enter the purchase phase only after developing a comprehensive strategy and plan.