Reader AP asked how house and land prices are decided in Japan.
“If a person has lived in a house for over 40 years without any type of contract and either the landlord wants to sell or the tenant wants to buy the land and house, how is the price determined? Is there a special formula for such a sale? I have heard of such sales at an exceptionally low price, but I have never heard how the price was determined.”
In principle, the owner is free to set the price, regardless of whether someone has been living on the property or not, explained Adam German, General Manager of Real Estate Japan.
However, he added, “While it is true the owner has the final decision on what price to set, if the price is too high they will have a tough time trying to find a real estate agent to sell the property. An agent knows he won’t be able to find a client to purchase and thus (would) have an angry owner as a client.
“A real estate agent determines whether an asking price is too high based on what similar properties are selling for in the same area, the demand for the area where the property is located, what is around the property and, in the case of Japan, what the land is worth.
“The building value is less important, as Japan is a depreciating market when it comes to buildings. This means that, regardless of materials used, buildings are treated like cars; in the first year of occupancy on a brand new structure, the building value drops 20 percent.”
One common way to estimate the value of land, according to German, is to use a service offered by the National Tax Agency called Rosenka (rosenka means “street value”), which can be found at www.rosenka.nta.go.jp.
With Rosenka, an agent can look up a street and find the average property taxes paid in previous years, which allows them to roughly appraise the land’s value. Once they have an estimate, they evaluate the approximate remaining worth of the building.
“There is no special formula,” said German, “other than comparing the property to other similar properties and using the Rosenka tax information from the previous year to estimate the land’s value. After that it is the real estate agent’s experience that adds that extra bit of confidence to an initial asking price.”
In AP’s case, German noted, “The fact that the tenant has been renting for 40 years has no impact on what price the owner wishes to sell at, other than sentimental reasons.”
In some cases, it’s possible to legally acquire property if you have occupied the property for more than 20 years, said Kaoru Haraguchi of Haraguchi International Law Office.
“If someone uses or occupies the estate without any contract and lives there over 20 years without receiving any claims (for payment) from the landlord, the inhabitant may acquire the right to use the estate. This is called ‘acquisitive prescription’ in legal terms and was established to protect the actual situation instead of the person (landlord) who fails to exercise their rights.
“Please note that acquisitive prescription is only formed when an inhabitant without any contract uses the house as if it belonged to him or herself. If the person using the house considers the house to belong to another person, acquisitive prescription is not typically formed. The details vary depending on the circumstances, but can include whether or not the inhabitant is required to pay rent, or if they pay property taxes, among other examples.”
This does not mean that anyone can live in a home for over 20 years without a contract and automatically become the owner. For example, if AP has been paying rent over the past 40 years, or even part of that time, he would still be considered a tenant and therefore acquisitive prescription would not apply.
AP mentioned that the owner and tenant are on good terms, so the best solution might be to determine the estimated value of the property and discuss with the owner what they would like to do, particularly if they don’t plan to hire a real estate agent to help sell the property.
You can find Real Estate Japan at www.realestate.co.jp and Haraguchi International Law Office at haraguchi-law.com/english/office/member/index.html.