|

Building your home can come at quite a cost

by Philip Brasor and Masako Tsubuku

People in the market for new single-family houses usually don’t worry as much about the land those houses occupy because they tend to work with developers, who purchase huge tracts and then subdivide them. The customer buys the land and the house as a package, though the authorities see it as two purchases and assess property taxes accordingly. In such transactions, either the new house is already on the property or the customer is obligated to buy a model from the developer or a partner and have it built on the land.

But some people prefer a house constructed to their own specifications, and so they want to purchase a piece of land first and then hire a builder to put something on it. Though seemingly straightforward, this approach is more complicated than buying a predesigned home.

If we assume that location is the first concern, it’s easier for potential home buyers to explore new housing developments within a chosen city or town. Otherwise, they have to visit numerous vacant lots in the company of real estate agents, and weigh the pros and cons of each one, which can be time-consuming unless they know exactly what they want and are able to convey those preferences successfully to the agent.

Usually the most important preference after location is price. With a developer, the budget problem is easier to address, since everything is presented as one package. Without a developer, the buyer has to take into consideration not only the price of the land and the cost of building a house, but also incidental fees and expenses that can add up to millions of yen. Anyone with a limited budget needs to understand what’s at stake before he or she starts looking for land.

Many plots are sold as joken-tsuki (with conditions), meaning that if you purchase the land you have to use a designated builder or housing company. Compared to plots in the same area with similar attributes, the prices of such plots may be lower because the landowner’s goal is to sell houses not land. If the purchaser of such a lot wants to buy a house from a different company, in most cases he will have to pay more for the land.

Joken-tsuki lots tend to be located within existing housing developments, and developers sometimes sell off parts of the development gradually in order to maintain the value of the individual lots. Unless the location is guaranteed to be popular from the start, if they put all the lots on sale at the same time and the supply ended up exceeding demand, a downward pressure would be placed on prices. Nevertheless, there are usually a few lots that don’t sell for a long time, and eventually the developer will cut the price, making it worthwhile for those who prefer to spend more on designing their own home. There are many reasons why a lot doesn’t sell: size, lack of sunlight, limited access to public roads and other amenities. You get what you pay for, but you might end up paying much less than you’d expect.

The advantage of buying through a developer is the development. The land is prepared for construction, so infrastructure such as electricity, sewerage, and gas and water lines are already in place before building begins. Obviously, land that already includes infrastructure is more expensive than land that does not, but how much more? Potential home buyers who don’t want to live in gridlike subdivisions, where the houses can be practically on top of one another, will find this the most daunting aspect of their land search.

There are decent-sized lots in cities and towns throughout the Tokyo metropolitan area that can be had for as low as ¥3 million, many with attractive surroundings and nearby amenities, but they aren’t necessarily ready for construction. If the land is remote, municipal water and sewerage may not be available, which means you will have to dig a well and a cesspool, either of which can cost as much as ¥1 million. But even in fairly crowded suburban areas, work may be necessary to bring sewerage and water lines into a plot of land, and that could cost anywhere from ¥300,000 to ¥1 million, depending on how much labor is involved. (Two-thirds of the Japanese population has access to sewerage, as compared to three-quarters in the United States and 100 percent in Britain) In that case, the buyer should check with the local government, since many partially or fully subsidize such construction as a means of attracting new residents.

Another option is to buy land that contains an akiya (abandoned house), of which there are literally millions in Japan. A typical house becomes worthless after 25 years, so if an old one is still standing, it means the price of the real estate is for the land only. Renovating a superannuated structure may actually end up costing more than building a brand new house on the same plot of land, but in the latter case the buyer will have to demolish the existing house and then prepare the land for new construction, which costs money.

Often you will find listings for old houses with two prices. Recently, we looked at a house in Abiko, Chiba Prefecture, that was built in 1988. The owner wanted ¥7.8 million for the house and the land, or ¥8.9 million for just the land. The extra ¥1.1 million was the cost of demolition, though we’ve found that hiring a company to destroy and remove an old house costs around ¥600,000, so it may be cheaper for buyers to purchase land with a house and have the demolition done themselves. There are cases where the price may be higher because some local governments limit what sort of building materials can be dumped in landfills.

After an old house has been removed, the land has to be inspected, for a fee of usually around ¥50,000, and then prepared for construction, an expense that isn’t always included in a builder’s estimate for construction. Also, because property taxes are assessed on Jan. 1, the seller may choose to wait until after Jan. 2 to tear the house down since land designated for residential use is taxed higher if it is vacant.

On top of that there are registration and other administrative fees, not to mention realtor commissions. If it all sounds like too much trouble, it would be worth noting that prices of newly built homes are also coming down. In the past several weeks we’ve visited three new subdivisions in Chiba Prefecture, all within an hour’s train ride from Tokyo, where brand-new homes with land are selling for between ¥14 and ¥18 million, which is less than a lot of used homes in the same areas. Of course, they’re all factory made and utilize relatively cheap materials, and there isn’t much space between one house and the next one. But they’re all properly earthquake-proofed, with double-glazed windows and good insulation. Best of all, you can move in right away. In 25 years, they won’t be worth anything except the land beneath them, but that’s not something you have to worry about now.

Philip Brasor and Masako Tsubuku blog about Japanese housing at www.catforehead.wordpress.com.