The real estate agent picked us up in a company car at Takayanagi Station in Kashiwa, Chiba Prefecture, about an hour and 15 minutes commuting time north of central Tokyo. The car had long scratches on the side, probably incurred during attempts to park in unfamiliar spaces, and we drove to the property through dense suburban sprawl overseen by towering pylons and interrupted by small plots of farmland.

The two-story house we were visiting had royal blue siding and was 16 years old. The owner had moved out two years ago. The wallpaper was discolored, the laminate wood floors spongy, the second floor “veranda” filled with debris.

The price: ¥5.9 million. We estimated it would take at least ¥6 million to make it livable, but even around ¥12 million seemed too much. Moreover, anyone who bought the house would have to assume the lease for the land, which was ¥38,000 a month.

The agent explained that the same landlord also owned the land on which the four other houses on the street stood, as well as the street itself. The owners all had them built at the same time and paid the same rent. The leases were for 50 years, which meant the owner of the blue house was still paying rent, even though he didn’t live there any more, and would continue paying rent until he found someone to buy the house and take over the lease. He originally wanted ¥12 million, but took it down to ¥5.9 million about a year ago. We asked what the options were if he couldn’t find a buyer.

“Oh, he could easily rent this place, depending on how much he asked,” the agent said. “Many people in this situation do that.”

The concept of owning a house on rented land — called shakuchiken in Japanese — isn’t uncommon. According to the land ministry, between 1993 and 2007, 35,492 single-family homes and 18,937 condominium units were built on rented land, a trend that peaked in 2001, when many companies in the Tokyo Metropolitan area starting selling off property, fueling a development boom characterized by cheaper condos. When prices rose after 2005, shakuchiken started becoming popular again. The agent said that the number of people building houses on rented land was increasing, “But you don’t see so many (of the houses) on sale.”

As a rule, the value of homes in Japan depreciates rapidly, but land is still expensive, and not just in urban and suburban areas. Because of usage laws that make it difficult to shift land designated for agriculture to residences, even property in the countryside can be costly.

Doug Allsopp, who is self-employed, had a house built on rented land seven years ago. He and his family wanted to live in Kamakura, Kanagawa Prefecture, but were looking to rent since they didn’t think they could afford to buy a house there. A real estate agent directed him to a plot of land being developed by a housing company. The land was owned by a local temple. (Organizations like temples and hospitals tend to own a lot of undeveloped land in Japan since they are mostly exempt from paying taxes on property.)

“This company finds land and then makes contracts with the owner to build and sell houses on it,” Allsopp explains. “Our lease is for 20 years, and we deal directly with the temple.” He pays ¥16,300 a month for the 209 sq.-meter plot. The house itself cost ¥38 million and Allsopp says he could never have afforded it if he also had to buy the land. While he doesn’t pay tax on the land, he does pay a city tax on the house.

Since his lease is for 20 years, Allsopp’s deal is what is called kyūhō shakuchiken, indicating it’s a lease according to the “old law.” Under such agreements, it used to be legally difficult for the landlord to ask a tenant to leave if the tenant didn’t want to, even when the lease expired. In 1992 the government revised the law to allow landlords more flexibility, and also approved teiki shakuchiken, or “limited” leases that have a set time period of at least 50 years, after which the tenant must abandon the plot and remove, at his own expense, anything he put there. This law benefits the landowner more than the homeowner, and as a result more landowners have subsequently offered properties for rent on this basis.

Developers also used the new law to convince landowners to build multi-unit residences and then collect land rent from buyers. In many cases, developers themselves sold condos on land they owned and then rented out to the condo buyers. In the Tokyo area, condos on rented land cost about 30 percent less than condos on land collectively owned by the residents.

The one catch is kaitai junbikikin, a fund accumulated to pay for the demolition of the condo after the 50-year contract is up. In Tokyo, the “deposit” for such a fund, depending on how many units are in the building, can be as much as ¥8 million per condo. Another demerit is that the older the contract, the more difficult it may be to sell a house or condo, since the new owner will have to assume the lease with a shorter period remaining.

But this is all theoretical since the law is only 20 years old, which means the oldest teiki shakuchiken case still has 30 years until expiration, and nobody knows what Japan’s housing situation will be like in 2042. Many who rent out land bought their properties during the inflated bubble period of the 1980s and are simply waiting for the value to go up before they sell, but experts agree that land prices will likely never reach those heights again.

Some landowners may decide to break whatever contracts they have with tenants and offer to sell them the land. The previous incarnation of the semi-public housing corporation UR bought massive tracts of land in the 1980s for housing developments that never materialized. Rather than sell off the land and risk the ire of the people — whose taxes paid for the purchases — by incurring huge losses, UR has rented out some of the land piecemeal to homeowners. Recently we inspected a house in northern Chiba whose owner still has 43 years on his land lease with UR, and apparently he can buy the land at any time. He wants to sell his house, though, and thinks that as it’s relatively new he can get a fairly good price for it.

Allsopp is also thinking of selling his house before his lease is up, and though he knows he won’t get what he paid for it, he doesn’t think the fact that there isn’t land attached will make it harder to sell. “I think Kamakura is on the easier side,” he says. “People definitely want to live here.”

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

Know your lease before you sign it

Kyūhō shakuchiken: Leases in accordance with “old laws” that favor homeowners; usually used by institutional landlords who have no intention of ever selling.

Shinpō shakuchiken: Leases in accordance with “revised” laws that set the rental period at 30 years and allow landlords to exercise “reasonable” demands.

Teiki shakuchiken: Leases set for a period of at least 50 years, after which the tenant must abandon the land.

Shoyūken: Right of ownership, usually used in relation to land.

Hoshōkin: Security deposit. In terms of rental land, it is less a “deposit” than a fund that can be used to clear the land after a lease expires; often runs into millions of yen, whether the home is a house or a condo.

Kenri: Rights, which should be worked out clearly between landowners and homeowners before any lease is signed.

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