Sometimes it pays to look on the bright side

by and

The flyers were provocative: New houses priced at more than ¥35 million, but the builder promised that the mortgage would amount to ¥0 a month. A free house is obviously too good to be true, but we decided to check out the merchandise to see what the story was.

The houses had not yet been built, but the lots were set aside in the corner of an existing subdivision in northern Chiba Prefecture. They had remained prepared and vacant for almost 20 years. The builder bought up more than a dozen and erected a model house on one, a two-story structure fronted by a large carport that extended almost the entire width of the property, though only half of it seemed to be reserved for sheltering cars. It didn’t take long to figure out the reason for this somewhat ostentatious addition. The roofs of both the house and the car port were completely covered with solar panels.

The builder was taking advantage of the government’s plan to boost solar as a viable energy source. In July 2012, it became possible for homeowners with solar systems to sell their energy to regional power companies for a fixed price. In order to make the plan attractive, the original rate was set artificially high — ¥42 per kilowatt — which would help homeowners pay off the high cost of the system itself. Since then, as the price of the equipment has come down, so has the guaranteed price for the energy. It’s now ¥37 per kW.

There are two ways to take advantage of the plan. One is to use the energy generated by the solar system in one’s home to run all the electrical functions and then sell any excess to the power company. The second method is to sell all the electricity generated by the solar system to the power company and have the home’s electrical functions run off the power grid.

It was the second option that the builder was exploiting. Because the power companies were compelled by the government to buy electricity at a higher rate from private people than they could sell it, a homeowners who sold all their solar electricity were at an advantage. The builder had acted fast by buying the vacant lots in the subdivision and then registering all of them for solar houses before the rate started dropping last year. Consequently, anyone who arranges to have a house built on these lots is still eligible for the ¥42 rate, and according to the law that will remain in effect for 20 years, no matter how much the price of solar equipment comes down. The housing company simply transfers title of the property to the new owner. Better yet, the 20-year period doesn’t begin until the homeowner actually starts selling electricity.

The ¥0 hook was explained to us by one of the salesman. Assuming that the potential homeowner secured a 35-year mortgage at the current low interest rate, the company calculated the resulting monthly mortgage payments and then offset them with the amount of money the homeowner would receive from the power utility for the electricity he generated. Using the model house as an example, which costs about ¥40 million, the amount of electricity that the house’s built-in solar system would generate was 12.9 kilowatts per hour. At the rate of ¥42 per kWh, the owner would receive on average ¥73,000 a month based on a full year of power generation, set against a loan repayment scheme of ¥72,000 a month. In that case, the homeowner would come out ¥1,000 ahead.

We assumed this was a best-case scenario, and that such an impressive outcome is only possible under optimum conditions. But the salesman assured us that the company had taken everything into consideration. The location was important, since there were no trees or other obstructions to block sunlight all day, but the company had also factored in the average amount of sunlight during an entire year in this area. However, he did point out that these savings were only guaranteed for 20 years, after which the government would likely rescind the program, depending on how widespread and inexpensive solar systems had become. Though utilities would still buy electricity, the rate would be much lower, and there would still be 15 years left on the mortgage. If the interest rate is variable, it would probably go up, meaning monthly repayments would go up, too, if the homeowner didn’t refinance the loan.

We have since learned that there are a number of builders offering the same sort of deal. These should not be confused with “smart-town” developments, which also utilize solar power buy-back systems but are mostly communal in nature. The home we saw is completely self-contained, which means all the conditions have to be right in order for the deal to work. As already mentioned, sunlight must be unblocked for the full year. Also, the roof has to be angled in such a way so that it faces south, which means the orientation of the house is affected. None of the homes can have gable roofs since the full surface must face south. Homes located on northern slopes of hills or even the north sides of streets may not be able to take full advantage of available sunlight. Because the builder we talked to is pushing the ¥0 mortgage angle, each house has to provide the maximum amount of sellable electricity, which is why the car port and its large surface area is important.

Depending on the manufacturer, 23 sq. meters of panels are needed to produce about 3kW of power. Mitsubishi sells a home solar system that costs ¥3,300,000, including installation, that produces 4.24 kW. The salesman told us that since his company buys their systems in bulk the price is lower than if you bought one and had it installed on an existing house, but it still amounts to a significant portion of the home’s cost, so while the electricity sale will cover the mortgage for the first 20 years, the system itself makes the house more expensive.

Other advantages are systemic. Though the central government no longer offers eco-points for solar systems, there are still related tax breaks, and some local governments have their own incentive schemes for solar energy. But if this sort of deal becomes more widespread, it could have a positive psychological effect on the housing market. One homeowner who availed himself of a new solar house and the power company buy-back plan said on his blog that he was originally going to have a conventional house built, when he discovered that the monetary value would reach zero after 26 years unless it was extensively renovated over time. With the solar buy-back plan, he could easily set aside the money needed for those renovations and carry them out when needed in order to keep the value of his property up. In a market where the value of a new home starts dropping the minute you move in, such a development could be revolutionary.

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