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If it is your dream to find the perfect piece of land and build your own home in Japan, a big picture view of the process will help you decide whether this is the right path to home ownership, especially if you are new to the market or are not proficient in the language.
This guide outlines the main steps involved in buying land and building a custom-home on it. It was prepared with the help of Plaza Homes, a bilingual real estate agency with a track record of over 50 years experience assisting foreigners in buying, selling and renting real estate in Tokyo.
Step 1: Answering the big questions to start the process
The first step involves asking yourself and your family basic questions about the neighborhood you want to live in, how much space you need and the layout of the home itself, then thinking about this in the context of Japanese building standards and costs.
In Japan, a floor plan is generally expressed as LDK + number of rooms. LDK stands for “living / dining kitchen”. Start by imagining how large you want the LDK portion of your home to be in square meters, then add on additional rooms based on your family’s needs.
Using the Japanese Ministry of Land’s definition, an affluent family in Japan generally has 25m² of living space x the number of household members + an additional 25m². So for a family of four this means 25m² x 4 people + 25m², or about 125-m². Of course, how large a home you want to build depends on your own needs and what you can afford.
Estimating purchasing and construction costs
A large proportion of the cost for building a house is the cost of purchasing the land itself, while the construction costs also vary depending on the region, size and construction company.
In general, for a custom-built house with a floor area of 100m² to 120 m² construction costs are in the range of ¥20 million to ¥30 million. For higher quality construction, expect to pay at least ¥40 million or more.
Additional Costs
You should also consider additional costs like fees and taxes. A good rule of thumb to work with is that the additional costs of building a custom-built house will be about 10 to 12 percent of the total amount of the purchase price of the land plus the construction of the house. So, for example, a ¥30 million custom-built house on a ¥50 million piece of land will incur about ¥8 million to ¥9.6 million in other expenses, or 10 to 12 percent of ¥80 million.
Make an approximate budget while considering estimated costs, then work out a financial plan that takes into account your own funds plus how much you can reasonably afford to pay each month, if you need to finance your purchase.
Getting a loan
If you want to borrow money to buy land and build a home, you must choose a financial institution that offers housing loans available for the purchase of land and the construction of a custom-built house.
Generally, housing loans are not available for the purchase of land only. However, if you are purchasing land on the assumption that you will build a house, you can borrow to pay for the land and for building expenses by submitting construction plans and an estimate of construction costs along with the land purchase contract.
Coordination, timing and an overview of the process
Because there are multiple moving parts to the process of looking for land while also finding a construction company and lender, understanding how to coordinate the various steps is also important.
Plaza Homes recommends that if you proceed with your land search and selection of a construction company simultaneously, the construction will go more smoothly, since you will be able to share your vision of your home with the builder at an early stage. It is also a good idea to choose your lender around the same time you begin your land search.
Before purchasing land, it is also highly recommended that you have the construction company survey the land to make sure that the house you want can be built.
After you purchase the land, you will sign a construction contract with the construction company and the construction work begins. Since the housing loan is executed only after construction is complete, if you need to finance the land purchase and construction, you need to select a financial institution that offers a “land advance loan” or bridge loan.
Guide to buying land and building a on it in Japan: By Plaza Homes
The information above is only meant to give a cursory overview of the first steps in the land purchasing and home building process. An outline of the whole process would include these main steps, after the all-important first step of answering the big questions about the home you want and setting a budget:
- Search for the land
- Choose a construction company
- Get a housing loan
- Do the land and ground survey
- Finalize the design plan and cost estimate
- Pre-apply for a housing loan
- Sign the land purchase agreement
- Start construction
- Complete construction
Fortunately, there are resources available for foreign buyers in Japan. One of the most-established agents in the greater Tokyo area, Plaza Homes, has an in-depth guide to the entire process of buying land and building a house on it. Some topics that may be of interest to buyers include:
- Land search and purchase
- Choosing a construction company and construction costs
- Costs of buying land and building a house
- Options for newly built houses
For more information
Plaza Homes is one of the leading bilingual real estate brokerages in Tokyo, with over 50 years of experience helping foreigners buy and sell real estate in Japan. If you are considering buying a property in Tokyo, please contact them below to get started!
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