We have seen a growing number of inquiries from people living abroad who want to purchase real estate located in Japan. The basic flow of the transaction is the same as for a purchase made domestically, but there are a few points that require special attention. In this article, we outline the key considerations that overseas residents should keep in mind when purchasing property in Japan.
The Role of the Real Estate Agent
Support throughout the transaction—searching for a property, investigating its condition, and negotiating contract terms—is generally handled by a real estate agent (fudosan chukai gyosha). In Japan, no one may operate as a real estate agent without holding a license under the Building Lots and Buildings Transaction Business Act (which requires the presence of a licensed real estate transaction specialist, a national qualification). For this reason, most licensed agents can generally be trusted.
That said, even among licensed agents, some act in bad faith or engage in fraudulent practices. Since overseas residents cannot easily verify the situation in Japan firsthand, if you feel uneasy, it is worth considering a large, well-established agency—for example, one listed on a stock exchange. The credibility of the organization as a whole reduces the risk that the safety of the transaction depends solely on the qualities of a single individual agent.
On the other hand, for relatively low-priced properties—such as an old vacation home in a rural area—large agencies often do not actively handle such listings in the first place. For these properties, it may be more reassuring to work with a local agency that has been operating in that area for many years, as such agencies tend to be more familiar with the actual condition of the property and the surrounding circumstances.
The Biggest Hurdle: Payment of the Purchase Price
For overseas residents purchasing real estate in Japan, the single biggest practical hurdle is the payment of the purchase price.
In a typical Japanese real estate transaction, settlement proceeds as follows:
- An earnest money deposit (tetsukekin) is paid at the time the contract is signed.
- Once preparations for registration are complete, the balance of the purchase price is paid.
- Simultaneously with payment of the balance, the buyer receives the title deed (registration identification information) from the seller.
For a domestic transaction, a bank transfer allows the funds to be confirmed as received on the same day, which makes this “simultaneous performance” easy to achieve. With an international wire transfer, however, it is common for the funds to take several days to arrive, so same-day confirmation of receipt is not possible. This creates a real risk: the buyer may have already sent the funds but cannot obtain the title deed until receipt is confirmed, or the seller may be unwilling to hand over the title deed before the funds have actually arrived.
In addition, escrow services are not yet widely used in Japan. In some countries, such as the United States, escrow is a standard part of real estate transactions, in which a neutral third party holds the funds temporarily and releases them to the seller only once the agreed conditions are satisfied. Japan currently lacks this kind of institutional framework.
Using a Lawyer’s Trust Account
One way to address this timing gap is to make use of a lawyer’s trust account (client account).
Where a lawyer has been retained to review the sale and purchase agreement, or to act as agent in the sale and purchase procedure itself, the buyer can transfer funds into the lawyer’s trust account in advance, and the lawyer can then transfer the funds to the seller’s account on the settlement date. This arrangement allows:
- The buyer to prepare and remit funds well before the settlement date; and
- The seller to hand over the title deed with confidence that the transfer from the lawyer’s account will actually be made on the settlement date.
In this way, the arrangement can achieve a function similar to an escrow arrangement, even without a dedicated escrow service.
It is important to note that a lawyer cannot be retained solely for the purpose of moving funds. Use of a trust account presupposes that the lawyer has been retained to perform substantive legal work—such as reviewing the contract or acting as agent in the transaction.
Summary
When purchasing real estate in Japan as an overseas resident, the key points are:
- Choosing between a large agency and a local, community-based agency depending on the price range and nature of the property;
- Understanding the structural problem created by the timing gap in international wire transfers at settlement; and
- Reducing settlement risk by retaining a lawyer to review the contract or act as agent in the transaction, and making use of the lawyer’s trust account.
If you are considering purchasing real estate in Japan from overseas, consulting a lawyer at an early stage—so that the settlement method is planned as part of the overall transaction—can help ensure the process goes smoothly and safely.
