October 30, 2020
① Real Estate Types and Purchase Flows – newly built property

<Procedures to Purchase Real Estate in Japan>

Real Estate Types and Purchase Flows

Are you aware that real estate properties can be roughly categorized into “newly built properties” and “second-hand properties,” in terms of their sales format, and purchase flows differ for each category? Below we would like to give you information on newly-built properties.

■ Newly-built properties

1) Newly-built condominiums and new “ready-built” detached houses

Newly-built properties are mostly sold by real estate developers. Buyers purchase such properties either directly from sellers or from agents contracted to sell the properties. Typical examples are newly-built condominiums and new (ready-built) detached houses that are launched in large numbers in the same area at the same time.
In many cases, the construction of such properties is not completed at the time of their launch. When a large number of properties are to be sold in one project, the properties are generally divided into several lots for which certain sales periods are fixed to sell them prior to the completion of their construction. One of the features is that the sales procedures, including the “explanation of important points” and “sales and purchase agreement,” are made jointly by gathering buyers who have decided to purchase the properties in the same sales period. By moving into these new properties at around the same time, no one in the new community will have any bias or feel isolated, which can be seen as advantages.
(* In many cases of small projects with only one or two newly-built detached houses, the method to sell such properties resembles that to sell second-hand properties. Also, the above might not be the case for the remaining small number of condominiums in the last sales period for a project involving a large total number of properties.)

<Flow for purchasing newly-built properties>

Search properties
* Here are the key points for property search

Visit properties (model rooms or on site)

Set up a financial plan
  • When intending to use a loan for the purchase of a property, the buyer needs to receive a “preliminary screening” while still deciding the property to purchase.
  • Most real estate developers tie-up with banks to offer housing loans, but the buyer can also find a bank on his/her own to present a pre-approval (official approval) for a loan.
  • This procedure is indispensable for a formal purchase application, and even if the scheduled date to move into the property is far ahead, is required at this timing in every case.
  • Applications for popular properties are possible to be subject to a lottery. In case you lose the lottery, we advise you to apply for a preliminary screening at the amount of the price of the most expensive of the properties you might purchase, in order to avoid “unnecessary duplication of effort” and “time loss.”
  • In most cases of newly-built condominiums, the buyer is required to pay a “lump-sum payment for the repair reserve fund,” which is included in property purchase charges. Since it is to be paid in cash, do not forget to check its amount in advance.

Explanation of important points
  • Before entering into a sales and purchase agreement, the buyer will receive an explanation of important points concerning the property from a real estate transaction specialist who belongs to a real estate agency. This is a process provided for by the law, in which matters concerning the property that the buyer should know are explained over a time period of 60 to 90 minutes.
  • The buyer himself/herself is required to attend the explanation meeting in principle, but with an official letter of attorney, a proxy can attend the meeting on behalf of the buyer.
  • Since the buyer is asked to affix seals to documents in most cases, you are advised to prepare a personal seal stamp (inkan) in advance. Please be aware that, in some cases, the seller does not approve of using unregistered seals (mitomein), but instead requires the use of registered seals (jitsuin).

Pay earnest money (tetsukekin)
  • The payment is usually required at around the same timing as the explanation of important points Therefore, the buyer will need to prepare cash with a minimum of 5-10% of the property price in advance.
  • The earnest money will be eventually counted as part of the property price or property purchase charges, the main purpose of making this payment is to show the seriousness of the buyer’s purchase intention.

Enter into a sales and purchase agreement
  • Once the property purchase is confirmed to proceed, the buyer enters into a sales and purchase agreement with the seller.
  • If the buyer withdraws his/her application before entering into the agreement, the earnest money shall be returned to him/her.
  • If the agreement is subsequently cancelled due to reasons on the buyer’s side, the earnest money shall be forfeited.

Housing loan agreement (only when loans are used)
  • The buyer enters into an official loan agreement with financial institution from which the buyer received a pre-approval before entering into the agreement. The buyer can also get a loan from a bank other than the one from which the pre-approval was received, but due to the issues of scheduling and processes required, the buyer usually enters into an agreement with the bank from which a pre-approval was received.
  • The loan execution (commencement) date will be set on the date of delivery of the property.
  • Charges, including loan guarantee fees, generally differ depending on the loan types and structures and each financial institution and are required to be paid in cash, so don’t forget to check these details beforehand.

Delivery of property to the buyer
  • Upon completion of construction of the property, the buyer pays the remaining amount of the purchase price, receives transfer of the property from the seller, and formal procedures for real estate registration are conducted.
  • The seller conducts the registration procedures.
2) Custom-built (detached) houses
If one wants to purchase a land lot and build a house customized to his/her taste on it, he/she can go to housing exhibitions co-joined by housebuilders (not developers) who assist clients to determine their property sizes and layouts, etc., that can possibly be built based on certain budgets. The material used for the windows, roof, and exterior walls, the construction method, and the construction price per square meter differ depending on the housebuilders. If decisions are already made for the land lot to purchase, the buyer should suggest the budget that can be used for the building with several companies at the same time, and receive suggestions from each of them.
If the buyer has not yet found candidates for a land lot to purchase, the buyer can either decide candidates by himself/herself, or rely on the land information exclusively held by the housebuilders. According to the land lot selected, unexpected expenses might be required for building the infrastructure equipment, so we advise you to consult with housebuilders before purchasing a land lot.
One of the downsides for this kind of property, which has many options to select, is that their costs are difficult to reduce compared with the “newly-built properties” mentioned above. Taking into consideration matters such as the selection of the housebuilder and the process of deciding the layout, after starting to consult with the manufacturer, you might need to wait at least half a year for the commencement of construction, even if matters run smoothly. As custom-built houses require more effort and time than you have ever imagined, your family will need to work together as one even on holidays!

* A further wide variety of flows is available for custom-built houses, so you should contact the manufacturers! They will prepare for you something like a calendar showing the construction time schedule.

Above, we have given you details of newly-built properties and the flow for purchasing such properties.
If you are interested in second-hand properties or newly-built properties to be purchased through a broker, please check the “flow for purchasing second-hand properties.”