Buying a condo with the intention of selling in 7~10 years?

[davehtexas]

My partner and I (JP national/PR holder) have been living in a rental 2LDK at 210k/mo for 3 years. We both have permanent jobs in Tokyo, and we've been casually considering purchasing either a house or condo sometime in the next year.

Initially, we were more interested in buying or building a standalone house. We don't have children, but it's still a possibility so we may need more space. We also personally prefer the idea of having a house rather than a condo for our permanent home.

After looking at a few properties with realtors, we've been impressed with the secondhand condos on the market. There are some nicely renovated 20~30-year-old rooms close to the station in popular neighborhoods with monthly payments lower or equal to our current rent (with maintenance fees etc. included). Obviously that doesn't include the fees of buying (and eventually selling) the property, but they're starting to look really attractive compared to continuing to pay rent for a smaller property in a less comfortable part of town.

We've been talking about buying one of these used condos and then revisiting the standalone house market in a few years, but I wonder how advisable this is. There's no guarantee an already 30 y.o. property will sell in a decade. Also, I'm already 40 years old myself, so I'd be looking at financing that standalone house near 50.

Would be grateful to hear any advice or similar experiences.

 

[arcticwind]

@davehtexas I have been trying to come up with a list of pros and cons (specifically of used condos) since I'm in a somewhat similar situation to you. Here is what I have so far from my research about it.

Pros:

• Own the place, I can do (mostly) whatever I want to it.
• Older condos tend to be in good locations because they were built in convenient locations and are holding on to the location.

Cons:

• Currently the valuations seem a bit high, especially in central Tokyo.
• Next year there will be a mandatory* labeling standard introduced to condos (https://www.livable.co.jp/l-note/news/g16295/)
• Older condo standards (especially pre-2000) are apparently much worse, due to not having a 10 year guarantee post-construction. Also potentially things like asbestos to worry about. Maybe shitty plumbing. ETC.

*they will name-and-shame developers who do not reveal their energy efficiency numbers. The idea is that condos from next year onwards may be considerably more energy-efficient as a result.

Another thing I have been thinking about for 20~30 yr old places is... if you buy it now in and sell it in a decade it will be a 30~40 year old place. The theory around depreciation says that the depreciation will be minimum for an older place... but as a buyer now who is not considering 30~40 year old places, I'm not sure people in 10 years would be either. That being said, it sounds like old condos can be great if the management is really good.

Some of these things have me leaning more towards a detached house, but the general consensus seems like those are a bit more difficult to sell, especially for around what you got it for. The valuation part about condos kind of makes me feel like I may be overpaying and makes me a bit concerned about resale value. I've been thinking about building a house but I highly doubt I'll be able to get things right for my first build.

All said, the amount of analysis paralysis so far has caused me to re-sign my current lease as I try to figure things out. Another year (at least) of being too cold in the winter and too hot in the summer I guess.

 

[arcticwind]

Also, kind of unrelated but after talking to (and listening to) some real estate agents, I definitely have started taking what they say with a grain of salt.

Remember that they are just salesmen of used properties (they cannot do new construction, which are sold by the developers). They have a vested interest in selling you that type of property. Definitely rely on them, but also do your own research as well.

 

[southronlady]

@arcticwind House is not only harder to sell, but also harder to rent. If you for example decide to temporarily move out of Japan, house can be an issue.

I agree with everything else. From my understanding, apartments that now have energy valuation are “self evaluated.” It’s good to see they are standardizing it.

 

[arcticwind]

@southronlady The hard part is balancing this with the reality of the current condo valuations. Suppose interest rates go up and valuations drop, you may find yourself in some deep shit if you find yourself in a position where you need to move.

 

[hope4family]

@arcticwind Is one of the cons not how much the service & maintenance fee will cost and likely increase as the place ages? For me that's a big one

 

[arcticwind]

@hope4family My post is mostly thoughts on things you would think about right now and how they would affect selling in 10 years.

Personally, paying the fees is fine to me if the alternative is my home being in disrepair. A good maintenance company should be able to manage things to make sure there are no big surprises.

 

[kitkatmatt]

@arcticwind

but as a buyer now who is not considering 30~40 year old places, I'm not sure people in 10 years would be either

I bought a 42 year old condo specifically because of the weird economics around Japan's condo depreciation. I didn't believe it myself because it doesn't really make sense from my perspective, but multiple realtors broke down the depreciation over time and it seems that condos essentially stop losing value around 40 years.

If you find a building that otherwise meets your needs (good plumbing, wiring, no mold, etc) I actually recommend older buildings if you actually intend to resell eventually.

 

[arcticwind]

@kitkatmatt I believe you are referring to the tax depreciation of the building but the reality has been a bit different in recent years. Following the usual depreciation math (e.g. things like the "new condo premium"), you would expect condos from about 10-15 years ago to be worth significantly less than they were purchased for. However, almost every used condo (10-20 years old range in the greater tokyo area) I have been looking at is selling 10-40% more than the current owners bought it for.

Extremely old condos (kyuu-taishin) are not following this same trend of appreciation (at least not to this degree). In fact, some may even be considered a bit affordable, but that's probably for a reason (namely, they are old and may have plenty of red flags).

EDIT: some grammar fixes for clarity.

 

[kitkatmatt]

@arcticwind I bought my condo in Osaka, so I'm not familiar with Tokyo prices. I can say though that currently my condo is indeed worth more than I bought it for.

edit - my building depreciation is lower than the appreciating value on the plot of land allotted to me through ownership.

 

[johndjhnydee]

@arcticwind

Currently the valuations seem a bit high, especially in central Tokyo.

I don't see it going down.

 

[davehtexas]

@arcticwind Thanks so much for sharing your research (and the advice about realtors). Lots of helpful points here.

 

[arcticwind]

@davehtexas Some things I've noticed for new (condo) builds, since I was considering those too:

1. They are already trending at being built for better thermal efficiency (perhaps because of the labeling next year?) and ZEH is definitely trending. While ZEH is not something like passivehaus, it is a huge step in the right direction and should be significantly more energy efficient and comfortable (thermally) than most condos from 20-30 years ago. It's pretty common for them to brag about their windows, insulation, high-end builds are starting to have HRVs, etc. Perhaps not good by international standards, but really good by Japan standards.
2. In general, it seems like many "good" plots of land in greater Tokyo are pretty much all gone, as my original post brought up. A lot of new builds are built in disaster areas or liquefaction zones, or a bit further from the station, or in areas that aren't fully developed yet. The general consensus seems to be that it's unlikely that a well built apartment complex will be destroyed by these things, but it can make your life very difficult when such things happen. See: flooding disasater in 2019 in musashi-kosugi. TBF prices are still high in Musashi-Kosugi, though the insane appreciation has leveled off.
3. Prices. Everything is so expensive now relative to before. I'm sure you've seen the news about new condo prices in Tokyo exceeding bubble levels. In fact, we can expect labor to get significantly more expensive from now on due to labor laws disallowing construction companies to be quite so "black". Valuations are high, but that doesn't mean there aren't things that are putting upwards pressure on prices (that's not to say there aren't downward pressure either).

 

[jsgringo]

@arcticwind What about offplan apartments? I saw a nice looking one around my neighborhood. I can't move in till next year but I can pre-order already. Would there be a big value decrease too if I sell it in 10 years?

 

[arcticwind]

@jsgringo I have no idea, and no one really does.

If times continue to be good and prices continue to rise, it will probably be worth more. If something bad happens and the good times end, who knows.

There are plenty of forces that could push prices in either direction.

 

[gotquestion]

@davehtexas We bought the best piece of land we could afford and are building the cheapest house we can get away with, without sacrificing too much. The result is our land is 80% of the investment which should be enough so that the land appreciation will outpace the house depreciation.

 

[haroonshehzad]

@davehtexas Really it depends on what you want and what the next couple years of your life will turn out to be (the latter of which is somewhat unpredictable).
In the last 6 months I have gone to many different Realtors (introduced to some by friends as well) and done a lot of research online about the Japanese real estate market. I am by no means an expert, but what I have found is that if it aligns with your current situation, you will generally see a nice life improvement as you will be living in a nicer place compared to a rental and paying the same if not less. Typically if you live there for 5-10 years you will cover all the initial fees and start to earn / save money (compared to if you had been paying rent). However, if you're going to move in a few years or you like trying out living in different locations it might not be the right move for you. As unfortunately in Japan, you will not make a large profit on the real estate market like you would potentially in other countries.

After much back and forth we are looking to move to a stand-alone house in a nice area, live there for 5 to 10 years and then potentially rent or sell. We don't plan to make a lot of money, but we plan to live in a nicer place with our dog and a car and have at least a little bit more space than a typical apartment or mansion, and if a kid comes we would have the space for that too.

In general in Japan It seems less likely to make a huge profit on real estate therefor I look at it like this:
If it will align with your interests and life needs (which is more of a qualitative factor and less of a financial or quantitative Factor) then you are sure to gain from it.

Hope that helps!

 

[davehtexas]

@haroonshehzad Thanks for the reply. I don't have any hopes about flipping property for a profit here, but it would be nice to come out ahead of paying rent for the same time period.

In general in Japan It seems less likely to make a huge profit on real estate therefor I look at it like this: If it will align with your interests and life needs (which is more of a qualitative factor and less of a financial or quantitative Factor) then you are sure to gain from it.

Yeah, I'm more concerned with the qualitative dimension...I'd rather pay for something that makes us happy for the next decade than go full FIRE in a wooden 1K. But it looks like there's no avoiding getting out the spreadsheets and making sure that we can do so without hindering our chances of buying a house in the future.

 

[lishacccc]

@davehtexas If this is a money decision, make a spreadsheet with your assumptions and model it out. I'm sure many of us would be happy to provide feedback on such a sheet. I think you will find that short term ownership like that is inferior to renting a similar property and investing the difference in stock.

If this is not a money decision, ¯⁠\⁠_⁠(⁠ツ⁠)⁠_⁠/⁠¯

 

[godwin_robby]

@davehtexas One of my most vivid memories of the Japan real estate market is talking to realtors who sell up the properties you are considering buying and talking about how great the area is.

When you go to sell, it is pretty much "what are you crazy!!! no one is going to buy that!!!! there are no buyers, it will be very difficult even if you set the price very low". Same person a few years apart when my wife's family members purchased some properties. It was so ridiculous it could have been part of a comedy act.

Granted I think Tokyo will be differen, but my wife has several family members, cousins, uncles, etc. who own properties or pieces of land and are essentially stuck with them. Her Dad owns some land near Kumamoto which he has to pay taxes on every year, but can't sell because it has no road access. It's crazy.