Renting in Japan

I’ve been planning to write a piece comparing Japanese and Australian real estate for quite a while now.  This piece titled “Are renters trashy?” in the SMH resonated enough to get me going:

But this blog is a bit of a rant about THOSE perceptions of renters as perhaps being a little less than homeowners. The view seems to permeate society to the point that even the people spouting it out don’t realise what they are saying.

Perhaps it’s got to do with the mantra that renting is “wasted money” and only fools would do it. But that view ignores the reasons people rent – maybe they’re new to the city (like us), have moved temporarily for work, have fallen on hard times, opt to invest in other assets and rent, or just plain don’t believe the oft-repeated story that buying a property is the way to go.

Finally, a voice for trashy renters!  As a renter throughout my adult life, I’m happy to see an article from a renter’s side of view, rather than the countless articles pushing home ownership.  Reading through the inevitably heated and voluminous comments following any real estate article on Australian web sites, some seem to have the opinion that renters are like sewer rats.  I’d like to disagree.  Here then, is an attempt to inject some perspective by comparing it with some completely unscientific polling I’ve done in Japan.

Renting

I’ve rented various places in Australia and one in Japan, and here’s what I’ve noticed.

My renting experiences have generally not come with a whole lot of respect in Australia.  The first time I walked into a real estate agent was with three uni mates, taking the exciting step of moving out of home.  Before we could even say “Hello, we’re looking for…”, we were instantly waved away to the photocopied pile of “for rent” properties, with the sharply given advice that we’d have absolutely no chance of finding anywhere without a rental history.  Welcome to the world of renting!

Later, there was the owner of a different property who once docked us points in an inspection for having rubbish in the rubbish bin(!), and used his strong negotiating position to coerce us into improving the property beyond what it was when we moved in.  Eventually, we went to the RTA and he backed down.

My point is that renting in Australia is not a pleasant process to start with, and when you compare it with Japan, it’s even less pleasant.  Here are some points to compare:

  • Australia: standard six-month leases, at the end of which, the landlord might turf you out to sell the property or up the rent faster.
    Japan: two year leases, with many stable rental properties.
  • Australia: if you break your lease, you must pay the rent until the landlord finds a new tenant, resulting in you paying two lots of rent.
    Japan: my landlord told me I’d need to pay a penalty if I moved out before the end of two years.  “Oh yes?”, I asked.  $40.
  • Australia: inspections every six months, where the house needs to be clean to showroom perfection.
    Japan: no inspections.  In fact, most Japanese are aghast when I tell them that your landlord or agent comes through your house with a white glove on a regular basis.
  • Australia: when looking for a place, borrow the keys from the landlord (after paying a deposit) and show yourself out to each property, with little assistance from the agent.
    Japan: the agent will take the time to sit with you, find what you want, then will drive you out to each property to show you around.
  • Australia: if you accidentally miss a rent payment, you’ll likely be served with a sternly-worded, official warning – the warning you get before they evict you.
    Japan: you miss a rent payment, they’ll ask you pretty please if you could pay it.  I’ve heard that it’s so difficult to evict tenants here, they sometimes employ local goons to sit outside the bad tenants property to make their life miserable enough that they’ll want to leave.

Tenants generally hold a much stronger hand than they do in Australia.  I don’t want to paint the picture that Japan is perfect for renters, though.  They still have a tradition called “key money”, a one or two month rent “present” to the landlord which you’ll never get back.  At the end of a two year contract, you’ll sometimes be required to pay it again.  Pre-paid rent, deposit, and key money add up to a sizable  amount of money to move house: in total, three to five months of rent.  Some places don’t charge key money, but refusing to pay severely narrows your choices.

Also, if you’re a foreigner, bad news: you’re going to be rejected outright from at least half the properties you want to view.  Stated reason: being foreign.  I was a little upset at first, but someone clued me in on it.  Foreigners are seen as a flight risk, and are also seen as less respectful of rental properties, neither of which I can really argue against.  Still, to be told that you’re being denied even a look at the property just because you’re foreign is extremely jarring the first few times you hear it.  It’s blatant discrimination – though perversely honest.

Those points aside, renters in Japan are given a lot more respect than in Australia, and certainly my life as a tenant here has been a much happier one.

Buying

I can’t say that I have any personal experience with buying property in either country, but here are some impressions I’ve gathered.

Buying a house in Australia is seen as a shining beacon of aspiration.  If you look at the last ten years, property has been rocketing up, ever upwards.  Look further back, however, and the average returns flatten out significantly.  Plenty of ink has already been spilled on the bubbliness of the Australian market  – Adam Schwab at Crikey is one of the louder critics – so I won’t say too much more on the bubble debate.

However, of people I know who have bought, most said one reason they did so because they were just sick of renting and enduring most of the points I’ve listed above.  So, in a Japan where renting seems to be a much more pleasant experience, what are attitudes to buying like?

Well, the first thing you need to know about Japan is the history of real estate prices.  In the chart below, Australia is blue, Japan is red, the vertical scale is real house price index (i.e. house prices as a percentage, adjusted for inflation):

Australian real estate now costs 250% (adjusted for inflation) of what it did 25 years ago, while Japanese property costs about 70%. If only the data went back a little further, I have a feeling that the peak for Japan would be more pronounced.  At any rate, the red-hot Japanese housing market burst in the early nineties, and largely thanks to bungled government policy, the market has spent the last twenty years not just plateauing, but declining.  Official interest rates have been under 1% for a long time now, showing that not even super-cheap loans will get people buying again.

Faced with this situation, there are people in Japan who are not big on buying property.  When renting is acceptable, why not?  Though the graph above shows declining price ratios, buying a house in Tokyo is still expensive.  If you’re thinking about a detached house, start thinking a million dollars and up.  Dreaming of a house and backyard is futile for many Tokyoites.  Apartments, though, are somewhat affordable.  In my not-overly-fashionable area, they start at north of 300k AUD.

Looking at that graph, though, if you’re looking for a good capital gain in Japan, real estate is currently not the place to be doing it.

Will the Australian market follow the Japanese market?

Who knows?  The problem with trying to talk rationally about real estate is that you’re in one of two camps: those with property and those without property.  Those with property would like to see prices double year on year for eternity; those without would like to see them tank to approximately zero tomorrow.  There’s really no middle ground as with shares, since we all need a place to live.  You can’t escape the real estate market in some form even if you want to.

So, can we look to the Japanese market for Australia’s future?  Probably not – every market is unique in its regulations, which end up having huge impacts.  However, I feel like there’s something broken when the dense, 12-million-people-strong Tokyo has rents and apartment prices comparable to Australian capital cities.  To give an idea, I currently pay about $240 per week in rent for an apartment in good condition, a five minute walk from the train station and surrounded by restaurants and shops.  A quick look at an Australian real estate site shows a similar rental budget in Brisbane not buying you very much at the moment.

As I remain incredulous about the Australian property market, renting in the ever-deflating Tokyo market seems like a better proposition every day to wait out the storm – assuming I can pass for a local, of course.

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9 thoughts on “Renting in Japan

  1. I’m in the camp of ‘want to own simply so I don’t have to rent any more’ with a hint of ‘a place that I could really call mine would be nice’. I’m also in the camp of “burst damn you stupid bubble!”

    I have noticed that while overall house prices in Australia are going from ludicrous to plaid, some locations seem to have burst ahead of the curve. And not just Woodridge and Inala either 🙂

    • I feel bad cheering a collapse of the Australian property market, but realistically, this is the only way I’m going to buy. I thought the frankly astounding prices people are prepared to pay would have ended last year, but I continue to be proved wrong.

      Then again, when you’re talking about an asset as expensive as a house, some people are prepared to dig in for some time, so the lag time between the economic reality and the market response can take some time. If we could just mail the keys back to the bank when we want out, as in the US, we’d see a very different market, I’m sure.

      • It doesn’t need to _entirely_ collapse. I’m happy if those who bought sensibly are ok, and those that become bankrupt if the interest rates rise by 0.00001% explode into a fine red mist.

        Wait, that didn’t end the way I was expecting it to…

  2. You’ve had some fun with the renting stuff!

    I rent cause I can’t afford to buy and never will. People say it’s dead money, but hey, I don’t have to worry about rates, water, regular maintenance, and repair bills.

    Standard lease now is 12 months and inspection every 3 months. At least through my agent. Who are wonderful. Late rent payments usually just result in a text to say it’s late.

    I’ve never had to escort myself through a property either. They ALWAYS come with us, weather it’s a private viewing or with the cattle call stuff. That is, open house with a trillion other prospective tenants traipsing through the same time you are.

    And the gospel that is Current Affair or Today Tonight would have you believe that it’s really, really difficult to evict trashy tenants here too. Who would have thought.

    • Well, glad to hear your renting experiences have been better than mine – that fills me with some hope. You’ll have to tell me who your agent is sometime, as mine have uniformly been awful.

      The whole “rent money is dead money” thing is a simplistic mantra. Everything has opportunity costs. If you put all your cash into a house, paying significant amounts of money to service the loan, you can’t do other things with it that might be paying better returns at that point in time. Renting can allow you to pursue those other options. Plus, few factor in all those costs you mentioned (rates etc), which significantly eats into the investment returns of a house. The house itself constantly depreciates, while the land (generally) appreciates.

      All that said, housing might indeed be the best option at a particular point in time, but better to sit down an calculate the relative costs than relying on slogans thought up by a company that builds homes.

      • They’re a part of the Maison Real Estate franchise. When we first signed up with them at another property, Ken locked himself out. They did a 40 min round trip out with a spare set of keys and didn’t charge. Only once in the 7 years we’ve been with them have they ever forgotten to send the 1 month notice of inspection. They were happy to negotiate the rent due date so it fell on our payday. They’ve been quick if we needed repairs for anything. Rarely to they fail to let us know after each inspection that they are pleased with the way we keep the property. At our current place, the previous tenants moved out late AND failed to clean the house to boot. The agent didn’t have time to have it professionally cleaned, so paid us an amount to clean it ourselves. No worries with this lot!

  3. On the other side of the ball (or triangle or something), I keep hearing from friends that rent out their properties complaining about real estate agents pushing them to raise the the rent for good tenants every six months. Sometimes it makes me wonder, is it the landlord or the real estate agent that keeps raising the rent.

    • Well, both the agent and landlord profit, but perhaps the real estate agent more so in the end. Not only does the rent increase for a single tenant, but they can use that as a precedent to encourage other landlords to increase their rent, increasing average rents, and increasing the amount renters expect to pay. It’s interesting that you say it’s “good tenants” who get their rent increased – if true, what a lovely reward, eh?

      It seems that there’s so much lobbying and PR involved with media reports of real estate that it’s difficult to get an idea about the actual state of the market. I’d imagine PR groups paid to prop up the market far outnumber those paid to deflate it. They’ve done an amazing job getting people buying no matter what the cost.

    • This is something I only just twigged onto in the last year, that all those times of being called a “good tenant” was really just code for “this sap hasn’t got the stomach to move anytime soon, so why not up the rent”.

      And “Not only does the rent increase for a single tenant, but they can use that as a precedent to encourage other landlords to increase their rent, increasing average rents, and increasing the amount renters expect to pay” completely sums up the attitude of our (former) property managers of a large complex of units.

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