Selling Property in Japan: Process, Documents, Tax and Fees

Japan’s real estate market has long drawn attention from overseas investors, especially in major cities like Tokyo and Osaka, where many overseas investors have already bought property as part of their asset allocation. As Japanese property prices continue to rise, cashing out has become an attractive option for owners already sitting on a profit. Below, Zagdim walks through the process of selling property in Japan.

Sale Process

Step 1: Understand the Market Price

If you want to sell a property in Japan, start by working out the property’s estimated value. It is worth getting price assessments from several real estate companies to compare. This is especially important for questions around the mortgage and tax, where checking several agencies and websites for comparison is advisable.

Step 2: Engage a Property Agent

Because of language barriers and limited market knowledge, most overseas owners sell through an agent, which saves time and effort and offers more peace of mind and protection. When choosing an agency, pay attention to the company’s reputation and track record.

To help sellers find a suitable property agent, here are the three types of listing arrangement:

General Listing (Ippan Baikai)
The seller may list with multiple real estate companies at the same time, and may also sell directly to a buyer they find themselves.

Exclusive Listing (Sennin Baikai)
The seller may only list with one company. However, if the seller finds a buyer themselves, they can contract directly.

Exclusive-Exclusive Listing (Sen’atsu Sennin Baikai)
The seller may only list with one company, and cannot contract directly even with a buyer they find themselves.

Taking all this into account, the seller can choose whichever arrangement suits their situation. Overseas owners typically compare their options before appointing an agency to sell the property. If the goal is to sell as quickly as possible, the owner may choose to use “general listing” with several agencies at once.

Step 3: Sign the Listing Agreement

Once a property agency has been confirmed, the owner needs to sign a listing agreement with that company, appointing the agency to represent the seller in the transaction. There are three types of listing agreement: the Exclusive-Exclusive Listing Agreement, the Exclusive Listing Agreement, and the General Listing Agreement.

1. Exclusive-Exclusive Listing Agreement
Only one real estate agency is appointed to introduce buyers, and even if the owner has their own buyer or a friend who wants to buy, that purchase must still go through this agency.

2. Exclusive Listing Agreement
Only one real estate agency is appointed to sell the property, but unlike the exclusive-exclusive agreement, if the owner finds their own buyer, they can sell directly without going through the agency. However, because the deal still involves legal and administrative procedures such as the title transfer, the buyer’s side will generally still want an agent involved.

3. General Listing Agreement
The owner can appoint multiple agencies to sell at the same time, and can also complete the transaction directly if they find their own buyer.

Naturally, an agency appointed under an exclusive-exclusive arrangement will tend to be more invested in the sale. Whichever type of agreement is used, the term is three months; once the three months are up, the parties decide whether to renew or change the arrangement.

Step 4: Marketing Activities

After the agreement is signed, the agency lists the property on Japanese real estate websites and in shopfronts to raise the listing’s visibility, and also registers it with the computer network system operated by the real estate distribution organization designated by the Minister of Land, Infrastructure, Transport and Tourism.

Step 5: Receiving Buyer Applications and Deposits

Once a buyer intends to purchase the property, their agency sends a purchase application on the buyer’s behalf. The owner decides in order of application whether to accept; the owner can also negotiate with the buyer, and the agency will help coordinate — for example, if a second buyer offers a higher price than the first, the first buyer can be asked whether they would like to match it. Once the buyer and the transaction price are confirmed, the agency prepares an Important Matters Survey Report for the buyer, confirming details such as the building’s current management fees and repair reserve fund, whether major repairs have been carried out in the past, and whether there are plans to raise management fees, among other items. Once the property details are confirmed, the buyer pays a 10% deposit, which is transferred to and held by the registered real estate transaction agent’s (takken-shi) company account; for larger transactions, the amount may by law instead be placed in a designated bank or agency-association trust account to protect both parties. The parties then sign the real estate sale and purchase agreement.

Step 6: Sign the Sale and Purchase Agreement

Once both parties have confirmed the price and other details, they sign the real estate sale and purchase agreement. This agreement is drafted by both parties’ agents; as with the purchase process, an overseas seller can have the takken-shi walk through the document contents by video call. As at the time of purchase, the takken-shi will explain the sale contract and the Important Matters Statement, which clearly records the transaction details, the parties’ rights and obligations, and the condition of the property and unit. The agreement takes effect once both parties sign and seal it. After signing, both sides carry out their rights and obligations under the terms of the contract; breaching an obligation can sometimes mean paying a penalty.

Step 7: Settlement, Handover and Payment

After the sale contract is signed, the buyer must pay the balance by the agreed deadline, and the seller must pay the related taxes, including stamp duty, income tax, the agent’s brokerage fee, any mortgage cancellation fee if there is an outstanding loan, and the judicial scrivener’s (shiho-shoshi) fee and loan administration fee. The tax payable is calculated based on the actual sale price, and the agency will also provide a detailed fee statement — most of these amounts can be deducted directly from the sale proceeds, but the seller should still check the fee statement carefully.

Step 8: Transfer Procedures

Before handover, the seller moves out and settles utility bills (gas, water, electricity) and other handover preparations. If the property being transacted is a rented unit with a tenant already in place, rent is settled as of the transfer date, and the tenant’s occupancy is unaffected. If there is a mortgage registered, the seller needs to prepare the paperwork to cancel that mortgage registration. On the day of transfer, the seller receives the remaining payment and pays the relevant taxes. The agency helps both the seller and buyer complete these transfer procedures. The seller hands over property documents, keys and other items, and once all procedures are complete, the transaction is formally finished.

When Do Overseas Sellers Receive Payment?

Overseas sellers typically receive payment around one week after the settlement (transfer) date, because international wire transfers take time. The buyer’s agent will send the funds to the seller’s agent before the settlement date, to make sure the seller has the funds in hand by settlement. Before that, the seller’s agent will provide the seller with a breakdown of the transaction, listing each cost, and will remit the funds to the seller’s designated account after transfer.

Documents Needed to Sell

What documents does an owner need to prepare to sell property in Japan? Broadly, two categories: property documents and proof of the owner’s identity. Overseas owners can mail the relevant documents to their representative agent ahead of time, to make it easier for the agent to prepare for the transaction and transfer.

1. Sale and Purchase Agreement
The contract from when the buyer originally purchased the property; note that it needs to carry the official Japanese government stamp duty stamp to count as a formal document. This agreement is drawn up according to the rules of the Real Estate Transaction Business Association; if the parties agreed on terms different from the standard clauses, these can be noted in the “special terms” section at the end.

2. Important Matters Statement
Another key document from the time of purchase, recording all information about the unit — city planning law, building standards law, drinking water, electricity, gas, soil, flood risk, asbestos, seismic diagnosis, and the management association’s financial position, among other items. It also includes confirmation of management fee and repair reserve fund payment status.

3. Real Estate Registration Certificate Information
Equivalent to the title deed, issued by Japan’s Ministry of Justice to prove ownership. It carries the property’s address, lot number, application date, and the registered holder’s information, and at the bottom carries a black barcode made up of a 12-digit alphanumeric authentication number (called the registration identification information), sealed with opaque tape. Overseas sellers need to mail the originals of the above documents to Japan in advance, to make the later transfer process easier.

4. Identity Documents

Statutory declaration: a statement confirming that the individual’s personal details — name, ID number, address and so on — are true. This declaration can often be arranged through an equivalent authority in the seller’s home country; for Hong Kong sellers, for example, it can be done free of charge through the Home Affairs Department. It functions as a government endorsement confirming that the person is the registered owner and not merely someone with the same name.

5. Lease Agreement
If there is an existing lease, it needs to be prepared as well; the original lease agreement is usually kept by the seller’s rental management agent.

Tax and Fees

When selling property in Japan, three main types of tax and fee arise: transfer income tax (the rate differs depending on whether the property was held for five years or less, “short-term,” or more than five years, “long-term”); stamp duty, based on the amount stated in the sale and purchase agreement; and various professional fees, such as the agent’s commission and the judicial scrivener’s fee. The withholding tax that is often mentioned is not actually a separate tax, but a method of tax collection — similar to a domestic payroll-deduction scheme — where the seller has tax pre-deducted before receiving payment, and settles the difference with the government at the end of the tax year, with any overpayment refunded and any shortfall paid.

1. Transfer Income Tax

The profit generated when selling real estate is called “transfer income” (joto shotoku).

Transfer income = sale price − purchase price (land + building, less building depreciation) − transaction costs − any special deduction.

For property held five years or less:
Short-term transfer tax (national): transfer income × 30.63% (includes Japan’s 2.1% Special Reconstruction Income Tax surtax) + resident tax: transfer income × 9% (non-residents are exempt from resident tax)

For property held more than five years:
Long-term transfer tax (national): transfer income × 15.315% (includes the same surtax) + resident tax: transfer income × 5% (non-residents are exempt from resident tax)

2. Stamp Duty

The sale and purchase agreement must, based on the transaction amount, be affixed with the corresponding Japanese government revenue stamp. Where both buyer and seller each hold an original of the contract, each is responsible for the stamp duty on the copy they hold. Note that stamp duty rates differ between regions of Japan.

3. Other Fees

Agent’s Fee
3% of the sale price (excluding consumption tax), plus JPY 60,000.

Registration Transfer (Judicial Scrivener) Fee
The judicial scrivener’s fee and transport costs for handling all of the above procedures, typically around 1% of the transaction amount.

Withholding at Source

Withholding tax is not a separate tax but a method by which the Japanese government collects tax, and it is not limited to real estate. When an overseas owner sells Japanese real estate, 10.21% of the sale amount must be paid to the Japanese tax office to fulfil the withholding obligation. In other words, when the buyer pays the seller, they only pay 89.79% of the transaction amount; the remaining 10.21% is paid by the buyer to the tax office as withholding tax by the 10th of the month following the transaction. At the end of that tax year, the seller can then file a tax return with the Japanese government to reclaim any amount overpaid.

Notes

Increasing the Chances of a Sale Through Advertising

Owners can look for buyers themselves, or appoint an agency to sell. In Japan, beyond the usual real estate shopfronts, it is also common to advertise on online platforms, though some online platforms charge extra for listings; sellers can decide whether to pay for additional advertising as needed.

Other Factors That Affect a Sale

Beyond this, common factors affecting how quickly a property sells include: whether it is currently rented out; whether the tenant is older, since if a tenant were to have an accident in the unit it could sharply reduce the property’s value; whether buyers are concerned about whether the building’s remaining repair reserve fund is sufficient; and the actual rental yield — these are all details buyers pay attention to before purchasing.

Naturally, an agency will not slack off just because there are unfavourable factors at play; depending on how the market responds, the agency may suggest different approaches to the seller, such as promotional measures or price adjustments. Owners can also offer a bonus, which gives agencies more incentive to actively recommend the property to buyers, and can also attract other agents to help refer buyers, increasing the chances of a sale.

Have a question about this guide? Leave a comment below, or ask Zagdim directly.