Buying a land in Tokyo

13 Apr 2025 | #japan | #housing | #money

About a year ago we bought a plot of land in western Tokyo in Musashino city (see this post about why we chose this place). In this post I’ll share the process of finding and buying the land, and the associated costs.

Information gathering

We started casually looking about a year before, checking both newly built houses, apartments, as well as visiting model houses and talking with building companies. This was about deciding if we wanted to buy an apartment (マンション), buy a house, or build our own house. Also if the last, then to decide the builder company. This was also the time to look into loans and consider our budget.

We set our budget like this:

• 60 million yen (6千万円) for the land
• 30 million yen (3千万円) for the house
• 10 million yen (1千万円) for fees and the inevitable unexpected costs

Which would bring the overall amount to 100 million yen (1億円), which we intended to take out entirely as loan. In Japan, many banks allow you to take out more than the price of the house, as you are personally liable to pay back the loan. So if you would to default, the bank doesn’t only take the house, they can also take your savings, and other assets.

Looking for land

About 6-9 months before, we decided that we will build our own house. So we told the real estate agent (that we knew from a bar we used to frequent) that we are on the market for a land in our area (or a few stations further out). Then he would often send us some lands by e-mail, and we went to see a few of them together. We were also casually looking at Suumo and Homes to see if anything pops up, and also to get a feel for the price and compromises involved.

In January we decided that we will build with Ichijo and signed the pre-contract with them. This proved to be important, as now we could ask our Ichijo contact to see the lands we were seriously considering and tell us if Ichijo would be able to build on them (they manufacture pieces of the house in a factory and then put them together with a crane, which has to fit next to the land).

Finding the land

In March we found a few lands that we liked, and looked at them in person together with the Ichijo person. We also spent quite a bit of time walking the neighborhoods, and looking up what’s nearby on Google Maps. Also checked as much publicly available information about the land as possible.

Finally we found a land that we really liked, good location, nice neighborhood with all that we wanted and none that we wanted to avoid. Except that it was a bit over-budget at 64.8 million yen (6,480万円). But for the location and size the price was fair, even a bit on the cheaper side due to the shape of the land: while it is a rectangle (so no flag-pole shape), it is narrow and long: about 6 m wide and 20 m long.

Making an offer

We decided to increase our budget and make an offer. Our real estate agent handled the paper work, we just had to tell him the amount. He was really pushing us to make an offer at the listed price as to not loose the land. This is understandable from his point of view, since he has been showing us lands for over half a year, so he was eager to close a deal, but I expected him to help us with the negotiation, especially as it was over budget. But I know that this rarely happens in Tokyo, as real estate agents don’t want to jeopardize their relationship with the other real estate agents (including the seller’s), and the market is often pretty hot, so desirable lands will go quickly.

So I asked the impartial party: our Ichijo contact. He said that while it is not unheard of to get 2-3m yen off, it is more common to ask for a smaller discount.

So we decided to make an offer at 1 million yen below asking price. We had to push the real estate agent to make this offer, but he did it in the end. The seller came back with a counter offer of half million yen off from asking.

At this point it was clear that we will make a deal, and this was just about negotiation. Since the original price ended at 800,000 yen, I suggested to send a counter-counter offer asking for 800,000 yen off, which would round it down to a nice round number (64 million yen). Our real estate agent dig in his heels and said that he really doesn’t recommend doing this, and we should just accept the 500,000 yen discount. I felt that we would loose out on the joy of the negotiation by doing that. I didn’t care about the actual money that much (we are talking about like 0.3% of the overall budget), but I wanted to do it for the fun of it.

In a surprise turn of events the real estate agent asked for a moment to call his manager, then came back with a proposal: they are willing to give us 187,900 yen off from the real estate agent fee (rounding it down to 2 million yen) if we accept the counter offer as-is. This was a win-win for both of us: this would give us some of the additional 300,000 yen that we wanted to ask for, and it would close the deal for the real estate agent. Moreover should we have stayed within our original budget, the real estate agent’s fee (which is 3% of the price plus 60,000 plus tax) would have been about the same they will get after this discount. So we accepted it.

Signing the initial contract

A few days after accepting the counter offer we met with the seller. We signed the initial contract and handed over the deposit (3 million yen in cash).

Sidenote: I learned that the 7-Eleven ATM can dispense this much cash, but only at 500,000 yen batches (as that’s the limit per withdrawal). I called the bank ahead of time to increase the limit (so they were aware of the withdrawals), but I’m surprised that the 7-Eleven staff didn’t even bat an eye of me emptying out half the ATM. Although if I would be running the register at minimal wage, probably I also couldn’t care less.

We signed this initial contract on March 29, and it defined that we will need to finalize everything by mid May. However it gave us the option that if all banks would reject our loan application, then we could walk away without penalty and get the deposit back.

Right before signing the contract, the real estate agent explained the contract details and shared with us bunch of details of the land (including hazard map status, etc.). This is required by law, which I think is a good thing.

One minor thing that we only learned later and bothers me: cities often make very long-term plans about new roads or new parks, and then wait until the houses in the area get old and demolished, and then buy the land. Our land turns out to be part of a planned park, but the plans were made in the ’50s and no progress has been made since then. The real estate agent confirmed with the city hall that they do not intend to pursue these plans, and we will be able to build a house. (Apparently officially cancelling the plan would be complicated, so they just don’t bother.) This came up during the explanation, and the real estate agent told us that there is nothing to worry about. Fast forward to 10 months later and we are finalizing the design of the house. The house builder tells us that normally they would obtain the long-term quality housing (長期優良住宅) certification for our house, but since it is built in an area that has a park planned on it, the certification can not be obtained. Now this is mainly a minor inconvenience (although it does mean that we loose out on some of the solar subsidies), and we would have bought the land even if we knew this ahead of time, but it still bothers me that the real estate agent didn’t know about it.

Looking for a bank

Next step was to look for a bank that would be willing to loan us the money. As the land was more expensive than expected, our overall budget went up to 105 million yen (1億500万円), and we were looking for a loan pre-approval of 1億1,000万円 to give us a bit of flexibility with the house (and to account for unexpected costs).

Ichijo offered to help us with a bank they have relationship with (SMTB, 三井住友信託銀行), so that was one option. But I also wanted to look for banks ourselves, as I thought we can get a better deal.

Our requirements were like this:

• 110% loan - have the loan cover the various fees as well, not just the price of the land and house
• loan that’s compatible with building a house: we needed the money for the land now, and then the money for the house 1-1.5 years later, when the house is ready
• variable rate loan, preferably with a rate tied to some deterministic metric. Big banks usually tie it to their short-term prime lending rate (短期プライムレート), while netbanks just make up the number, so they could increase it at will.

This proved to be more tricky than expected.

We considered Sony bank and PayPay bank, as they had very good rates, however they both would only give us the money when the house is ready, which wouldn’t work for us. We also checked Prestia, however they would only do up-to 100% loans.

Banks that we actually applied:

• MUFG: they said they only do land-house split loans if it’s less than 1 year between the two (which was impossible with Ichijo). They actually called us to tell this, and recommended that we should ask the house builder’s partner bank.
• SMBC: we applied through the real estate agent (as he had a partnership with this bank). Even though we applied for 110 million yen, the pre-approval came back with 100 million yen, and the bank told us that for our case they won’t give us more. We couldn’t get more details on whether the location, builder, my income, or the 110% was the issue
• SMTB: the bank that Ichijo had a partnership with. They fit all of our criteria, and (likely thanks to Ichijo) we passed their screening easily. So we ended up going with them

We thought that between the initial contract of the land to closing on it, we will have plenty of time. However banks work really slowly, and the process has multiple steps (pre-screening, then main screening with the bank potentially asking for additional documents), so we didn’t have that much time. Moreover as the loan is for a house you live in, the banks want to know which company will build the house and how much it will cost (of course this can change as the house is finalized, but they need a number). So I highly recommend deciding the house builder company before this step.

Details of the loan

We got a variable rate loan at 0.32% (this included a discount due to Ichijo’s partnership, a discount for high quality house (ZEH), and a discount for agreeing to invest 50,000 yen monthly into one of their funds - they have an S&P500 fund with low fee).

Since then the rate has gone up to 0.47% (at the end of 2024), and it is expected to increase once more soon to mirror the interest rate hikes by the Bank of Japan.

The length of the loan is the standard 35 years, with the option to pre-pay at anytime for free (there is a minor administrative fee if prepaying the full amount). At prepayment one can choose to either reduce the remaining length or reduce the monthly payments going forward (some banks will only allow one of these, but SMTB allows both).

Moreover SMTB allowed us to only pay the interest for the first year (to reduce the burden of paying the mortgage for the land, while we are still paying rent at the same time). We took advantage of this. However this means that the loan of the land will need to be paid back in 34 years, so the monthly payments will be slightly higher (however at less than 1% rates, it is much better to invest the money and drag out paying back the mortgage as long as possible).

The mortgage is technically split into two, mostly separate loans, one for the house and one for the land. They had to come from the same bank (as otherwise in case of a default multiple banks would have claims on the property), but otherwise they are treated as two separate loans (separate start and end date, possibly different options e.g. I believe one could be variable rate while the other fixed).

Guarantor fee

There is an additional fee that one has to pay the bank, often called the guarantor fee (保証取扱手数料) or insurance fee. SMTB (and many other banks) offered two option for this:

• a 2.2% fee of the loan amount paid at the time of taking out the loan, or
• 33,000 yen fee at the time of taking out the loan, but interest rate goes up by 0.25%

SMTB allowed rolling the 2.2% fee into the loan itself, so it became a math question: which is better? It depends on a few factors:

• if one pays the mortgage for the full 35 years, then the 2.2% fee is likely better
• if one sells the house after a few years and pre-pays the mortgage in full, then the higher interest rate is better (as in those few years it cost less than the one-time 2.2% fee).

The break even between the two is somewhere around 10 years (if I remember correctly, but I don’t have my calculations anymore).

Moreover if the interest rate would go up a lot, then the 0.25% higher interest rate can come out ahead, as the additional principal of the 2.2% fee would incur high interest, while e.g. the difference between 10% or 10.25% interest is not that much. However this only kicks in at truly high interest rates (I think over 10%).

So we decided to go with the 2.2% initial fee.

Btw this (or the loan in general? not sure) included a basic life insurance for me: if I die, then the rest of the mortgage disappears and my family gets the house. The bank tried to sell me additional insurance (e.g. if I get a deadly disease, they would immediately pause the monthly payments, or if I get cancer, it would cancel out half or the full loan amount, regardless if I recover or not), but I didn’t find them a good deal. They mostly dealt with near-terminal illnesses, and with the default life insurance their values seemed to be limited to a few years. Instead I’ll get a normal life insurance from another insurance provider in addition to the default one that came with the loan.

Closing on the land

In mid May we went to the bank. First I opened a bank account, and signed the contracts for the loan. Then the seller, the real estate agent, and a scrivener (sort of like a lawyer, but deals mainly with paperwork) joined, and we signed the final contract of the land. Then I signed the money transfer request, which the bank executed immediately. All 3 parties checked with their bank and confirmed that they received the money.

The amounts I paid at this time:

• 61,3 million yen (6,130万円) - remaining money for the land (price: 6,430万円 minus the 300万円 we already paid)
• 2 million yen (200万円) - real estate agency fee. Normally: 3% of the price + 60,000 plus 10% tax, which would have been 2,187,900 yen, but we got the discount
• 1,507,000 yen (150.7万円) - loan fee / guarantor fee (2.2% of the loan amount)
• 748,500円 - land ownership change registration fee. This went to the scrivener who handled the paperwork. This included both the registration fee and the fee of the scrivener (which is set by the law)
• 126,612円 - our portion of this year’s property tax. The seller already paid this in January, so they did a per-day breakdown of what portion of the year we will own the land, and we paid them the tax proportionally to that. The land was empty in January, so this was for an empty lot. With the house it should be a bit lower, I believe, but we shall see

All-in-all, buying the land cost us 68,682,112 yen (6,868万円), even though the price of the land was only 64,300,000 yen (6,430万円). This puts all the fees combined at 6.8% of the price of the land, which is inline with what I read online.

There you have it, our journey of buying a land in Tokyo. After this, we started the long process of designing our house, but that’s a story for another post.