Fellow Fukuzawans:

BUILDING A HOUSE IN JAPAN--CREDIT AND CHICANERY

This year's tidings have brought forth the news of taxes. Yes, it is confirmed that Japan's consumption tax (shouhizei) will rise from 3% to 5% by next April--all in the name of fiscal balance, says the Ministry of Finance with their stockmarket slush funds and inaction on bad debts.

Suddenly my wife and I realized 3 very important things:

1) that the tax rise will raise the purchase price of a house likewise by two percent, 2) that credit is cheaper than it basically has ever been, and it will probably not stay that way, and 3) that our rent, 100,000 a month, is about the same as a monthly mortgage payment.

That's when we, like plenty of other Japanese this year, joined in this year's stampede to buy a house.


A PRELIMINARY REPORT: HOW TO GET CREDIT TO BUY THE MOST EXPENSIVE CONSUMER GOOD IN THE WORLD'S MOST EXPENSIVE ECONOMY--LAND AND A HOUSE IN JAPAN

WARNING: This post has few anecdotes and a lot of financing. Details are necessary because finance, like the Japanese language, is not something you wade up to your ankles into. Either you immerse yourself and give a lot of information, or else nothing gets said. I would hope that the length of this post is not dismissed as mere self-indulgence. I report this to Fukuzawa as something comparatively interesting for the current and potential DFS homeowners out there.

If people out there have similar experiences in both Japan and overseas, I would be *delighted* to hear any advice or comments. This report is the result of around four weeks of intensive research, tours of houses, and hours and hours of chats with home builders.


PART ONE: GOSH, WHAT A NICE PIECE OF LAND, I GUESS.

I grew up rural Upstate New York, in a 140-yr old 10-room cobblestone house on over three acres of land. I hated cutting the grass. Now I long for it. When I was in Neverneverland thinking that a parcel of grass in spacious Hokkaido must be cheap, I wished for a minimum of 300 tsubo (one tsubo is around 3 by 3 meters, or basically two tatami mats), approx. 1000 square meters, to plonk the house on. Hah. We don't sell shoes that size in this country. Anything around 50 to 70 tsubo in Sapporo suburbs was going from around 2000 man yen (add two zeroes to get your US dollars). A nd that didn't include the house. With house included, the cheapest way possible (Something called "tate-uri", where they build a house as they damn well please--and it usually looks like a few stacked shoeboxes with siding and assymetrical windows and insulation that rots in a few years, in a whole neighborhood of "tate-uri" squares that even makes UCSD architecture look good. No thanks.) was running between 1500 and 3000 m an out in the sticks.

Well, gee whiz, I work in Ebetsu, the next town northeast of Sapporo, so why not go for a country home? I mean real country. A place with trees and fields around us. Maybe some bent-over ojiisan out there wants to sell his ole farmhouse to shiny-eyed youngsters like us. I'm sick of 45-minute commutes anyway. Let's have a look around my school, said I.

One country drive later my heart sank. I realized that most Hokkaido farmhouses are not exactly sturdy or sightly either, and even if there was one available, the middlemen which handle old houses will wratchet the prices up to close to that of a new house. So it came to be that our house had to be new and custom-built, or else it was not worth getting.


INTO THE FLATLANDS

So we stumbled across areas which were once farmland, cleared for city families wanting out. They were already gridded with roads, had playground equipment in reserved sections, had all water and gas pipes laid and utility poles set up, and thus were ready to connect a house with civilization. But again I was disappointed. I had imagined hewing out my existence in some nice undeveloped hilly area, but unless I was ready to make my whole family live like hermits, bringing water and power out there would Sapporo-ize the building costs. The good news was that this far out, each parcel of land (kukaku) was divided up into humane units of not much less than 70 tsubo (around 230 square meters)--which meant that any window that wasn't facing the street didn't have to have a view of the neighbor's living room. The bad news was that everything in this neighborhood looked like it was out of one of those avant-garde movies filmed in the desert. Roads, poles, and gravel, flat, flat, flat, punctuated only with the odd bright red slide and swingset. That's it. For a square kilometer or two. Any trees and grass that once would have made a landscape were levelled to make way for the cartoonish hodgepodge of houses that would creep in. It was hard to imagine what anything would look like even three years from now. We drove on.


INTO THE BOONIES

We did eventually get help to find a couple of pieces of land in a government development project, about 15 minutes' drive from school. In a place called Nanporo (heard of the place? neither has anybody in Sapporo!)--a village in the middle of nowhere where you drown if you fall off the road and Noukyou operates the only supermarket. About 230 hectares ready for 3600 families were up for grabs little by little every year (this year 62 parcels), with about 40% of the area already settled. Whole schools, parks, supermarkets, and community centers were built or were in the process of being so. This is a whole transplant community fifteen minutes by car (on summer roads) from the nearest railway station, literally surrounded by rice paddies. Nanporo's miniscule population was multiplying, and we were part of it. Why? Because the land is so goddamn cheap and spacious.

Now when we say "spacious", understand that by now I had adjusted to Japanese standards. The average kukaku out there is around 85 tsubo, or about double the average residential plot in metropolitian Tokyo or Osaka. So we could be finicky. My wife wanted something on the corner (better view), facing south (better sunshine), on land that was designated "dai-isshu" (residential only, nothing above two stories--as opposed to "dai-nisshu", where anything goes), so we wouldn't get cut off from sunlight should Sumitomo decide to buy out our neighbors and erect a danchi. I also made a checklist; I wanted something that would catch the sunset or at least the sunrise, and would have enough space for me to plant some acacia trees and a shrub wall. One place, at an enormous 96.12 tsubo, had everything we wanted (even a public walkway separating us from the neighbors). But it had the neighborhood's gomi station situated literally one inch after our land would end. We visited again on one of the two garbage days and found a veritable mountain of trash, neatly separated into color-coordinated nama gomi, moeru gomi, and moenai gomi, and it all remained there well into the afternoon collecting flies and warming up in the summer sun. My wife went into paroxyms and we walked away.

Next, when we say "cheap", now I realized how Japanized I'd become. The gomi station land was going for exactly 8,007,552 (told you this was a gov t project--this odd price would be rounded off if it wasn't). But a short walk away was this humongous piece of corner scrapland, 170.75 tsubo (564.50 m2), going for 12,362,550. A regular two-story house would take u p around 20 tsubo, which meant that there'd be plenty of room for trees, garden, anything outside I wanted. It was even on the eastern edge of the development, abutting rice paddies, where we could catch the sunrise and get a mountain view in winter. The bad news was that 1) it faced a busy road, which meant we'd get the sound of cars, and 2) we'd have to come up with an extra 400 man, when the 800 man "gomi-station" parcel was alread y all we could afford.


FINANCING--NOTHING IS EVER PERFECTLY AFFORDABLE

I'll say the point right at the beginning to all you folks who even dream about settling permanently in Japan and buying a house. SAVE BIG MONEY FOR YOUR ATAMA-KIN (or "jiko shikin"--downpayment). Places that will lend us money want about 20% of your total house-and-land price up front in cash. I don't know the rules overseas, but if you're looking at a bare minimum of about 3000 man, that means 600 man cash up front. Or about a year's sal ary presto right away. The more you have, they more you can borrow, and the better house you'll have in the long run.

GAIJIN CAN BORROW IF THEY QUALIFY:

As a foreign resident of Japan, if you want to borrow money, generally you must:

1) Have your permanent residency (eijuuken--which I just got. Show your yearly earnings, that you have a stable job and family life, and have been in Japan at least five years constantly, and chances will be pretty good that you'll get it),

2) Have been working in the same workplace for over three years (regular banks require this),

3) Have lots of savings. Up until last year, I am told, one could borrow 100% with no money down. Now it has jumped to 10% or 20% of the total in cash up front. Therefore without at least some money, nobody can borrow. Period.

Now you know why Japanese save so much. If they ever want to have something that can be called an investment (land was the only constantly growing investment until recent years, and old habits die hard), buying a plot to be passed on or sold was the way to escape the slumlord and have something to retire on.

CREDIT IS CHEAP NOW

The cost of borrowing money in Japan is really very cheap. The two main lenders (for some reason, housing lenders here have a ceiling on how much they can lend, so your loan gets split up between companies which do not always have the same rates) that we can borrow from offered us interest rates of fixed (koteisei) at 3.35% (from juutaku kin'yuu koukou) and variable (hendousei) at 4.1% (from Hokkaidou juutaku koukyuu kousha) on 30-year loans. Others offer 3.7% (shigaku kyousai, my university's main financial institution), but have definite caps on how much they can lend (with your retirement pay as collateral), and regular banks are more expensive. Anyway, the point is that the cost of borrowing right now is peanuts compared to the stable ten percents people were apparently paying here during the bubble years.


WELL, ENOUGH NUMBERS. PART TWO--HOW ABOUT THE HOUSE, ALREADY?

Oh yes, that. The law says that if we buy land, we must start building within three years of purchase (to discourage speculation). We looked at budgets for a house with the following items included, with the reasons following for your reference if you ever decide to buy.

1) Two floors, plus either loft-style attic or unfinished basement. This is for storage--anybody who's lived in enough Japanese houses know how quickly they get cluttered--no real closet space, no place to put your skis or wine bottles without the kids also messing with them. "Attic" because 3 floors might be illegal because of sunlight (hiatari) laws, and a third floor can nearly double the price of the house; an "unfinished basement" (i.e. gravel floor) to save about 500 man. But in any case, basically eac h floor costs about 1000 man if it gets "officially" counted as one.

2) Living Room, Dining Room, and Kitchen in studio-style second floor, sleeping and bathing arrangements below. This is personal taste. But the advantage is still a better view and sunlight for breakfast, warmer in winter, darker when you need it. Doesn't change the cost much.

3) Triangular roof instead of shoebox square. Again, matter of personal taste. Japanese houses are generally designed from the inside out. And they look like hell up here because of all the measures for snowfall (No kawara tiling, 30-degree slopes on tin roofs, etc. Come up to Hokkaido and see for yourself how ugly a house can get.). Want to avoid that. So we have been looking at house importers like Sweden House and Johnson Home, where gentler triangles are standard with the price.

4) Fully electrically-powered and heated (o-ru denka), i.e. no gas and no diesel. It's safer and less unsightly. Leaking gas, not falling timbers, is the biggest reason people die in earthquakes. Oil heater vents look like machine-gun muzzles sticking out perpendicular from the outside wall, at just the right height to bop somebody in the eye walking past. Moreover, those olive-green or sky-blue outdoor fuel cisterns look like above-ground septic tanks, taking up space and looking dreadful. Unfortunately, "o-ru denka" brings the water and room heater machinery inside (it's the size of a 400-liter refrigerator) to take up space, and it is still non-standard enough to demand an extra 100 to 300 man. The goo d news is that it saves about 2 man a month average on fuel bills and will eventually pay for itself.

5) 24kg-density fiberglass (gurasu uuru) insulation all around the floors, walls, and roof. Up here, this is CRUCIAL for the life of a house. The houses that are knocked down every twenty years because they are drafty are those with 16kg or less inside, without proper ventilation. The wall suffers the difference in indoor and outdoor temperature and, like a cool toilet in summer, endures condensation. Then the insulation basically rots, i.e. loses its properties, and then out come the icicles from the roof and up go the heating bills. However, 24kg, with proper ventilation, gives you what you need for a lifetime of six-month winters.

Note also that insulation, esp roof insulation, in Japan is often "blown" (burowaa shiki) into the walls like cotton candy. Make sure you get the roll-type (like Owens-Corning makes) all over. Blown insulation is uneven in density, rots more easily, and gives off fumes that are carcinogenic, which is why it is illegal in the US.

6) At least 40 tsubo "floor space". This is critical because the cost of a house is calculated based upon the number of tsubo upon which you can actually STEP ON. This means there are loopholes in the law--to get the same area indoors but pushing the walls outward a bit, you put platforms, say, around the gable windows (demado) or allow for wider stairwells/view of the landing from the second floor, you save space (another way is to bring the walls in--which is why some cheap shoebox houses look so higgledy-piggledy). This brings the standard price of the house to around 2000 man before options.

All our options above included, with tax, land (land, BTW, does not fall under the consumption tax) and 7-meter stakes pounded into the land (For support. All houses sink (chinka suru), but rivers and former rice paddy land is soft enough to allow sinkage to the degree where doors don't shut properly. Measures must be taken.), mandatory house insurance etc. included, we're looking at around 3500 man to 4000 man. Which means we must cough up around 800 man cash before we can be lent to.

We can't at this point, so the tentative plan is to buy the land, wait a couple of years forgoing travel and instead filling our bank accounts, and then start building. The problem is that my friends at Nihon Keizai Shinbun say that interest rates are going to creep back up again. Every 0.2% rise means that the amount we can borrow on the same downpayment drops by about 100 man, not to mention that with any fractional percent rise, ov er 30 years, the actual amount paid back rises VERY significantly. Now is a good time, but things are pretty complicated indeed.

The bottom line is that if we want to become honkakuteki homeowners here, it's gonna be about US $400,000 for a home, i.e. San Diego prices with nowhere even near San Diego quality. This is Japan, and that's life when you're dealing with big money and you're not Donald Trump.


I AM NOT A CROOK. I JUST BUILD HOUSES IN JAPAN.

Let's shift gears slightly before concluding this already long post. I have been doing a lot of reasearch on how Japanese building codes and construction work, and what one has to watch out for. There is incredible chicanery out there. Not just within the companies which design your house and and hire the manual laborers to pound and pour. I mean those very carpenters and masons. I have heard things that are perfect for Fukuzawa's eyes. I will get into that more at a later date when I know enough to write good topic sentences.

But for now, one juicy item:

TRADE BARRIERS IN THE FORM OF NONPAYMENT

1) Rumor has it that Japanese lenders don't lend to people who buy imported houses. That I cannot confirm, but something similar to that goes on with housing lender Kin'yuu Koukou. It turns out that when the financier and the taxman come and check that the house is built to standards (during and after construction), they ask origin of the materials as well. For example, if your front door is made in USA, they ask if it has received JAS (or is it JIS?) qualifications. If it has not, then the financier will NOT pay for it. If it's Made In Japan, fine. This is a trade barrier.

Getting that qualification isn't exactly costly, but it is time-consuming and every piece of material must be checked (so if you bring in, say, brass hinges for your door, they must be inspected at the local govt construction office unless the builder has imported enough of them). And the toughness of the local Kensetsu Kyoku differs from the region (Toubetsu-cho, for example, is sister city with some place in Sweden, which is why Sweden House, a Japanese company, can import whole Swedish walls with inlaid windows. It's govt mandate, and getting JIS qualification was easy.). So, this, coupled with things like Glen Fukushima's "genten shugi" ("minus-pointism", so house builders are afraid to take responsibility for unpredictability in imports and become ready to settle for domestically-made goods), makes it harder for importers to succeed here. Imports are too much of a hassle, are in many cases after tariffs and transportation not much cheaper, and not worth the risk of alienating your previous suppliers (who'd get miffed if they found out you were now importing instead of buying their doors, and might cut off, say, your supply of insulation).

So what do some of the hungry smaller builders do when they want to appeal to urusai guys like me? They find ways to cheat. Say you want a solid oak front door from the US. It gets imported, often at half the cost of a Japanese plastic front door. So then they sell you a really cheap front door to display when the taxman comes calling. He sees the Made In Japan label and all is copacetic. Then, once the house is formally passed along to you, you take off the cheapie and install the oak. All at the cost of one typical Japanese front door anyway. And thus you have an extra front door to store in your basement for a rainy day.

Such are the distortions of a market protected by corrupt ministries such as Kensetsu-Shou. Doubtless I'll hear plenty more on my travails, and I'll pass them along to Fukuzawa and this web page.

Phew. What a month it's been. The devil is in the details, as they say. The details I thought were worth posting to Fukuzawa for feedback from those in the know out there. Apologies to those who are used to more legible posts from me. Thanks for reading this far.

Dave Aldwinckle

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