BUILDING A HOUSE IN JAPAN PART TWO:
NEGOTIATING TO BE FOREVER IN DEBT JAPANESE-STYLE
(sent to Fukuzawa, ISSHO, and Friends April 26, 1997)
After nearly a year since my last report (click here to see it), an update is long overdue. It is one of the most important topics we can discuss about Japan--purchasing the most expensive consumer good in the world's most expensive economy--and it influences the lives of Japanese at the most fundamental levels. However, there is so much to learn before one can draw any conclusions, making it near impossible to write up accessibly and in internet style. But let's give it a try.
This long essay is organized thus:
1) PROLOGUE--HOW WE GOT OURSELVES INTO BUYING A JAPANESE HOUSE
2) FINANCING THAT HOUSE
3) SEA CHANGE: THE RIPPLES OF TAKUGIN'S DEMISE
4) GO FOR IT: THE RUDIMENTS OF A GOOD HOKKAIDO HOME
5) NO TURNING BACK: DISAPPOINTED WITH TRYING TO BUY AMERICAN
6) ONE MISC POINT: CERTIFICATION AS A TRADE BARRIER
7) PRELUDE TO FUTURE UPDATES: (Detailed Cost Analysis of a House, and Cutting Costs via Personal Importing)
First a personal tale for reader empathy before getting into nitty-gritty.
1) PROLOGUE--HOW WE GOT OURSELVES INTO THIS SITUATION
Many observers, myself included, of housing markets are puzzled as to why anyone would want to invest in a Japanese house. The land is exorbitantly priced in the places people would want to live (during the bubble years, any Tokyoite lucky enough to be a landowner was automatically a dollar millionaire). The house is ugly (particularly up here), built of shoddy materials and with workmanship not lasting past twenty years--meaning you have to rebuild all over again. Should you be crazy enough to uproot, there is generally no resale value of the building (and no profit in even the land in recent years)--so your once-happy home gets demolished and rebuilt by the new owner. In other words, there is really no return on investment on a house.
Yet we are buying and building. Why? It was spring 1996 when we realized that, a) we were getting nothing but a stack of receipts from our monthly investment of 100,000 yen in rent, b) we could pay a house mortgage for about the same amount and own something in a few decades, c) interest rates on housing loans were at historical lows (between 3% and 4%), and d) time was the element--both the 3% consumption tax (shouhizei) and the interest rates were not going to stay low for long. Now, while the sale of land is not shouhizeiable, the house, of course, is. And an impending two percent rise in costs does cause body orifices to pucker. So in we dove into the property market.
You've seen some of the preliminary findings in a previous post. Now for Part Two. When we last joined our heroes in this saga, they were flummoxed by the degree of trade barriers, high-pressure salesmanship of high-priced shit, and the standard inflexibilty in the construction industry--the largest employer in the Japanese market (15% of the workforce, folks), managed by Japan's most corrupt ministry. So we suffered meltdowns in faith and let things lapse.
But still nagging conditions persisted--low interest rates, the high rent, the prospects of raising a third child in increasingly limited space, plus inchoate needs--for pets, a garden to tend, and a doorjamb upon which we could record our kids' growth without catching hell from the landlord.
However, I don't want this post to seem just like a letter home to my folks, so let me skip much of the interim and focus on the bigger points, giving the current status of negotiations, and work back from there.
DETAILS OF THE PURCHASE
As of late April, 1997, we essentially agreed to buy a house and 170 tsubo of land (564.50 m2, or about four residential plots in the Tokyo conurb) in the countryside (if you want to see a picture of the plot, click here), with a two-storey house of about 51 tsubo (170 m2), or 102 tatami mats, which I think is substantially bigger than average (if you happen to be interested in seeing our house diagrams and my room sketches, click here to access a special links page).
But size isn't everything. Up here in Hokkaido insulation is. MATSUKEN HOUMU (aka Matsumoto Kenkou KK) has house insulation called "FP kouhou". I don't know the English but it is waterproof, moldproof, settleproof, and fire-resistant foam pumped into prefab walls at the factory. It costs 13 times more than regular rolled fiberglass insulation, but comes with a 30-year-guarantee, which no other builder would give. A good hard look at Matsuken's flashy showroom got us into negotiations.
All told, a Matsuken hacienda will cost 12,000,000 yen for the land (exceedingly cheap) and 30,000,000 yen for the house (not so cheap). The house is currently being designed, construction is due to start around July 1, and everything must be completed (as per my request--I want heat in the building before the snow flys again) by November 1997. Matsuken says that this time table is possible, so the subsequent barrage of redesigns and negotations have even kept me from adding recent essays to this web site.
It wasn't supposed to happen like this. When we'd entered negotiations in January with about five housebuilders (which we whittled down to Matsuken), it was understood that we were to be put into their noruma (salesman's quota) for next year, 1998. That way, we could design the house to our specifications at a leisurely speed, and sniff out any insincerities on the part of the builder.
But the problems of financing and Force Majeure caused us to push the schedule up a year. Why? Let's belay the personal tale and dive into a topic:
2) FINANCING IN JAPAN
(Finance is my wife's department--I handle imports. I apologize in advance for any errors)
In addition to regular private credit institutions, Japan has two government agencies, Juutaku Koukyuu Kousha, and Juutaku Kin'yu Koukou. The good news is that they lend money at extremely low rates, particularly if you buy land from a government-owned project (we did--it's all part of a Hokkaido policy to vitalize a small town as a suburban paradise). How low a rate? How does thirty years at about 3.4% sound? The bad news is that the loans are "capped", meaning that we could rely on the government to loan us some money for the land only, but would have to go elsewhere for the 30,000,000 yen shortfall for the house. What happens in Japan (and I admit that I don't know how America works, so this may not be anything unusual) is that housebuyers, if they can't rely on their own savings or a rich relative, must divide their loan between a couple of private credit institutions, which have deeper pockets but higher rates and fussier criteria for loaning. I passed the main criteria, i.e., Permanent Residence in Japan (eijuuken--click here for info on how to get yours), and continuous employment at one place for more than three years. I thought it would be a simple matter of showing them my healthy income statement (gensen choushuu hyou) and coughing up the 20% "atama-kin" loan downpayment (See why Japanese save so much?) required of any big loan made to an earnest, hardworking citizen.
Of course, it wasn't that easy. I got turned down by a private bank, Hokuyou Ginkou, during our first loan attempt. Why? I, "as a university teacher", was deemed "unstable" (financially, I mean), and the bank's "autonomous" guarantor agency refused us a loan regardless of any amount of downpayment. The reason was confidential. But I think it was because there was a chance that I, as a foreign educator in Japan, am currently on, or would be put on, a limited-term ninkisei contract (by Monbushou fiat), and thus unable to pay back my loans due to anticipated pay cuts. Academic Apartheid strikes again. My suspicions were confirmed when I pushed my negotiator for a reason, and he said they said that all university educators are considered unstable financially. Which was never true before, but it's entirely possible now since the government is pushing sentaku ninkisei on every teacher, regardless of nationality, to do away with tenure and "enliven things" in Japanese education. "Enliven" indeed. More like cheat a whole service sector out of their ability to purchase property. But I digress.
This major setback was sobering enough to fill out my application form to Hokkaido Takushoku Ginkou (Takugin Bank) much more carefully--to stress my position as "tenured" (here translated as seiki) when giving my job description. Guess what? The loan for the full amount was approved. And at unbelievable conditions--2.7% 3-year fixed, 3.15% 5-year fixed, and 4.1% 10-year fixed (choose one)--with a downpayment of only 10%! We were smiling when suddenly the rug was pulled out from under us.
3) NOW FOR THE FORCE MAJEURE
Do all Japan residents reading this remember what three-inch headline greeted us on the morning of April 1, 1997? Yes, I too thought it was a bogus April Fools' news report, but when my brain came in for breakfast I remembered that Japan is not Britain. Anyway, our friendly neighborhood Takugin, recently degraded to "negative" status by Moody's, was to be swallowed up by Hokkaido Bank as of April 1, 1998. No joke. Takugin would cut staff by about 3000 people (out of 5000) and ALL Takugin branches outside of Hokkaido would be closed. Effectively, Hokkaido's largest and oldest bank, mandated by the Meiji mandarins to develop this island away from the hands of the Ainu or the Russians, would be winking out of existence.
And with that our loan offer. Hokkaido Bank, which my wife used to work for, is famous for being more stingy than average (which is probably why it's not in trouble like Takugin). That, plus the fact that my 1997 Income Statement would not be padded by my publication of two textbooks in 1996, meant that I would have much less leverage to get a loan if we waited. Hence, time was the element--since by law we must build within three years of purchase, it was entirely possible that we would not get that house built unless I visited those people without pinkies.
So like it or not, as of early April 10, we were locked into a house purchase for 1997. Since Matsuken had done all the legwork with Takugin, using their pull as one of Hokkaido's major housebuilders to postpone our purchase of land, we could buy both land and house at the same time, effectively consolidating our loans and removing the "caps" from the Kin'yu Koukou loan amount. It had turned into an offer we could no longer refuse.
4) WELL, HOW ABOUT THE ABODE YOU'RE GETTING FOR ALL THIS MONEY?
Good thing I was well-disposed towards "the house that Matsuken built". Again, house insulation, crucial for the six-month Hokkaido winters, was probably as good as we were going to get unless we built everything in concrete. Moreover, enough measures would be taken against condensation (ketsurou), which also kills houses. Quick science lesson: no matter how dry the air is in winter, within a relatively airtight space, people cooking or breathing will put moisture into the air; watch how it freezes on windows and makes frost jungles. Unless it is *actively* pumped outside with a fan system, condensation will occur within walls due to the difference in temperature indoors and out. This will make your house more drafty as moisture seeps into absorbant fiberglass insulation, causing it to mold and settle vertically. So in Matsuken homes, vents and fans are installed, and porous plastic sheeting which breathes is put over insulation.
FP Kouhou, they stressed, is superior insulation--the foam is hydrophobic, so absorption is impossible. To prove it, in the Matsuken showroom they had a block of the stuff floating like a piece of pumice in a water tank (next to a flaccid fiberglass sample lolling submerged). And FP is more soundproof, more flame retardant (in the showroom they had videos of comparative JAS-style tests on fiberglass, blue polyeurythane, and FP that were empirically conclusive), and backed up by triple-glazed Finland windows and doors. And we build to your specifications etc. I had to admit I was more impressed with Matsuken than with any other Hokkaido house builder (Kinoshiro Taisetsu being the worst!), and it looks like we're going to help make them rich.
But I should add at this juncture an important story of how I did shop around:
5) OKAY, THIS IS YOUR LAST CHANCE, AMERICA
There is a Seattle-based company called "Home Builder's Center" (HBC) which, according to a friend who sourced from them, has extensive Japan experience. This wasn't just some Hicksville House Warehouse that had sent over one of its monolingual dreamers to push a few lukewarm designs at a Tokyo symposium or two before going home wondering why he was getting no offers. HBC had a bilingual American, son of missionaries, who had translated brochures and glossies, and gotten the necessary JAS and JIS standards for building materials. Even better, HBC would even import American carpenters (far better, faster, and cheaper than the grade-school dropouts passing as daiku-san here in Japan), and had built several houses in Honshu successfully (granted, generally in cities that were easy ports-of-call for the ships and container trucks). But never in Hokkaido. Now was their chance. I was expecting great things from my fellow Americans who knew something about how to break down Japan's ubiquitous trade barriers!
I was to be disappointed. One hears (especially from Japanese negotiators) about how American businesspeople "don't try hard enough". I liked to scoff at how ludicrous and nasty that sounded. However, this time around I'm glad the Japanese press wasn't following our negotiation.
I FAXed HBC in late January to tell them about our land, our specs for house size, and our willingness to allow our house to be used as a model to show the pristine Hokkaido market just how well they could build an All-American house. I thought they would jump at the chance. Wrong. My FAX went unanswered for a week, and I had to phone to see if they'd gotten it. The boss said he'd get back to us immediately. Three more silent weeks went by, and I eventually had to reFAX the original letter again with a gripe scrawled across it. Within 24 hours, we were FAXed about 15 pages of house specs and estimates, but nevertheless we'd lost one precious month.
To be sure, HBC houses were cheap. The most interesting was about $160,000 for a "Dallas" house of about 56 tsubo (about 186 m2)--huge by Japanese standards and inconceivably low-priced. But the problem was that estimate didn't include house foundation work (which has to be done by a Japanese builder, and it would cost between 100,000 and 300,000 yen, depending on how many foundation stakes they have to drive and how generous a mood they were in), fees for importing and housing the American carpenters, and commission fees for that local Japanese agent (which we would have to find). And the insulation was all rolled fiberglass (polyeurythane would be far more expensive, they said), which I was leery of using after seeing what can happen to it in the Matsuken showroom. Worst of all, we would have to pick our own way through the myriad paths of Japanese financing (which Matsuken did instead on our behalf). Entreaties for assistance in these matters went unanswered.
Moreover, the Americans felt to me like they lacked a surprising degree of business horse sense. Despite the fact that a visit from Sapporo to the nearest HBC house would require us to take an airplane trip, they made no effort to show us what one of their houses would look like beyond a one-dimensional thumbnail spec. They sent us no catalogs, no photos of houses they'd built, or even samples of the flooring or exterior siding (which I had explicitly expressed concern about) until I literally begged them to do so in the fifth FAX last month (and even then, they gave us no information about Japanese flame-retardancy qualifications, which we must have or else we cannot use the siding). The interim FAXes I sent full of questions went unanswered for days at a time, and when answers came they were half-assed and incomplete. The missionary, who blamed his slow turnaround on "jury duty", didn't even know what one jou âÄ--one 3' x 6' tatami mat or half a tsubo--was, despite they fact that it is the standard unit of room space all over Japan. Also, inconceivably to people like us using this medium every day, HBC didn't even have an email address, and did nothing when I introduced them to a friend selling those services in their very hometown!
I was ashamed to update my wife on the status of my negotiations. Having had to listen to me say all the time how much better the construction industry is in America, she offered a large smile at my comeuppance.
Alright, that's about enough topics for now. There's lots more to come, but for the time being, here is a smaller point that I can't really fit into the structure of this essay:
6) CERTIFICATION AS A TRADE BARRIER:
I mentioned the house siding briefly above. Two things I hate the most about Hokkaido houses are a) the lack of kawara roof tiles (which people say is because of the heavy snowfall, but is actually because the soil here hasn't enough kiln-quality clay), and b) that houses are basically assymetrical shoeboxes with brickish tiles (which makes them look like big public restrooms), painted aluminum siding (which makes them look like washerboards covered in rain scum), concrete siding (which makes them look like they've got ugly Japanese wallpaper on the outside too), or stucco (which makes everything just look goddamn cheap, which it is). The number of appealing house exteriors I've seen in my decade up here I can count on one hand. Seriously. So I simply refuse to sell out and build a house I would be ashamed to photograph and show my friends overseas.
So I asked the Americans to send me some samples of HARDIPLANK, a concrete siding that is cuttable, paintable, warrantied for FIFTY years (as opposed to Matsuken's TWO!), flame retardant to US Class A standards, and comes in various woodgrains for a San Francisco "Shiplap" look. It's far better than anything Japan has to offer. But guess what--even if I only source the siding from HBC, Matsuken still can't build with it because it apparently doesn't have Japanese "Bouka Kikaku"--flame resistance certification. And to get that certification, it takes five years of tests.
Meaning that any new product, even an improvement on an older model, has to negotiate a Byzantine bureaucratic process and wait half a decade before entering the market? This isn't just a drag on innovation. This is a trade barrier.
Actually, according to an independent consultant I'm hiring to make sure we don't get gypped at any stage, we CAN build with the materials if we cheat. When the inspector tells us to fill in the Bouka Kikaku number, just write one copied from another brand of siding. They won't check. However, if there's a fire or any natural disaster (even if our house is relatively undamaged and we were not the cause), then they will check. And hence we'll void our claim to Disaster Insurance (kasai hoken) because we'd defrauded the authorities.
Obvious moral: Don't mess with the bureaucrats. Cos they'll burn you in ways house siding can't prevent.
7) PRELUDE TO THE NEXT UPDATE: WHAT DO YOU GET FOR YOUR MONEY?
I will go into more detail as to exactly how much things cost in a Japanese house (wait till you see the little taxes and fees which really add up!) when we have more details--we have only a sketchy appraisal at this time. But 30,000,000 yen is a lot of money to most people, and one would hope that this lifetime's investment would be a good deal. You can decide that for yourself in my next update, due before summer 1997.
And for perhaps the final post on this topic due in Autumn 1997, I will discuss how to do personal importing. To stretch our budget, I will be going to the US this summer on a huge shopping spree to buy several items (at last count 24 of them--things like a DIY shed kit, a balcony, a lawnmower, etc) that will definitely be both higher quality and lower price overseas. Then I will load them myself into a 20-foot container and send them directly from Seattle to Tomakomai. I have friends who do this all the time, so I hopefully shouldn't face a bureaucracy demanding precedent. Moreover, provided I bring in the goods as Personal Effects, according to a JETRO official (who, as JETRO officers commonly do, never answered further enquiries) it would be TAX FREE! Let's put JETRO to the test and see if that's true.
The saga continues.