LEASEHOLD AND FREEHOLD LAND RIGHTS IN JAPAN
December 8, 2018

LAND RIGHTS - Just like many other countries of the world, Japan too has specific rights to ownership of land to a property that result in either in a Freehold or Leasehold Property.

FREEHOLD PROPERTY RIGHTS - Shoyuken or Freehold Rights imply complete and absolute ownership of a property and any buildings erected on the land. In the case of condominiums or apartments, each unit has an attached possession of a segment of the land below the building.

LEASEHOLD PROPERTY RIGHTS – Shakuchiken or Leasehold Rights permit the lease of the land of an owner of a built structure like an apartment or condominium or in some cases, an entire building for a fixed duration. This means that he owns the building or the unit and not the land on which the apartment or the condo is built.

Leasehold properties are further segregated into SURFACE and RIGHT TO LEASE. Under surface rights, the land is rented out, but the owner of the building or apartment set on that land reserves the right to buy or sell as he desires.

In the case of ‘right to lease’, the land is rented out, and the apartment or building owners are required to get the land owner’s permission before subleasing or transferring their property, this is also applicable for redevelopment of the said property. This form of right is usually used for old buildings or houses on leasehold plots.

PROS AND CONS

In most cases, freehold is much preferred, as it allows complete possession and management of both the land and the structure on the property, which further leads to a long lasting residual value of the land. However, on the flip side, such properties end up being very expensive as they carry the weight of the land price as well. The new owner’s liable to pay a high property tax, which may vary according to its ward and other associated taxes.

Leasehold properties enjoy a lower price of almost 30% than the average freehold properties, for which the land owner is liable to pay the purchase price, fixed assets and or any other relevant taxes annually. This results in the apartment’s new owner enjoying a high yield on rental rates from an investment perspective.

The apparent drawback of owning a leasehold is that one cannot enjoy complete ownership and a rental amount is due to land owner either monthly or annually, making it less preferred than freehold properties, in turn making it difficult to resell the property. In addition, banks are less likely to extend a mortgage for a leasehold unit on account of lower property value in the long term, given building depreciation in Japan.

KEYWORDS: land ownership in Japan, buying land in Japan, Japan property rights, Japan freehold real estate, Japan leasehold real estate

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