In this article, we will consider the price difference between second-hand condominiums (sectional ownership) and owner change property.
When purchasing real estate is not for one’s own use but for asset building or real estate, it is important to know how to purchase at a reasonable price. This is undoubtedly what many real estate agents and real estate investors want.
Although there seems to be a fair price for real estate but in fact there is not.
This is because real estate is unique in the world and a buyer may find it worth more than the seller expects.
For example, this is the case of second-hand condominiums purchased for 50 million yen that we decided to sell after 5 years. When you request an appraisal from a real estate agent, the real estate agent will assess 55 million yen using the cost method, the transaction case method and the income capitalization method.
When you talk to your neighbor about selling the property for 55 million yen then your neighbor wants to buy the property for 60 million yen.
This neighbor needed to call them parents nearby because they needed to care for them. The market price is 55 million yen, but the neighbor really needs the property, so he is willing to buy it for 5 million yen more than the market price.
In this case, the seller’s estimated sales price is 55 million yen, while the buyer’s desired purchase price. In other words, the value for the benefits the buyer expects to receive is 60 million yen. Thus, individual reasons are always reflected in the price of real estate. Even when real estate market data shows that prices are falling due to the recession, there are many cases where these individual reasons were taken into account and the property sold at a high price. Conversely, there are situations in which one must sell at a discount. Real estate agents and real estate investors are looking for day and night for properties that are cheaper due to these individual reasons.
However, such circumstances have become so well known recently that one can hardly find any properties that can be bought at a lower price. Even auction properties and real estate under dispute are traded at about the same level as the market price.
In other words, the only people who can buy real estate at low prices nowadays are real estate agents who are well informed and even these real estate agents are unable to buy inexpensive properties. However, even in such a situation, there is a way to purchase real estate at a 20% discount on average. This is the main topic of today’s article.
The current status of second-hand condominiums can be expressed as follows,
1) Owner-change (under lease)
2) Under resident (owner occupied and will move out at the time of sale)
3) Vacancy, No renovation and remodeling
4) Vacancy, Renovated and remodeled
No two properties are exactly the same but let’s assume which case would be cheaper for each of the exact same properties.
The cheapest is 1) Owner change and the most expensive is 4) Vacancy, Renovated and remodeled.
Although it is difficult to make a generalization for 2) and 3) due to data and other factors, the author’s impression is that in many cases 3) is more expensive than 2).
Therefore, when ranking them, the prices increase in order from 1) to 4). ＊This is a general rule only, and prices may vary depending on individual reasons, etc. as mentioned above.
Then why is the Owner change in 1) so inexpensive?
【 Reasons of owner change is inexpensive 】
1. low demand
→ If the property is vacant or under resident, it may be purchased for personal use. In other words, such demanders do not purchase owner change property because they purchase them for their own occupancy. In addition, since Japanese mortgage loans are only applicable to residential properties, owner change properties can not use mortgages that offer lower interest rates and can also provide full loans.
2. They cannot use a mortgage when taking out a loan.
→As explained in 1., since the property is not for residential use, mortgage loans with large preferential interest rates cannot be used so generally the down payment is about 20% of the property price and 7% of other expenses, totally 27% of the property price, it requires with cash. it is cheaper than under resident or vacant property.
3. inability to confirm the inside of room / taking over the lease contract
→According to Japanese custom, it is not possible to directly enter and check the interior of a property that is being leased. This is due to the rights of the lessee and lessor, who are not allowed to enter without permission even if they are the owner. Also, the lease contract is taken over so even if the property is rented out at a slightly lower price, the rent must continue to be paid until it is renewed.
4. not available for self-use
→The owner of the property is unable to use the property because it is leased. Even the trunk room cannot be used. Some condominiums allow use of the common area but not the exclusive use area during the lease period.
For these reasons, owner change properties are cheaper than vacancy or under resident properties.
Many real estate agents take advantage of this inexpensive price to purchase owner change properties and sell them when they become vacant.
The author compared the contracted and second-hand condominiums(same condominium, sold within 3 years, and with floors close to each other) in the five main wards (Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku, and Shibuya-ku). Then the maximum price was then about twice as low, and the average price was about 20% lower.
Example of a 2-fold difference
Minato-ku, Tokyo Tower condominium 15 years old 24th floor
Approx. 70 ㎡, Owner change, 73.8 million yen
Approx. 96 ㎡, Vacancy, 198 million yen
We have separate materials on how to invest in real estate using this method so please feel free to contact us for more information.