There are many factors to consider when selecting a property, either as a home or as an investment. Management fees that are due every month for the maintenance of a condominium or apartment building is one such factor. Another monthly expense is the reserve fund that covers the owners' association for bigger expenses like renovations and repairs. Here is our guide to approximately how much those fees should be and what they are used for.

1) What are management and reserve fund fees used for?

Generally speaking, these are used for ongoing standard management (maintenance fees), as well as for any renovations and repairs (reserve funds fee) to the building's common area, including structural repairs. Common areas include the roof and surrounding facilities such as driveways, parking areas, mailbox and rubbish disposal areas, explains Ziv Nakajima Magen, partner and executive manager at Nippon Tradings International. There is one exception however: apartment balconies, which are private areas belonging to each unit in practice, are officially part of the building's exterior, and therefore considered common areas.

Repairs and works might include re-waterproofing, re-caulking, general exterior maintenance, replacing or repairing plumbing and electrical equipment, explains Zoe Ward, CEO of Japan Property Central.

The biggest ticket items are usually the building exterior, the roof and elevators — so when conducting due diligence prior to purchasing an apartment, it's crucially important to confirm the building's reserve funds pool has enough in it to cover these items, points out Nakajima-Magen. They are normally required only every 10–20 years, depending on the age of the building. If none of these big renovations has been carried out in the last 10–15 years, they will be required sooner rather than later. And if the reserve funds pool cannot cover those expenses, it's extremely likely that monthly fees will be raised as a result.

2) What are the monthly fees on average? Are there rules or regulations that set them?

Ward explains that the Ministry of Land, Infrastructure and Tourism’s guidelines suggest a monthly fee somewhere in the range of JPY 165–245/sq m. But fees are unfortunately not fixed, adds Nakajima-Magen. Both management and reserve fund fees vary greatly depending on the age of the building, its size and how well it's managed/maintained. In general, they can cost anywhere from 5 to 40% of the gross rental income, or roughly JPY 5,000 to 30,000 per month.

In reality, it varies wildly from one building to the next depending on the developer, the age of the building, facilities, the number of apartments, and the ethos of the owners' association. So generally speaking, the older a building is, the higher the reserve funds component will be. And the better maintained it is, or the more facilities it offers to tenants and owner–occupiers, the higher the management fees will be.

3) Would you advise potential buyers against a property if the fees are too high?

In Nakajima-Magen’s opinion, for landlords, high fees are an advantage, as a well-maintained and well-equipped building attracts more and better tenants. Ward agrees: She points out that it is more of a concern when the fees are too low, which means the building cannot be properly maintained in the long-term. If there isn't enough money saved up, urgent repairs would either require apartment owners to pay immediately out of pocket or for the owners' association to take out a loan.

Finally, fee costs is a matter of personal preference and budgeting, in the case of an owner–occupier, or of bottom line yields, in the case of investment properties.

If you can afford the extra money and appreciate living in a well-maintained and well-equipped building — or, in the case of an investment property, if the bottom-line yield after those fees and others have been factored into the calculation, still sums up to an attractive return on investment — the high fees are an asset, not an obstacle in Nakajima-Magen’s opinion.

However, he reminds us that for investment properties, fees need to be paid regardless of whether a property is tenanted or not —so make sure you can afford to pay them if and when a unit is vacant, which can sometimes be a few good months, depending on the time of year, the property profile, its location, and how long it takes to repair and renovate it in preparation for finding and placing a new tenant.

4) Can the fees change over time?

According to Zoe Ward, ideally, repair fund fees should increase as the building ages and becomes more costly to maintain. That is something a buyer should budget for when considering their monthly outgoings not only now, but many years from now. 

5) How can I determine if a building is well managed?

One of the most important phases of the due diligence process is correlating the building's reserve funds status, the monthly amount collected for this purpose, and the building's renovation history, emphasizes Ziv Nakajima-Magen.

Buildings with low amounts in the reserve funds pool need to show a history of substantial recent renovations to justify the depleted pool. Alternatively, the reserve fund could be low because the building is relatively new and the monthly reserve fund contributions are relatively low. This is understandable, as a new building typically wouldn't require any significant renovations yet. Buyers should, however, be prepared, for a monthly fee hike in the not-too-distant future. 

If both are absent, this could point to a case of mismanagement, warns Nakajima-Magen, which brings up serious red flags.

By Mareike Dornhege

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