You informed yourself, selected a trustworthy agent, obtained finance and won the bid on an investment property. Now you need to manage it. While this is best done through a management company or proxy for foreign owners, it pays to know the particularities of the market and what to expect from a management company in Japan.

Overview of property management

The leasing of residential property encompasses a number of tasks, including advertising the unit, setting the rent according to current market rates, collecting rent, contract cancellations and renewals, responding to tenant enquiries, along with communication building and facility management. Just by themselves, these tasks can become time-consuming and require expertise that private property owner usually does not possess. In Japan, the language adds a further level of difficulty.

In addition to Japanese language skills, a Japanese address, phone number and bank account are all required to communicate with tenants and collect the rent, which foreign-based landlords and –ladies often do not have.

Therefore, a property management company is commonly used a proxy between the tenant and owner. This further puts a professional distance between the two parties — and is also used by most Japanese property owners.  On your behalf, the proxy can communicate with real estate agents, the tenant, and building management, while settling dues with the tax authorities and insurance companies on your behalf and paying rental income into your overseas bank account.
 
Usually, the property management company takes a percentage when rental income is received before passing it to the owner, but some also offer a fixed monthly fee. It's worth comparing the fee structures of several companies that offer services for international property owners in Tokyo. 

How to find a management agency

In Japan, no license is required to operate a property management company. Therefore, in theory, anyone can open a residential property management company. In 2011, a registration system for residential property management companies was created by the Ministry of Land, Infrastructure and Transport to improve and monitor the standard of management of leased residential properties. Property owners can view a public registry of management companies, which is recommended to make an informed decision in finding a reliable property management company.

Currently, near 4,000 companies are registered in the system, with only some offering services in English.  WealthPark is a reasonably priced property management company that services English speakers and a firm that has a fully developed property management app with an English user inteface for keeping track real time of your rents and maintenance information.

Contract details

The property management company will market the unit by advertising it to local agents that get visited by potential tenants, on internet platforms, their own website, and the national real estate database for Japan, REINS.
 
Units in Japan are usually unfurnished, with the exception of short-term rentals, so tenants bring their own furniture. The exception is the air conditioning unit, which poorly insulated Japanese houses rely on for heating in winter and cooling in summer. Generally, it is expected that one is installed in each main room (living room and bedrooms) of the house or apartment.
 
Upon signing of the contract, the tenant will usually pay you the first month’s rent, plus ‘key money’ (reikin, literally meaning ‘gratitude money’) equivalent to one to two months’ worth of rent, and one to two months’ rent as a deposit. Half to one month’s rent will also be paid as agency fee to the realtor by the tenant.

Further is it recommended that the tenant has a guarantor who guarantees the property owner that rent will be paid even in cases where the tenant does not step up to their financial duty. While often the tenant’s parents in case of students or the renter’s company are used in case of full-time employees, many lessors ask the tenant to sign up to a guarantor company. These companies act similar to an insurance company for the rental payment. 

Contract length is usually set at two years and can be renewed without limit. At the time of renewal, a renewal fee of one to two monthly rents is collected from the tenant. Commonly, the tenant can cancel the contract with a one-month notice at any time without penalty, unless the contract stipulates a set minimum length.

Read more about rental fees and guarantors in Japan

Risks

 Risks for residential property management in Japan are low. Willful damage is very rare and rent delinquency (late payments) are unusual. The Japan Rental Property Management Association found that in 2016, that while 6.9% of tenants had been late with their payments once or more during the year, only 2.7% had not paid rent within a month after it was due. Only 1.6% of tenants had been delinquent with rent payments for two or more months.
 
However, for long-term late-paying tenants, the eviction process in Japan is long, costly and tedious, usually taking at least 6 months and costing the property owner hundreds of thousands of yen in lawyer fees while the lost rent can usually not be recovered. It is therefore paramount for landlords to only accept renters that are backed by a guarantor company who will step in and pay the landlord in case the renter does not pay up.

Before accepting a tenant, guarantor companies also check their credit rating, which cannot be done by the landlord themselves, and adds another layer of security for tenant selection.

By Mareike Dornhege

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