Refer Report
The Japanese real estate market is considered an attractive investment that can provide stable returns. However, in order to succeed in this market, it is very important to purchase through a reliable domestic real estate investment advisory partner. This is because without the help of a professional who has a deep understanding of Japanese real estate laws, market trends, and regional characteristics, you may be exposed to serious risks of fraud or failure, such as the following.
1. Fake full-time fraud
‘Fake full-time fraud’ is one of the most common frauds that can occur in Japanese real estate investment. This fraud seems to guarantee investors a steady return, but the reality is completely different.
– Fraudulent methods: Real estate sellers or brokers claim that the building is very popular and boasts a 100% occupancy rate. In particular, they emphasize that the occupants are fully occupied, guaranteeing high returns. However, in reality, there are many empty rooms, and even the tenants who are occupied may be false tenants. In other words, they make it seem like the lease contract was signed for a short period of time, giving investors the false expectation that rental income will continue to be generated after the purchase.
-Result: After the investor purchases the building, a large-scale eviction suddenly occurs, causing a sharp increase in vacancy. As a result, rental income drops sharply, and the investor does not receive the expected return. This situation increases the financial burden on the investor and can lead to serious losses.
2. Pitfalls of Sublease Agreements
Sublease contracts are a common contract method for foreign investors, especially in Japan. Sublease refers to a structure in which a property owner leases the property to a property management company as a whole, and the management company then subleases the property to multiple tenants. In other words, the owner receives rent from the management company, and the management company leases the property to multiple tenants based on that rent. On the surface, it seems like a structure that allows the owner to receive stable rental income every month, but this structure has several important hidden risks.
-Risk factors:
Reinstatement Costs: A common problem with sublease agreements is that the landlord may be responsible for all of the costs of restoration upon eviction. This means that the landlord is responsible for the costs of repairs and restoration that occur when the tenant vacates the premises. These costs can be much higher than anticipated and can be a significant financial burden on the landlord.
Difficulty in Terminating the Contract: Sublease agreements can be detrimental to the owner in the long run. Even if the owner wants to terminate the contract with the management company, it may be very difficult or impossible to do so depending on the terms of the contract. This may force the owner to stay in a disadvantageous contract for a long time.
3. Buying unfinished items
Fraudulent purchases are a common risk when investing in under-construction real estate. While these investments can be very attractive, they also come with significant risks.
– Fraudulent methods: Developers present attractive investment opportunities, saying that they are “soon to be completed.” In particular, they attract investors by offering tempting terms such as special discounts if you sign a contract now. However, the problem is that there is a risk that the developer will not complete the project as promised, or that construction will be halted, and even if it is completed, the rental income after completion may differ significantly from the expected rate of return. If the developer goes bankrupt due to lack of funds or requires additional funds due to rising construction costs, investors may suffer serious losses.
4. Fraudulent translation of sales contracts and important information descriptions
One of the things that foreign investors should be particularly careful about in the Japanese real estate market is the ‘false translation scam of sales contracts and important information descriptions.’ This scam is a typical example of exploiting the language barrier, and can force unfavorable conditions on investors by preventing them from accurately understanding the contents of the contract.
– Fraud technique: In Japanese real estate transactions, a description of important matters is provided along with the sales contract. The description of important matters is a document that explains in detail the condition of the property, legal conditions, rights, etc., and contains information that investors must understand before making a transaction. Fraudsters may translate these documents and provide them to foreign investors, saying, “This contract and description are translations. All you have to do is sign them.” However, these translations may differ from the originals, and important terms or clauses may be intentionally omitted or distorted. This puts investors at risk of agreeing to terms that are different from the actual contract.
It should be noted that the success of Japanese real estate investment depends on ‘strategic operation’ rather than simply ‘purchasing’. To this end, the following are key points that investors must be aware of.
First, risk awareness is the key to defense. It is important to thoroughly understand and prepare for various fraud methods and potential risks.
Second, building a trustworthy partnership is essential. It is recommended to work with a proven domestic investment advisor and a company with more than 10 years of local management experience.
Third, thorough due diligence is required. Emotional judgments should be eliminated and investment in objective market analysis and legal and financial preparation should be made.
Fourth, you must have a long-term perspective. You must not be swayed by short-term profits, but focus on building a sustainable profit model.
The Japanese real estate market is a field where opportunities and risks coexist. Therefore, only a careful and strategic approach can guarantee stable profits and increased asset value. Investors should seek investment success through thorough preparation and smart partnerships.
In conclusion, Japanese real estate investment should be viewed as a long-term journey beyond simple transactions. The main character of this journey is none other than the investor himself, and his careful decisions and strategic approach will determine the success or failure of the investment.
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Source: Korean