What is the risk of purchasing a condominium with a fixed-term leasehold right?Also explains the points when selling

What is a condominium with a fixed-term leasehold right?

"Fixed-term land lease right" is the right to rent land from the landowner and build a building for a specified period of time. A condominium with a fixed-term leasehold is also a condominium built on land rented for a limited time, and it is necessary to dismantle the building and return it to the landowner when the contract expires.

Fixed-term leasehold rights can be further divided into three types.

The "leasehold right" includes the old leasehold right and the new leasehold right that came into effect in 1992, but the "fixed-term leasehold right" is based on the new law and is characterized by the fact that the contract cannot be renewed. There are three types of fixed-term land lease rights, each of which has a different period of validity, purpose of use, and measures after the contract expires.

Types of fixed-term leasehold rights	period	Purpose of use	After the contract expires
General fixed-term land lease right	Over 50 years	No limit	Return to vacant lot
Fixed-term land lease for business	10 to less than 50 years	Limited to business use	Return to vacant lot
Leasehold right with special contract for building transfer	Over 30 years	No limit	The landowner buys a building on a leased land

Three benefits of purchasing a condominium with fixed-term leasehold rights

Although it is a condominium with the condition of fixed-term leasehold, there are such merits when you purchase it.

Can be purchased cheaper than the market price

Since the land on which the condominium is built is rented, there is no cost to purchase the land. At the time of purchase, you only have to pay the building price + the land rent (land rent), so you can get it at a cheaper price than the general condominium market price.

No need to pay property tax or city planning tax on land

Since the building is purchased, the property tax is obliged to be paid, but the owner is obliged to pay the property tax on the land, so the condominium purchaser does not have to pay it. However, you will have to pay the land rent, which is called the "rent", instead. I will explain the rent in detail later.

Often in a good location

The biggest advantage of condominiums with fixed-term leasehold rights is that they are often built in rare locations. In Tokyo, condominiums with fixed-term leasehold rights are built on the land in front of the station, which has been owned by the government since the Edo period, and in Osaka, on the venerable land of shrines and temples. You can buy properties in good locations that are generally not available for a limited time at a lower price than the market price.

Special feature on newly built condominiums Special feature on newly built condominiums with enhanced security

Four risks of buying a condominium with fixed-term leasehold

On the other hand, let's also introduce the risks of purchasing an apartment with fixed-term leasehold rights.

Difficult to get a mortgage

Even if you try to use a mortgage when purchasing a property with a fixed-term leasehold right, you may not be able to get a loan depending on the remaining term of the contract. Even if you can get a mortgage, there may be a condition that the repayment period of the loan is limited to the remaining period of the contract.

Can't continue to live

As already mentioned, apartments with fixed-term leasehold rights cannot live for the rest of your life. Since "general fixed-term land lease rights" are generally used for condominiums with leasehold rights, it is legally possible to conclude a contract for a long period of 50 years or more, but even so, when the contract period expires, the building Must be demolished and returned to the vacant lot and returned to the landowner.

The shorter the remaining period, the harder it is to sell

If you purchase a second-hand condominium with a fixed-term leasehold right, you may not be able to live for a long time depending on the remaining period. If you can't live for a long time, it's common to think about selling, but even the buyer doesn't want to buy a property with a short remaining period. Therefore, condominiums with fixed-term leasehold rights have the disadvantage that the shorter the remaining period, the more difficult it becomes to sell.

You may be charged a "transfer consent fee" at the time of sale

When selling a condominium with a fixed-term leasehold right, permission from the landowner may be required. In that case, you may be required to pay a fee called "transfer consent fee".

Rents go up, dismantling cost reserves may run short

If you purchase a condominium with a fixed-term leasehold right, you will need to pay the "rent" as a land rental fee in a lump sum or monthly. It is also necessary to reserve a reserve for demolition costs of the building in preparation for surrendering the land in a vacant lot at the end of the contract period. These fixed costs are inevitable expenses.

Rent

The market price of land rent varies depending on the asset value of the land, but it is usually about 10,000 to 20,000 yen per month. In the city center, the rent also rises due to the high land price, and if the land price rises, the rent is likely to rise. Therefore, it can be said that there is a risk of rising land rent, especially if you purchase a condominium with a fixed-term leasehold right near the city center.

Dismantling cost reserve

In many cases, the reserve for dismantling the condominium is set aside every month by all the residents under the leadership of the management association, just like the reserve for repairs. Since it will be used for decades, it is often operated, but the property owner should also follow up properly so as not to be involved in the situation where the operation was not successful when dismantling. You will need to do it.

Purchasing a condominium with a fixed-term leasehold is suitable for such people

It is a condominium with fixed-term leasehold rights that has distinctive advantages and risks compared to other properties, but it may be suitable for the following people.

Those who want to reduce the initial cost

Even people in their 20s and 30s who have little self-financing may be able to purchase an apartment with a fixed-term leasehold because the initial cost is low. Even if you have savings but plan to use them elsewhere, you can say that condominiums with fixed-term leasehold rights are suitable for those who want to reduce the initial cost when purchasing a property.

People who want to live in a condominium in a good location for a certain period of time

If you have a lot of transfers, you may often be assigned to work alone. For those who are likely to only go back and forth between work and home on weekdays, we recommend an apartment with a fixed-term leasehold that is in a good location and cheaper than the market price. The conditions of a fixed-term leasehold condominium are also suitable for people who move from rural areas to the city center for a limited time.

Those who do not intend to let their children inherit the house

Even if you are a double-income DINKS who does not have children, or a couple who does not plan to inherit even if they have children, a condominium with a leasehold right that has a fixed period of living may be suitable. This is because you don't have to worry about how to handle the property after death.

Convenient second-hand condominium feature 5 minutes walk to the station Newly built condominium feature that can be used on multiple lines within a 10-minute walk from the station

Points for selling condominiums with fixed-term leasehold rights

If you want to enjoy the benefits of buying a fixed-term leasehold condominium and then consider selling it for various reasons, keep the following three points in mind.

Sell ​​as soon as possible

The selling price of general condominiums is greatly affected by the location conditions and the age of the building. For condominiums with fixed-term leasehold rights, the remaining term of the contract is added to this. The shorter the remaining period, the harder it is to sell, so if you think about selling, start taking action as soon as possible.

Properly inform the examiner of the mechanism of fixed-term land lease right

The term "fixed-term leasehold" is generally unfamiliar to many buyers. Even a real estate company professional may be someone who is not familiar with fixed-term land lease rights. Therefore, when explaining the property to those who are considering purchasing the property, it will be necessary for the seller to properly explain the mechanism of the fixed-term land lease right and the advantages and disadvantages. It is important to prepare as much material as possible and convey it firmly so as not to cause trouble later.

Ask a real estate company with a proven track record

Real estate companies have their own specialties, such as selling newly built condominiums and selling properties for relocation. If you want to sell a condominium with a fixed-term leasehold, choose a real estate company with a wealth of experience.

summary

A condominium with a fixed-term leasehold has the advantage of being in a good location and cheaper than the market price, but it also has disadvantages such as a limited period of living and the need to pay a rent. Some experts may say, "Don't buy," paying attention to the disadvantages, but as I mentioned, some people may find that their characteristics fit their lifestyle. If it suits your needs, we recommend that you consider purchasing it.

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