Why Japanese investors are targeting apartments on high floors

Japan’s inheritance tax rate is set to increase from January 1, 2015. Under the current tax rate, approximately 4% of households are subject to inheritance taxes, but the decrease in the standard deduction from 2015 is going to affect a lot more households.

Wise investors are seeking alternative ways to store their fortune, with high-rise apartments in central Tokyo becoming a popular option.

Why high-rise apartments?

Assets such as savings and shares are taxed based on their face value, whereas real estate is taxed based on the fixed asset value and rosenka land value of the property (rosenka values are usually 80% of the koji-chika land values, which can be 60 ~ 80% of real market prices). For an apartment, the value for tax purposes might only be 20% of the actual purchase price. For a house, however, the tax value could be around 70% of the purchase price.

An apartment in a high-rise building is more advantageous as it usually comes with a smaller share of land ownership when compared to an apartment in a low-rise building with a smaller number of units.

The inheritance tax value of the apartment itself is based on its size and is uniform regardless of the floor. Therefore, an apartment on a higher floor with a higher market price will offer a greater benefit to heirs.

Don’t just focus on the tax reduction

Buyers are urged to be careful when investing in real estate as a drop in value or drop in rent could wipe out any gain expected from the tax reduction.

Buyers must also be aware of the timing of their purchase. Rushing in could mean purchasing when the market is at a peak, but waiting too long could be too late if the grim reaper pays an early visit.

Source: Business Journal, February 10, 2014.

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