Apartment dating scam victims sweet-talked into buying high-priced properties with low yields

More details have come to light on the apartment investment ‘scam’ targeting people on dating sites. It appears that the apartments purchased by the victims, which were typically secondhand studio-type apartments, all had relatively low gross rental yields ranging from 3.6 ~ 4.6%. This could indicate that the sales prices were inflated.

According to valuations by an assessor, the apartments were sold for 20 ~ 40% higher than their appropriate value. An anonymous employee at one of the companies believed to engage in such tactics said they would be in charge of finding buyers for apartments that developers had a hard time selling and receive commissions of around 20 ~ 30%.

Buyers trusted their ‘dates’, some of whom promised that their apartment would never fall in value, and bought without doing any market research. It was only later that they would find out from a local real estate agent that their apartment had a market value of around half of its purchase price. 

The twelve victims, who have started a class action lawsuit, are claiming that the people who posed as potential romantic interests worked for sales companies that were operating in violation of the real estate brokerage law and are suing for over 200 million Yen in damages.  It is estimated that there are countless more people who have fallen for these sales tactics. The National Consumer Affairs Center of Japan reported 432 complaints relating to this scam in 2013.

An example of some of the apartments purchased by the plaintiffs:

Purchase Price
(Loan Amount)
Annual Rental
Income
Gross Yield
(%)
Assessed Value
¥25,000,000
(¥22,500,000)
¥1,092,0004.37%¥13,200,000 ~ ¥16,200,000
¥24,800,000
(¥22,300,000)
¥1,140,0004.60%¥17,860,000 ~ ¥18,000,000
¥32,900,000
(¥31,400,000)
¥1,320,0004.01%¥13,770,000 ~ ¥14,640,000
¥29,200,000
(¥22,300,000)
¥1,166,4003.99%¥16,660,000 ~ ¥20,700,000
¥23,900,000
(¥23,700,000)
¥921,7803.86%¥9,700,000 ~ ¥16,800,000
¥26,900,000
(¥24,200,000)
¥972,0003.61%¥15,000,000 ~ ¥16,200,000

While buyers are urged to be cautious of properties offering extremely high yields, it’s unusual to see consumers falling for an investment scam offering such low yields.

Without any other details on the apartments in question, agents are left wondering what kind of secondhand studio apartments offer 4% gross yields. While lower yields are more common in other segments of the market, yields for older studio apartment tend to be higher due to the higher risk of the investment. Some agents said that there are some apartment buildings located close to train stations that remain empty for months even after reducing the rent. Living with roommates is becoming more popular with the younger generation and it’s possible that the future demand for studio apartments is going to vary depending on tenant needs.

The apartments listed above are almost certain to result in a net loss for the owners after deducting expenses and taxes. Owners are also exposed to the risk that their apartment is vacant for periods of time, which may put a further strain on their personal finances.

Two of the three companies being sued for this scam are currently in liquidation. A major bank was also named in the lawsuit.

Sources:
Yucasee, May 19, 2014.
Shukan Shincho, June 6, 2013.