If you own an apartment in Japan you will need to pay monthly building fees to cover the maintenance and management of the building.
The two main fees charged are:
- Management fees: To arrange cleaning of the common areas, arrange elevator inspections, garbage disposal, etc.
- Repair fund fees: These fees go towards major repairs and maintenance.
In addition to management and repair fund fees, some buildings may also have extra fees such as:
- Water charges
- Car parking
- Storeroom rental
- Neighbourhood association fees
- Central heating/cooling fees
How are the fees decided?
In brand new apartment building, the management company chosen by the developer will decide the initial fees. In some cases the management company is a subsidiary of the developer.
After a new building is completed, the individual apartment owners form a management association which is independent from the management company. This association has the power to change the management company, as well as decide on the building fees. Not many apartment owners, however, are familiar with the powers of the management association.
Fees are calculated based on the size of your apartment. Eg. Fees of 300 Yen/sqm per month would amount to 30,000 Yen a month for a 100 sqm apartment. They also tend to vary depending on the size and scale of the building, and the type of facilities provided (eg. pool, concierge, and gym facilities cost money to operate).
The general criterion for management fees is around 200 Yen/sqm per month and another 200 Yen/sqm per month for repair fund fees. This would amount to 40,000 Yen/month for a 100 sqm apartment.
Many people might think that 40,000 Yen/month is too high, so it is not uncommon to find that the repair fund fees are lowered to around 100 Yen/sqm. This makes the monthly fees around 30,000 Yen which might seem more agreeable to people’s monthly budgets, but are cheaper monthly fees really better in the long run?
When buying a brand new apartment, make sure you check the long-term repair schedule for the building (choki-shuzen-keikaku). This should mention any future planned increases to the repair fund fees. Eg. a 50% increase in the 5th year, another 50% increase in the 10th year and so on. It’s not unusual for the fees to triple in the long-term.
Developers like to set the initial repair fund fees low to attract buyers. But in order to maintain the building over its life, the repair fees must be increased otherwise the reserve funds won’t be enough to cover future repairs. A poorly maintained building will lose value over time.
But, it is the management association (the apartment owners) that ultimately decide on future increases in fees, what repair work needs to be carried out and who to hire. Therefore, the actions of the apartment owners have a direct affect on the building and its future value.
It’s impossible to tell what direction the building management association will take with a brand new building, but if you are looking at secondhand apartments you can obtain a history of past repairs to get an idea of how well the building is managed. You can also check how much is in the repair fund, and if there are any owners who are behind on their fees.
What to look out for when buying:
- A large number of owner-occupiers. Owner-occupiers are usually active in the management and maintenance of their building.
- Repair fund fees are at an appropriate level and the repair reserve fund has sufficient funds to cover future repairs both planned and unexpected.
- Past records show the building has been maintained
- A large proportion of owners are investors. Investors renting out their apartments may be less concerned with the day-to-day running of the building and are not around to personally see whether the shared areas are being maintained properly. They may be hesitant to agree to an increase in fees or repairs that require out-of-pocket expenses if it hurts their rental return.
- A number of elderly residents on fixed incomes. They might oppose any increases in fees and may not be able to afford any emergency repairs that cannot be covered by the reserve fund. They may also be quite content to live out their days in the building and might oppose any redevelopment plans.
- A number of owners behind on their fees.
- When there is no management company. Instead, the owners association perform the management duties. Only 2% of buildings have this system. There is a risk of mismanagement or appropriation of funds if the board chairperson turns out to be untrustworthy.
If the previous owner of an apartment is behind on their building fees, the next owner will be responsible to pay back the unpaid fees to the management company. The duty to pay back any unpaid fees will always lie with the present owner, otherwise someone who has fallen behind in fees could free themselves of the debt by transferring the property title to another name. This is something you need to confirm before you buy to make sure that the price you pay takes into account this additional expense.
Tax deductions for landlords
Management and repair fund fees are tax deductible expenses and can be deducted from your rental income if you are a landlord.
How to pay the fees
In most cases, fees are automatically withdrawn from your chosen Japanese bank account.
What happens if you don’t pay the fees?
The management association will send letters requesting payment. If they are ignored, they can take court action. Finally, the court may put the apartment up for foreclosure if certain terms are met.