Q&A・Glossary

Glossary

Yield gap Income gain Warranty against defects Property management agreement
Management fee Foreign currency risk Tax return Equal principal payment
Equal total repayment Capital gain Aging Building certification card
Certificate of inspection Private pension insurance Property tax Organization for Housing Warranty
Sub-prime crisis Capitalization method Sinking fund Housing performance
evaluation report
Housing Quality assurance
Promotion Act
Tax merit Total profit and loss Large-scale repair work
Life insurance credit group Land price Long-term repair plan Broker's commission
Registration Investors Japan Housing Guarantee
inspection mechanism
Year-end adjustment
Pension anxiety Property income Property acquisition tax Outstanding issues
Rental guarantee system Life Concierge Reverse mortgage Lehman Shock
Roof balcony Leverage effect  



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Yield gap

A numerical value obtained by subtracting the borrowing rate from any real estate (for example, 7% yield - 3% interest rate = 4% yield gap)


Income gain

An income that can be received in a stable and continuous way thanks to properties possession.


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Warranty against defects

If, during the property buying and selling process, a serious defect, unknown both to seller and the buyer, should be present at the time of contract, the seller bears the responsibility of the necessary repairing. In case of new construction, the responsibility period will last up to 10 years, in all other cases 2 years.


Property management agreement

An agreement for tenants recruitment of rental housing. This agreement is between the customer owner and the rental management company to facilitate operations, such as the rental fee collection.


Management fee

Indicates the total expenses amount, calculated on 1 month period, for maintaining the communal area of the property. It includes: common area’s heat, light and water, damage insurance, breakdowns, periodical building and building equipment maintenance, cleaning commission fees, management personnel, management operating costs, etc.


Foreign currency risk

It refers to the risk due to the effects of fluctuations in exchange rates. The exchange rate is the exchange rate between JPY and "foreign currency", so, in order to momentarily change the foreign exchange market, financial instruments under a foreign currency, might experience unexpected gains or losses, due to currency fluctuations episodes. In addition, regarding the deposit in JPY currency handled by Japanese domestic banks, even in case of bankruptcy if the main deposit interest has not reached 10 million JPY the protection system (Payoff) doesn't apply. This system is not eligible in the case of foreign currency deposit.


Tax return

There is no need for tax filing, in general, for which the ultimate tax is calculated by the year-end adjustment in the employer salary earners, such as civil servants and office workers. But if there is a real estate income other than the main job related income, there is the need for a tax return. If the net income from property ends up with a negative figure, the workers will be reimbursed by the tax office.


Equal principal payment

The repayment of the debt, such as a mortgage. The loan amount, without the interest expense, has equally divided by a certain monthly payable amount. The additional interest expenses are payed separately. The initial payment amount might result high, however the repayment helps in a gradual decrease of the debt amount.


Equal total repayment

The repayment of the debt, such as a mortgage. The sum of the borrowing money amount together with the interest expense, has equally divided by a certain monthly payable amount. A payment including the interest portion is not likely to decrease over time, but it is surely easier to plan and manage on the long run.


Capital gain

Gain obtained at the time of sale, due to the fact that property assets, such as real estate, go up in price.


Aging

Some facilities value (i.e such as tatami, cushions, floor carpets) gets naturally reduced over time. It is the natural aging over use.


Building certification card

Notifies the building is conformed to the current building laws and regulations. It is a Government office issued only certification.


Certificate of inspection

Documents certifying that the building has been completed and that the construction site is conformed to the laws and regulations. It is a Government office issued only certification.


Private pension insurance

Insurance for the self-help in consideration of the living expenses efforts coming along the old age. Insurance premium paid during this period will merge in the future pension payment fund. At the predetermined year, a pension will be received.


Property tax

Owners of fixed assets (land, buildings, depreciable assets) are subjected every January 1st to city tax calculation. Depending to the asset value (fixed asset valuation), taxes are calculated accordingly. There is the possibility of reductions only if certain conditions are met.


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Organization for Housing Warranty

An insurance based on the "Law for ensuring the fulfillment of specific residential warranty against defects (Home warranty fulfillment method)” for housing company.


Sub-prime crisis

Sub-prime loan refers to a type of loan released by some financial institution in United States for people with a relatively low credit. Compared to the normal loan, the interest rate was increased, but, since screening criteria in examining the credit-repayment ability of this category of people was loose, also people with a low income had access to mortgages. Even people who had been stalling the repayment in the past. In addition, since interest rates went up because the step-wise, for few years from the initial borrowing, the repayment burden was inferior than the normal loan.
Since the second half of 2003, in the United States house prices continued to rise thanks to the so called "housing boom", and borrowers of sub-prime loans used to repay their loan by reselling the house, or refinancing the loan through cheap interest rates caused by the collateral house price rise.
As a result, the financial institution opted for securitization and splitting in order to disperse the risk. Corporation of multiple financial instruments, bonded with bad debts, started to grow.
The financial difficulties of the most important loan companies leaded to a chain of negative effects on Word’s major markets in 2007.


Capitalization method

A way to calculate the fair value of the real estate from the revenue generated from real estate. As an example: taken a mansion with 1 million JPY per year rent, given the average apartment investment yield in Tokyo is around 4%, the value of this apartment becomes 25 million JPY (1 million ÷ 0.04 = 2500 million).
By using the income approach, it is possible to calculate the true value of properties from the investment point of view.


Sinking fund

The amount of money set aside in advance for covering repair costs, such as the repainting of the property exterior wall, works in the common areas, etc. The appropriate amount is set in accordance with the long-term repair plan.


Housing performance evaluation report

Objective house performance evaluation, issued by a registered housing performance evaluation agency (third party).
In the past, real estate companies and home builders, were evaluating the performances on their own, but the user was not allowed to access the reports for comparing them.
In Japan, each item of the housing performance indication criteria is expressed in grade, and only registered housing performance evaluation agencies conduct an evaluation.
However the acquisition of an housing performance evaluation report is optional and is not obliged legally.


Housing Quality assurance Promotion Act

It was established with the aim to increase the quality of housing, to protect the interests of the user and to solve problems smoothly. Pillars of this Act are the following three: 1. Creation of housing performance indication system that defines the common rules, so that also users can compare the performances; 2. Development of an housing dispute settlement system to resolve the trouble before reaching the court; 3.Enhancement of a warranty against defects that required a 10-year guarantee of the basic structural part of the new construction.


Tax merit

For owners with a real estate income, the tax return is mandatory either with a positive or negative balance. If the income from the real estate is in positive should be enough to cover the taxes. However if the income should be negative, it is possible to receive a refund of tax withheld from the employer. However, if the employee purchased a house on his own, with the housing affordability deduction system (mortgage tax), the savings in tax for the property management is significantly less.


Total profit and loss

It is the mathematical difference between a income in “surplus” and a income in “deficit”. It is officially recognized by Article 69 of the Japanese Income Tax Act.


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Large-scale repair work

To repair the deterioration of the building, a large-scale repair work is carried out in order to reduce the mansion rate of degradation in the future. A large scale repair work can involve the entire building exterior, the waterproof treatment or building equipments repair.


Life insurance credit group

Usually a loan involve a large sum of money that has to be repaid over a long period of time. If the unfortunate case the loan subscribers suffers from a subsequent sever permanent injury or death, the life insurance companies will be responsible in repaying the loan’s debts on behalf of the subscribers. Many of the private financial institutions now offer the possibility to join this solution under the condition that the premium will be borne by banks and no insurance premium payment will occur.


Land price

It refers to the prevailing land price in general. This market price, also called the market value of real estate, is the price assigned based on the actual transaction. In general, the land price of commercial area in big cities is higher than the land price of agricultural land and forest.


Long-term repair plan

In order to maintain the housing performance of the property and to keep its value high as long as possible, it is necessary to provide maintenance accordingly to the state of the building. For large repair work, expected after 10-20 years after completion, it is preferable to prepare a long-term repair plan referring to what repair, when repair it and at what price.


Broker's commission

When you made ​​real estate deal by the mediation of intermediary company, a remuneration to be paid to the vendor is included. The upper limit of the amount of brokerage commissions are determined by Building Lots and Buildings Transaction Business Act. In the case of buying-selling (if the transaction amount is more than 4 million JPY), it will be calculated as the “Transaction amount” itself x 3%, plus 60.000 JPY


Registration

To make appear a third party legal, it has to be registered at the registry office. The ownership of real estate, can not be overtake by a third party unless it is legally registered.


Investors

Individual or corporation, that invest in bonds, real estate, currencies, stocks or commodities. Those who make investments as private are called "individual investors”, those who invest as business or corporation are called "institutional investors". Those who invest in foreign real estate or stocks, are sometimes referred as "foreign investors" from the country of investment. Nowadays there is a great interest in foreign investments. For example, in Japan the percentage of foreign investors that buy and sell share in the stock market is more than 50%.


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Japan Housing Guarantee inspection mechanism

An insurance based on the "Law for ensuring the fulfillment of specific residential warranty against defects (Home warranty fulfillment method)” for housing company.


Year-end adjustment

Since the employer calculates the employee tax based on one-year salary, it is the settlement of the excess or deficiency of the total amount of income tax already deducted from the salary. If the total amount withheld is excessive, tax will be refunded.


Pension anxiety

With the rapid development of an aging society, a real anxiety about the sustainability of the pension system is growing among people. Public pension is working under the mechanism of an "inter-generational support", in which insurance premiums paid today benefit the current elderly people. But with the constant increasing of aging population, the amount of pension payers able to support the elderly is decreasing steadily. As a workaround, some benefits cuts have been planned, such as the raising of the valid retirement age. In general the current pensioner are receiving the insurance premiums from the working generation, so the pension intergenerational gap is also a problem influenced by the overall payment rate reduction.


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Property income

The real estate income is the difference between the “Amounts earned by lending in the real estate (revenue)” and the “Necessary expenses”.
For example, the rental income obtained from the property management is the "Amount of revenue”. The "Necessary expenses” involves reserve fund for repairs, administrative expenses, property tax, life insurance premiums, interest on loans, depreciation and amortization, registration cost, etc.


Property acquisition tax

At the time of purchasing a real estate property, government tax applies only once for the acquirer. This tax is calculated according to the asset value (fixed asset valuation), and it could be reduced if certain conditions are met.


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Outstanding issues

An insurance company (Life insurance company, regardless of property, and casualty insurance company), refuses to pay the refund without a good reason in case of accidents and incidents. Since many insurance companies have been involved in this illegal insurance non-payment (insurance fraud), this could be read as a significant corruption in the insurance industry, to the point that it has become a social problem.


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Rental guarantee system

A system for which a rental management company is directly in charge of renting the house. The rent monthly income is guaranteed and the risk of vacancy is eliminated.


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Life Concierge

A neutral and impartial position aimed to advise and supports the customer with a high sense of professional ethics, always considering the best interests for the customer.


Reverse mortgage

A system that collectively repay the debt by selling the real estate, in the unfortunate event the owner dies.


Lehman Shock

In the wake of the U.S. housing bubble collapse triggered by the subprime loan problem in 2007, collapse of asset prices in various fields has occurred. The American investment bank Lehman Brothers, too suffered from great loss and in September 15th 2008, under the federal bankruptcy law, the bank submitted his application to the Federal Court.
With a total liabilities of about 64 trillion JPY, it became the largest bankruptcy case in history. The collapse of Lehman Brothers lead to a global financial crisis, since the companies owning mutual funds and corporate bonds, previously issued by Lehman Brothers, started to be afraid of a chain effect risk and of the United States economy itself.


Roof balcony

It is a balcony obtained from the downstairs apartment’s roof. It also refers to a roof terrace. The space is wider than a normal balcony in general, and is provided on the top floor in most of the cases.


Leverage effect

According to the leverage principle, it is the action of raising more revenue with less investment.