Will the Fixed-Term Leasehold Housing Boom Last? --Present Status and Prospects--

Tadashi Sekiya

Summary

The new "Fixed-Term Leaseholding System" created by revision of the Leasehold and Rental Housing Act in 1992 has spurred a boom in fixed-term leasehold housing. This boom can be attributed to the convergence of interests among interested parties as follows:
1. Agricultural landowners with suitable land can make efficient use of the land without financing， and return of the land is legally guraranteed.
2. Builders can make new proposals to landowners other than for rental apartments， and thus can ecpect profits from construction.
3. Home buyers， who have been discouraged by the bleak prospects of buying a house， can purchase a house at half the cost of a condominium.
4. Tax accountants and lawyers will see a greater demand for their consulting services in creating business and tax plans.
An examination of major sales cases reveals the following characteristics:
1. The most active areas involve agricultural land within the three major metropolitan areas.
2. Housing units are generally larger than built-for-sale houses--plots are at least 50 tsubo (1 tsubo = 3.3 square meters)， and buildings approximately 40 tsubo.
3. Payment of a security deposit has become an established practice. These deposits range up to 10 million yen--equivalent to 20-30% of the price of the empty lot.
4. The total price--security deposit and building cost--is approximately half that of built-for-sale properties.
5. Monthly land rent is generally around 30，000 yen.
Since the system is still new， many problems are cropping up even as sales are expanding: (1) whether the leasehold is a tenancy right or surface right; (2) how much security deposits should be and how to finance them; (3) how to deal with cancelled and expired contracts; and (4) building a secondary market.
1. With regard to leaseholds， the most common precedent is for tenancy rights. But the Housing and Urban Development Corporation is also studying a scheme for surface rights involving only the payment of key money and no land rent.
2. The security deposit is a practice imposed on buyers by the supply side. Its size， rationale， and financing need to be reevaluated.
3. Recognition of the leaseholder's right to cancel the contract is moving in the direction of being accepted for single-unit housing but not collective housing. Once the lease term has expired， alternatives other than simply returning the land cleared of buildings are being considered.
4. To develop a secondary market， it is necessary to be able to reset the security deposit amount at the time of resale， and to establish valuation methods for existing housing.
But even if these practices are ironed out， there remains the risk that a system favoring the supply side will cause a glut of leasehold housing in inconvenient locations. Suppliers must take a long term view of the housing market and look at demographic trends such as the age breakdown of households and population migration. Moreover， they must recognize where leasehold housing can meet specific demands: for single-unit houses and urban-style condominiums that may be slightly expensive but conveniently located and in good residential neighborhoods， and for supplying housing in outlying areas without bidding up land prices as businesses decentralize and move jobs away from metropolitan areas.