Real estate investment in Japan by Chinese investors has been increasing year by year. The main factors driving this trend include the weakening of the yen, the stability of the Japanese real estate market, and the high yields in urban areas, particularly in Tokyo and Osaka. Investment targets range widely, from investment apartments and high-rise condominiums to resort properties in regional areas.
Is Real Estate Purchase by Chinese (Foreign) Nationals Regulated by Law in Japan?
In conclusion, Japan has no law that uniformly prohibits or restricts the acquisition of real estate on the basis of nationality. Even for Chinese investors, there is no legal restriction on purchasing ordinary residential or investment real estate, and this is one of the reasons Japan maintains a real estate market that is open to foreign capital.
The one law that includes a nationality requirement is the Foreign Land Act (enacted in 1925), but the government ordinance needed to actually trigger its acquisition restrictions has never been issued since the end of World War II. In a 2010 Diet response, then-Prime Minister Naoto Kan explained that the restriction "requires a government ordinance, but none currently exists, so the law is effectively a dead letter." As things stand, no acquisition restriction based on this law is in effect.
The related system that is actually in effect today is the Act on the Review and Regulation of the Use of Land in Important Areas, enacted in 2021. It designates areas within roughly 1,000 meters of defense-related facilities, as well as border islands and other locations, as "monitoring areas" or "specially monitored areas," surveys land use within those areas, and requires notification when a sale-and-purchase contract is concluded within a specially monitored area. However, this is a land-use monitoring system for national security purposes that applies to every acquirer regardless of nationality — it is not a purchase-ban system that targets only foreign nationals, including Chinese nationals.
Points to Note Regarding China-Specific Registration Procedures
No Certificate of Seal Registration
China does not have a system of personal seal certificates like Japan’s. While seals (yinchang) do exist in China, it is not common for individuals to own them, and there is no system for issuing seal certificates.
Therefore, the following alternative documents are required for real estate registration:
- Certificate of Signature: Have your signature authenticated at the Chinese Embassy or Consulate in Japan
- Affidavit: Prepared at a notary office in China (equivalent to a notary public office) and authenticated with a signature
Forms of Signature Certification
There are two types of signature certificates: the “endorsement format” and the “standalone format.”
- Endorsement Format: A format in which a notary public or similar official directly certifies the signature on a power of attorney. This offers a high degree of certainty
- Standalone Format: An independent signature certificate. It is valid if the signature is determined to be identical to the one on the application form or power of attorney
Substitute for Resident Registration Certificate
Chinese nationals on short-term stays or residing overseas cannot obtain a Resident Certificate, so the following documents serve as substitutes:
- Affidavit + Copy of Passport (with certification of authenticity)
- Proof of address issued by a notary office in China
Regulations on Remittances from China
One of the biggest hurdles for Chinese investors is transferring funds. China has strict foreign exchange regulations enforced by the State Administration of Foreign Exchange, and the annual limit for individual overseas remittances is set at 50,000 USD.
Practical Approach
- A method involving transferring funds over multiple years to accumulate capital in a Japanese bank account
- Remittances via third countries such as Hong Kong or Singapore
- Financial assistance from relatives who already hold assets in Japan
Real estate companies must carefully verify the source of funds. From an anti-money laundering perspective, it is also important to clearly understand the flow of funds.
Japan's Regulations for Receiving Funds: The Act on Prevention of Transfer of Criminal Proceeds
In addition to China's remittance restrictions, the Japanese real estate company receiving the funds also has legal verification obligations. Real estate brokers are designated as "specified business operators" under the Act on Prevention of Transfer of Criminal Proceeds. When concluding, representing, or brokering a real estate sale-and-purchase contract, they are obligated to conduct "identity verification at the time of transaction," confirming not only the customer's name, address, and date of birth, but also the purpose of the transaction and their occupation (or, for a corporation, its beneficial owner).
Brokers are also required to create and retain verification and transaction records, and to report suspicious transactions. When a Chinese investor's funds have been built up through remittances split across multiple years or routed via a third country, it is good practice for the real estate company to request, in addition to identity-verification documents, materials explaining the source of the funds.
Taxes and Tax Agents
When a non-resident living in China owns real estate in Japan, the following taxes apply:
- Property Tax and City Planning Tax: Annual holding costs
- Real Estate Acquisition Tax: Levied once at the time of purchase
- Capital Gains Tax: Taxed on profits upon sale (tax rate varies depending on holding period)
Appointing a tax representative is mandatory. Since all notifications from the tax office are sent to the tax representative, collaboration with a trusted tax accountant or real estate management company is essential.
Withholding Tax When a Chinese Investor Sells a Property They Own (the Buyer's Obligation)
When a non-resident living in China sells real estate in Japan, the buyer takes on a withholding-tax obligation — a practical point real estate professionals need to keep in mind. Under Article 212 of the Income Tax Act, a buyer who purchases land or a building from a non-resident must withhold 10.21% of the transfer consideration (10% income tax plus 0.21% special reconstruction income tax) and, in principle, pay it to the tax office by the 10th of the month following the month of payment.
As an exception, withholding is not required when the transfer consideration is 100 million yen or less and an individual buyer is purchasing the property for their own residence or that of a relative. This exception does not apply to sales of investment properties, purchases by a corporation, or transactions exceeding 100 million yen, so whenever a Chinese investor sells a property they own, the buyer must always confirm whether withholding is required.
Foreign Exchange Act Filing
If a Chinese national who is a non-resident acquires real estate, a notification must be filed with the Bank of Japan within 20 days of the transaction. Investment properties are generally subject to this notification requirement. While residential properties (for the owner’s or a relative’s residence) are exempt, vacation homes and second homes are subject to the requirement.
Changes to Registration Requirements Effective 2024
- Mandatory Romanization: Chinese names must be included in Romanized form (Pinyin) on ownership registration records. All letters must be uppercase, in the order of surname followed by given name.
- Registration of a Domestic Contact Address: If the investor does not have an address in Japan, a domestic contact address must be registered
Points to Note When Dealing with Chinese Investors
- Prepare Chinese translations of contracts and important disclosure documents (legally valid in Japanese, but provided to facilitate understanding)
- Differences in Business Practices (Negotiation styles may differ; some may prefer direct negotiations without an intermediary)
- Communication via Chinese social media platforms such as WeChat is common
- It tends to be difficult to get in touch around the Chinese New Year
Frequently Asked Questions (FAQ)
Q. Can Chinese nationals obtain a mortgage from a Japanese bank?
As a non-resident, obtaining a mortgage from a Japanese bank is generally difficult. If you have a valid residence status and income in Japan, some financial institutions may accommodate you, but the screening criteria are stricter than for Japanese nationals. In most cases, cash purchases are the norm.
Q. Are there any legal ways to comply with China’s foreign exchange regulations?
Options include planned remittances over several years or utilizing assets already held overseas. In any case, proof that the funds are being transferred legally is required. We recommend consulting a specialist if you have any questions.
