In real estate investment, a property without a completion certificate (kensa-zumisho) is a high-risk purchase. This article explains why such properties should be avoided and the hidden risks in real estate investment that you must know.
What Is a Completion Certificate?
A completion certificate is a document issued by a government agency or designated inspection body confirming that a newly built or renovated structure has been constructed in conformance with the approved building permit. It is evidence that the building complies with the Building Standards Act.
There was once a period when it was common for a building to be used without ever undergoing this completion inspection. According to data from the Ministry of Land, Infrastructure, Transport and Tourism, the completion inspection rate was only about 40% around 1998. However, after the Ministry called on financial institutions in 2003 to thoroughly enforce compliance with the law, a completion certificate is now obtained for 95% or more of properties. The absence of a completion certificate therefore means there is no official proof that the building complies with the law, which is a source of significant uncertainty in real estate investment.
Why Are Properties Without Completion Certificates Risky?
1. Possibility of Illegal Construction
A building without a completion certificate may have been constructed or modified without proper approval. An illegally constructed building may face orders to restore it to its original condition, meaning the structure you purchased cannot legally be occupied or used as-is.
2. Difficulty Getting Financing
Most financial institutions will not provide mortgage loans for buildings without completion certificates. This significantly limits your financing options and also reduces liquidity at the time of sale.
Restrictions on Future Renovation and Change of Use
To maintain or increase a property's value, it is essential to be able to renovate or change its use to match the times and evolving needs. For a property without a completion certificate, however, this kind of work is likely to be legally restricted. When carrying out a renovation or change of use above a certain scale, an application for building confirmation must be filed with the local government, and that application requires submitting the completion certificate to prove the existing building's legality. Without one, the application will, in principle, not be accepted, making it impossible to carry out the desired work. As a result, the property's competitiveness declines, which has a negative effect on rental management.
3. Obstacles When Selling
When selling, the buyer's financing is also restricted, dramatically narrowing your pool of buyers. The property may only be sold to a cash buyer at a significant discount.
Real estate companies are also obligated, as part of the important matters explanation required before a sale, to disclose to the buyer that the property lacks a completion certificate. This disclosure itself becomes a major factor that discourages buyers, on top of the financing and liquidity issues described above.
4. Insurance Difficulties
Non-conforming buildings may be excluded from earthquake insurance and some fire insurance policies, making it impossible to protect your assets against disasters.
Comparison: Impact of Having or Not Having a Completion Certificate
| Item | With a Completion Certificate | Without a Completion Certificate |
| Ease of obtaining financing | Review proceeds smoothly | Review is extremely difficult, or impossible |
| Renovation / change of use | Freely possible within the law | Not possible in principle (a guideline survey etc. is required) |
| Asset value at resale | Can be sold at a fair market price | High risk of a significant discount from market price |
| Proof of legal compliance | Officially certified | Cannot be proven; suspicion of illegal construction remains |
How to Check for a Completion Certificate
When purchasing a property, always confirm whether a completion certificate has been issued. The main methods are:
- Request the certificate from the seller or real estate company
- Check building records at the municipal office (building permit application records are generally publicly accessible)
- If the certificate is lost, request a confirmation from the building guidance department of the municipal office
What to Do with Properties Built Without Completion Certificates
If the target property does not have a completion certificate, consider the following:
- Hire an architect to assess whether bringing the structure into compliance is possible and what it would cost
- Have the property evaluated to confirm it actually complies with current building standards
- If compliance is difficult or costly, reconsider the purchase
If you already own a property without a completion certificate, or if a property you very much want to buy lacks one, the situation is not necessarily hopeless. By using the "Building Standards Act Compliance Status Survey" (the Guideline Survey), based on guidelines established by the Ministry of Land, Infrastructure, Transport and Tourism, it is possible to confirm the building's legality and obtain a form of proof that can substitute for a completion certificate. That said, this survey requires significant cost and time, and if non-conforming points are found, corrective construction work becomes necessary. Taking this cost and effort into account, choosing a property that already has a completion certificate from the start remains the safest and most reliable investment strategy.
A property without a completion certificate carries risks that can be described as critical to real estate investment: difficulty obtaining financing, restrictions on renovation, and a decline in asset value at resale. Confirming a property's legality and safety from a long-term perspective, rather than being swayed by an attractively low price, is the first step toward stable rental management. Real estate investment is not merely the buying and selling of property; it is an important business that provides the foundation for people's lives. INA&Associates株式会社 is committed to fully supporting real estate owners who pursue sustainable growth with a clear vision. If you join the INA Network, we will answer every question you have as long as you follow the rules. Please feel free to reach out with any concerns or questions about real estate investment.
Frequently Asked Questions (FAQ)
Q. Is a property without a completion certificate always illegal construction?
Not necessarily. The completion certificate may have been lost or not issued due to administrative reasons even though construction was conducted properly. However, since there is no way to confirm compliance with the Building Standards Act without it, the risk remains high.
Q. Is it possible to obtain a completion certificate retroactively?
No. A completion certificate can only be issued immediately after construction is completed. However, it is possible to obtain a "building record confirmation" from the municipal office to confirm that the building permit was filed and construction was completed.
Q. Why are some properties sold without a completion certificate?
Completion certificates were sometimes not issued in older constructions, or the certificate was lost. Also, in cases of unauthorized construction or extensions without permits, certificates are never issued in the first place.
