Stable exchange rate to Canadian Dollar, Ultra-low interest rate, Housing loan tax breaks, and Freeze Consumption tax;
Now, it is a chance to build a Western style house in Japan!
The consumption tax rate went up at 8% on April, 2014. And it will be 10% on April, 2017. I think that we should consider the mean of house building before the rate changes. Most of building materials are imported from China because they are cheep. However, they may contain hazardous chemicals. So, we, Home Made import the safe materials from North America as much as possible. They are a little more expensive than Chinese, though Japanese Yen is weaker now. However, JPY is still strong to Canadian dollar. It may be a good time to build a genuine western style house, isn't it?
Foreign exchange profits from the Canadian dollar’s Depreciation
Exchange rate of Canadian dollar which we use as settlement currency has declined from 120 yen (end of year 2007) to around 101 yen (in 2015) against the yen during the past eight years.
The imported construction material occupies about 30% of the whole construction expenses. For instance, 30 million yen house costs 10 million yen for the imported materials.
Then, let's think how much is the marginal profits by the difference of this exchange rate.
- Exchange rate 120 yen: $83,333.34 x 120 yen = 10,000,000 yen
- Exchange rate 101 yen: $83,333.34 x 101 yen = 8,416,667 yen
- Marginal profits of exchange is -1,583,333 yen
How do you think about these numbers? The cost has fallen as much as 1.58 million yen compared with the end of year 2007. Even only the point of this, you might be able to feel the advantage in which Western style housing is constructed now.
A decrease of payment by ultra-low interest rate
Next is; the amount of the payment has decreased by the ultra-low interest rate. The present interest rate of FLAT 35 (35 year fixed interest rate home loan by Mitsui Sumitomo Bank) is 2.09%. The advantage of the 35 year fixed interest rate is easy to calculate the household economy within 35 years. However, it means will owe the risk that when the time of a low interest rate, fixed interest rate doesn’t fall the interest rate. JA bank has 3 year fixed floating interest rate home loan and the interest rate is 0.85%. The difference is 1.24%.
When use the 3 year fixed floating type home loan that is the lowest interest rate home loan; As Japanese economy is still hovering at a low level for these few years, the interest rate wouldn’t rise, too. Therefore, the repayment of home loan doesn’t cut into the family budget.
Some people want to choose long term fixed home loan, because future is not decided. However there is no meaning to choose higher interest rate home loan. Look at the repayment simulation below. You can find out which type is better.
- Price for house building: 30 million yen
- Amount of Housing Loan: 25 million yen (5 million yen prepared own money)
- The payment period of the loans is 35 years, to be paid on a monthly basis
For FLAT 35 of all period fixed interest rate: 2.09%
- Monthly payment: 84,000 yen
- Total Repayment including interest: 35,270,000 yen
For JA bank of the 3 year fixed floating interest rate : 0.85%
- Monthly payment: 69,000 yen
- Total Repayment including interest: 28,910,000 yen
- Monthly payment: -15,000 yen
- Total amount of repayment including interest: -6,360,000 yen
If the interest rate differs 1.24％, difference of the total amount is 6.36 million yen. You can own BMW 3-Series, and also you may use for children’s tuition fund with that 6.36 million yen. Even I tell you this; you are still wondering that the floating rate involves risks when the interest rate rises. Of course, it’s also true. However, if the interest rate has kept low range, you will get benefit from it.
Moreover, how to rise the interest rate? It’s influenced by GDP, and generally the rise of GDP is following the rise of population.
Can you expect high growth of economy in these years that the time of Less children and aging populations in Japan? Do you think business is picking up, rise the salary, and rise interest rate? If you have fixed income, it would be a big chance to build a house. Because when economy is sluggish, land becomes cheap and prices fall, too. Therefore architectural materials become cheap, too. So, better quality natural material can be used. Now, the interest rate is a low level and it is a chance to build a house. Let's change the pinch to the chance.
Preferential tax breaks for buyers of residential houses in 2015
The content on preferential tax breaks for buyers of residential houses will be decided for one year as a temporary statute of the limit. 5 million yen or less will be subtracted from the income tax for ten years at the time of building and it returns. The amount of money of 10% of energy saving and barrier-free construction returns from the income tax in the fiscal year at extension and renovation.
When you build a new house at 30 million yen, it becomes the following.
Housing loans to be deducted:
- Loans total: Expenses 30 million yen－Own money 5 million yen = 25 million yen
- Deduction total (1% of the balance for 10 years): 2.16 million yen
We will recommend to use low interest rate financings as much as you can instead of using funds on hand, and to be received. If you want to know the details of current law, please check Summary of preferential tax reduction for housing (Japanese) in Ministry of Finance, Japan but it will change in 2015.
The consumption tax increase is scheduled to go up in 2017.
As you know already, the government is suggesting the consumption tax improvement. The consumption tax hangs to the building though the consumption tax doesn't hang in land. In the case of 10%, how does the paid consumption tax become it? Let's simulate it.
- Consumption tax 8% 30,000,000 yen x 8% ＝ 2,400,000 yen
- Consumption tax 10% 30,000,000 yen x 10% ＝ 3,000,000 yen
- Difference of payment; + 600,000 yen (8 to 10% rate change)
This simulation assumes the consumption tax to be 10%. However, please remind that a tax rate might go up more to supplement an enormous fiscal expenditure of the economic measure in future.
Add all of these differences, Total Expense decrease about 10.7 million yen. Now is a Chance!
How do you think now? Do you understand time of now had not to be missed if you wanted to build Western style house? Of course, it is not necessary to think about the residence forcibly. However, it is now to put the dream into practice if you want to realize your dream in the near future.
The ordinary house builder has made the mechanism rebuilding it at the cycle of 20 years or more so far in Japan. If could be stopped the house-building of such a consumption type, and try to build a house of the 100 years or more durability, universal and beautiful design like the brick cladding wall, the next generation of you can maintain it at a little cost, and gets to the purchase such as villas and boats with the remaining money. In a word, doing the house-building of the property accumulation type becomes a trend in the future. I think that it is genuine Western style housing can do it. Therefore, money of corresponding is also necessary. Meeting a wonderful architectural partner and timing are important. In the time of recession, use good quality things for long time. Did you bought the one only of cheapness.
We are executing a tour to watch building materials and furniture in Canada. Now is a chance to shopping because Japanese yen is still strong. Canada tour in Niagara and Toronto would become good memories of your life. Why don’t you decide to build strong and fashionable Western style house in this chance with us. If you understood above all and want to plan a house with us: Consult us.
By Yuzo Murase, Architectural Consultant, January 6th, 2015