Property Investment For Foreigners: How to Screen Tenants

Poste date: Wednesday, September 18, 2019

The following is an excerpt from "Japan Real Estate Property Investment For Foreigners Part 2" by Ziv Nakajima-Magen – Partner & Executive Manager, Asia-Pacific Nippon Tradings International (NTI)

Q: I understand there is no credit check system in Japan, so how do I check out a potential tenant for my downtown Tokyo apartment? Are there credit guarantee companies and if so, how reliable are they?

A: Credit guarantee companies or rent insurance companies, as they are known in Japan, are quite reliable, and are one of the three types of guarantees a tenant can potentially provide when leasing a property (the other two being a security deposit, or personal guarantors – which can be of various degrees of reliability, from friends or colleagues, through family members, and all the way up to employers). Guarantee companies will interview a potential tenant, review their income status and require documentation to prove it, prior to approving them – and will often refuse to issue the insurance contract and advise against the tenancy, if they are unsatisfied with the results.

Generally speaking, Japanese tenants, while not as officially verifiable as tenants in most Western countries, also tend to be far more reliable, and would rarely have payment issues compared to other countries. In close to 200 properties managed by our company, we have so far had less than 5 tenants with chronic payment issues, and only 3 who absconded altogether (the rent insurance paid three months of missing rent on two of those tenants’ behalves, as well as for the cleaning and removal of personal items following that – in the one case in which they’ve managed to locate the tenant and take them to court, the landlord got their rent compensation throughout the entire court case period).

Perhaps most importantly, tenants in Japan would almost never intentionally damage a property, use it for illegal purposes, squat/allow unauthorized sub-tenants to move in with them, or any of the other ills often associated with bad tenants elsewhere – and, surprisingly enough, this is also true for the lowest end of the tenancy market. The reason for this is that, culturally, “doing the right thing”, or behaving in the “correct” way is one of the main pivots of Japanese society – strictly governed by social expectations, concepts of respectable and honorific behavior and “proper” societal norms– which, to the average Japanese, can be a far stronger deterrent than legislation and fear of financial repercussions. This is doubly true in the case of company employees, whose biggest fear is that their bosses and colleagues may somehow find out that they have behaved inappropriately. Strange but true.