For example will a bank even lend money against such a home or is there some underlying assumption that you'd have to demolish and rebuild new before they'd even consider it?
The land is seemingly worth nothing and the building itself worth zero or really a liability.
If they're being sold for $500 why would you expect a bank to want to lend money against it? It already has no value as collateral.
And yes, no sane bank is going to lend against collateral that is fundamentally worthless. Construction loans are problematic because the property can be worth -$$$ if say the work isn’t finished and the builder starts putting (western concept, not sure how it maps to Japan) builders liens on the property for all the work they did, and then it all rots because no one put windows or a roof on it.
These properties are at these prices because they are currently fundamentally not worth more. They sit on the market because they won’t even sell at that price.
=PMT(0.02/12, 30*12, -500)
$1.85 per month!
The land is worth as much as it otherwise is. This is essentially a very large subsidy towards interesting people in living in rural areas (which is where most of those houses would be).
> For example will a bank even lend money against such a home or is there some underlying assumption that you'd have to demolish and rebuild new before they'd even consider it?
The bank doesn't care about the house if the building is considered to have no value either way.
I may be mistaken but my understanding is that japanese houses depreciate quickly because they're considered largely disposable, at least when it comes to "modern" homes.
It seems like the timing of things is such that by the end of your 25 year mortgage the house is worth $0. Ok.
So what happens if after this point you want to borrow against your house?
In NA nbd since the bank knows it can sell the house. In Japan is the bank squeamish about whether they can sell the house because the house is "worth $0."
Similarly I wonder if you wanted to buy a house that is "worth $0" is the bank only going to give you a mortgage if you are going to knock it down and build a new house?
> So what happens if after this point you want to borrow against your house?
You… don't? You never did? What do you fail to understand in "the land is worth money, the house is not"?
> In NA nbd since the bank knows it can sell the house. In Japan is the bank squeamish about whether they can sell the house because the house is "worth $0."
Japanese banks are squeamish either way, but they can sell the land. The land is not worth $0.
> Similarly I wonder if you wanted to buy a house that is "worth $0" is the bank only going to give you a mortgage if you are going to knock it down and build a new house?
You're not buying a house, you're buying land, which has a house on top of it, which you may want to replace.
When you buy a car you buy a car, you don't buy the seat upholstery, and you can replace that. Well the land's the car, it's the actual thing.
For example when you buy bare land recreational property you often have to pay cash because no lender wants to have bare land on their books.
You will struggle to get a lender to give you any money for a condemned building (I've tried).
In Canada it is simple to get a mortgage on on a property with a house on it because there's a "usable" house on it and the bank can easily sell the property.
Perhaps this is the same in Japan as well, even if the house is 25 years old, but it depends on how they look at that 25 year old "worth $0" property. Perhaps as long as it's "livable" lenders don't mind and one doesn't run into the road blocks one would run into if they were trying to buy bare land.
Or perhaps it's simply much easier to buy bare land in Japan than it is in Canada!
Land has value in Japan. Houses do not.
Have you considered that a country where houses are essentially never considered usable buildings would have a different outlook on the matter?
> Or perhaps it's simply much easier to buy bare land in Japan than it is in Canada!
Well yes considering it’s more or less the norm in Japan but not in Canada.
This doesn't make any sense to me. What economic mechanisms cause it to be true?
> Japanese houses, unlike those in the rest of the world, supposedly depreciate to $0 in just 25 years
Same for this.
I've never heard of either of these being true; do you have a link?
- economic value (how much money it produces or how much money it saves by having it), both current and projected/speculative.
- emotional value (this is my grandfathers house, I wouldn’t part with it for anything)! Or FOMO, or ‘being established’. How much is it worth to feel that way?
- scarcity value. You need x or something terrible will happen, it’s in a bidding war, how much can you spend to win? This can also be current or projected.
The signal you’re seeing is that for people eligible to buy the property, it is near zero value on all these axis.
>Unlike in other countries, Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years.
I also expect the situation is different in Hokkaido: it's drier with lots of winter precipitation (spring is the driest season in sapporo versus winter for tokyo), and the more extreme winter weather probably leads to higher quality construction (for instance central heating and extensive insulation is common in hokkaido while it's quite rare on honshu which tends to go by "tactical heating" and quite drafty houses).