7 ms·

I wonder how this works in the context of the fact that Japanese houses, unlike those in the rest of the world, supposedly depreciate to $0 in just 25 years. F

I wonder how this works in the context of the fact that Japanese houses, unlike those in the rest of the world, supposedly depreciate to $0 in just 25 years. 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.

resoluteteeth 5y ago
> 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? 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.
- onlyrealcuzzo 5y ago
  LOL - on a 30 year term, too! =PMT(0.02/12, 30*12, -500) $1.85 per month!
- Tiktaalik 5y ago
  My concern would be that if the land is worth ~$0, and building worth ~$0, that the bank won't even lend you money to build a new building.
  - tormeh 5y ago
    The bank could take collateral in something else than the house. But if you have that kind of collateral, you might not need a loan in the first place...
  - lazide 5y ago
    It can actually be even weirder. The land might be worth -$money (in some cases like Detroit, tax liens and other issues meant the ‘$1 house’ was actually $50k+ because of the liens.) 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.
brundolf 5y ago
> The land is seemingly worth nothing and the building itself worth zero or really a liability 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?
- bhickey 5y ago
  https://www.economist.com/finance-and-economics/2018/03/15/why-japanese-houses-have-such-limited-lifespans https://www.economist.com/finance-and-economics/2018/03/15/w...
  - ryanSrich 5y ago
    https://archive.is/5eFO6 https://archive.is/5eFO6
  - brundolf 5y ago
    Huh, that's fascinating
- gruez 5y ago
  first result for "japanese house depreciation": https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-revolution https://www.theguardian.com/cities/2017/nov/16/japan-reusabl... >Unlike in other countries, Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years.
  - tpmx 5y ago
    This scrap-and-build approach is a quirk of the Japanese housing market that can be explained variously by low-quality construction to quickly meet demand after the second world war, repeated building code revisions to improve earthquake resilience and a cycle of poor maintenance due to the lack of any incentive to make homes marketable for resale.
3np 5y ago
It's rare that the land is actually worth nothing, but it can be worth less than the loss of liquidity + the cost pf demolishing the current house (which you're right on).
masklinn 5y ago
> The land is seemingly worth nothing and the building itself worth zero or really a liability. 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.
- Tiktaalik 5y ago
  I really wonder how the lending against houses/land works in Japan. 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?
  - masklinn 5y ago
    > 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? 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.
glandium 5y ago
As siblings have already said, the land is not worth nothing, but the article doesn't seem to say, from a quick glance, whether property of the land is included in the transaction. Because in Japan, land can be rented too (yes, you can rent land to build something on top of it, that's called shakuchiken (借地権)).
- panny 5y ago
  Not in every case naturally, but land can also be worth nothing in circumstances where it has become unstable. Japan has places where old homes exist and new home building is not permitted because it has become a hazard zone for landslide. No wells can be dug, no foundations, it may trigger a collapse which affects your surrounding neighbors. Eventually, earthquake will take the place and no one will buy in the area with this knowledge.
  - glandium 5y ago
    That's probably not the case of the land attached to the houses mentioned in the article, though. That said, I also read somewhere else that the $500 are not actually a sell price, but a rent price. ¯\_(ツ)_/¯

resoluteteeth 5y ago

> 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? 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.

onlyrealcuzzo 5y ago
LOL - on a 30 year term, too! =PMT(0.02/12, 30*12, -500) $1.85 per month!
Tiktaalik 5y ago
My concern would be that if the land is worth ~$0, and building worth ~$0, that the bank won't even lend you money to build a new building.
- tormeh 5y ago
  The bank could take collateral in something else than the house. But if you have that kind of collateral, you might not need a loan in the first place...
- lazide 5y ago
  It can actually be even weirder. The land might be worth -$money (in some cases like Detroit, tax liens and other issues meant the ‘$1 house’ was actually $50k+ because of the liens.) 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.

brundolf 5y ago

> The land is seemingly worth nothing and the building itself worth zero or really a liability 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?

bhickey 5y ago
https://www.economist.com/finance-and-economics/2018/03/15/why-japanese-houses-have-such-limited-lifespans https://www.economist.com/finance-and-economics/2018/03/15/w...
- ryanSrich 5y ago
  https://archive.is/5eFO6 https://archive.is/5eFO6
- brundolf 5y ago
  Huh, that's fascinating
gruez 5y ago
first result for "japanese house depreciation": https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-revolution https://www.theguardian.com/cities/2017/nov/16/japan-reusabl... >Unlike in other countries, Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years.
- tpmx 5y ago
  This scrap-and-build approach is a quirk of the Japanese housing market that can be explained variously by low-quality construction to quickly meet demand after the second world war, repeated building code revisions to improve earthquake resilience and a cycle of poor maintenance due to the lack of any incentive to make homes marketable for resale.

3np 5y ago

It's rare that the land is actually worth nothing, but it can be worth less than the loss of liquidity + the cost pf demolishing the current house (which you're right on).

masklinn 5y ago

> The land is seemingly worth nothing and the building itself worth zero or really a liability. 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.

Tiktaalik 5y ago
I really wonder how the lending against houses/land works in Japan. 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?
- masklinn 5y ago
  > 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? 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.

glandium 5y ago

As siblings have already said, the land is not worth nothing, but the article doesn't seem to say, from a quick glance, whether property of the land is included in the transaction. Because in Japan, land can be rented too (yes, you can rent land to build something on top of it, that's called shakuchiken (借地権)).

panny 5y ago
Not in every case naturally, but land can also be worth nothing in circumstances where it has become unstable. Japan has places where old homes exist and new home building is not permitted because it has become a hazard zone for landslide. No wells can be dug, no foundations, it may trigger a collapse which affects your surrounding neighbors. Eventually, earthquake will take the place and no one will buy in the area with this knowledge.
- glandium 5y ago
  That's probably not the case of the land attached to the houses mentioned in the article, though. That said, I also read somewhere else that the $500 are not actually a sell price, but a rent price. ¯\_(ツ)_/¯