[Real Estate AtoZ] Is It Okay to Win a Bid for a Building Without Land?

Editor's Note[Real Estate AtoZ] is a guide for those concerned about housing issues.
We will concisely and easily provide real estate knowledge on how to buy and live well in a home.

In the real estate auction market, where prices have dropped significantly due to consecutive failed bids, a recent influx of bidders has led to fierce competition. Amid this, more people are targeting so-called ‘special properties,’ considered a niche market. Typically, special properties refer to ‘retention rights, statutory superficies, and co-ownership auctions.’ A representative example is when only the building on the land is sold, excluding the land itself. These properties can offer high returns if statutory superficies are established and rental fee negotiations with the landowner go well, but they carry risks that require caution.

What Exactly Is Statutory Superficies?

When a property up for auction involves selling only the building excluding the land, the issue at hand is ‘statutory superficies.’ Legally, land and buildings are treated as separate real estate assets. Therefore, they can have different owners or be disposed of separately. To build on land owned by someone else, one must negotiate with the landowner to establish a ‘superficies right,’ which is the right to use the land.

However, it is not always necessary to establish a superficies right to use the land. Even without registering a superficies right, if certain conditions are met, one can legally have the right to use the land. This is called statutory superficies.

For statutory superficies to be established, three conditions must be met. First, the building must already exist on the land at the time a mortgage is placed on the land. Second, at the time the mortgage is established, the owner of the land and the building must be the same person. Lastly, due to the execution of the mortgage through auction, the owners of the land and the building must become different persons.

To Increase Profit and Reduce Risk, Consider Statutory Superficies

If bidding only on the building, experts advise purchasing properties where statutory superficies are established. If these conditions are not met and statutory superficies do not exist, the landowner may demand demolition of the building, posing a risk. Of course, properties with statutory superficies are mostly traded through sales, so they rarely appear in auctions. However, buying a property without statutory superficies without due diligence could result in losing the entire purchase amount without any profit.

Conversely, if statutory superficies are established, the superficies right must be recognized for 5 to 30 years. This means you can purchase the building at a low price and use it for up to 30 years. Moreover, after 30 years, there is an opportunity to sell the building to the landowner through the ‘right to claim purchase of the superficies.’

Even if the building has statutory superficies, it is important to carefully consider the usage fee. Typically, when the building and land have different owners, the building owner must pay the landowner a land usage fee called ‘jiryoh.’ How this fee is negotiated can significantly affect profitability. If negotiations fail, it may lead to litigation over the usage fee, so caution is necessary.