It comes as a surprise to many that renting a property in Japan often requires a non-refundable deposit known as ‘key money’ or reikin (礼金). This practice, deeply entrenched in Japanese real estate traditions, has endured through the years and remains prevalent today. But what exactly is key money, and why does this tradition continue to persist?
How Much Do You Pay and When?
Key money is typically equivalent to 1 month’s rent. For instance, if your expected rent is 300,000 yen, you can expect to pay 300,000 yen in reikin.
It’s important to note that key money is separate from the security deposit (敷金, shikikin), which usually amounts to one or two months’ worth of rent. The security deposit, however, is refundable and key money is not.
The payment of key money typically takes place at or right around the signing of the contract. In cases where the processing of paperwork takes longer than expected, it may be necessary to pay before signing the contract in order to receive the keys on time. However, you can expect to pay key money when signing the contract for the property.
History of Key Money
The origins of key money can be traced back to the post-World War II period when Japan was grappling with extensive devastation. With around 30% of the urban population left without homes or possessions and cities largely destroyed, housing was in severe shortage. In order to secure a place to live and express gratitude, tenants began offering landlords a non-refundable payment, which came to be known as reikin. Essentially, key money originated as a way to show appreciation for being granted a home during such arduous times.
Over the decades, this custom has evolved from a mere practice into a deeply ingrained cultural norm. Despite significant developments in Japan’s real estate market, key money has continued to be a persistent feature of the rental process.
Why Does Reikin Still Exist?
There are various reasons as to why key money has not been phased out, but here are a couple. The first reason is market competition. In highly competitive markets like central Tokyo, key money serves as a demonstration of commitment, helping landlords to gauge the seriousness of potential tenants. This upfront payment also deters any applicants who may not be fully committed to a given property.
Another reason key money has not been phased out is because of risk assessment. For landlords, reikin is a way to make an immediate profit—rather than charging higher rents—while managing potential financial or tenancy risks.
It is unlikely that key money will completely stop as a practice in the near future. In fact, the percentage of properties requiring key money has gone up across all price ranges in the greater Tokyo area in recent years. Currently, roughly 54% of properties renting for 100,000 yen or less require key money, and this percentage rises as the rental price increases. In other words, reikin is still a customary standard in Japan.
Conclusion
Although key money may seem like an outdated process to many, this non-refundable deposit remains an integral part of the Japanese real estate industry. Typically, key money is equivalent to one month’s rent and is paid at the time of contract signing. In major cities, where the demand for properties and market competitiveness continues to increase, it is unlikely to see key money go away any time soon.
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