Last resorts redux

file_6_18_1Several times on this blog we’ve written about the collapsed market for resort condominiums, which are conveniently called “rizoman” (for “resort mansions”) in Japanese. The majority of these apartments were built during the asset-inflated bubble period of the late 80s and the hangover from that period in the early 90s. Many, but not all, were attendant to the ski boom, and after the bubble burst and people’s interest in skiing deflated, more and more of these condos were abandoned by their owners, the result being thousands of empty units in vacation areas throughout Japan. More importantly, however, it also meant huge losses in property taxes for local governments and the deterioration of condo complexes that were no longer collecting management fees from absent owners, most of whom lived in major cities. These specific circumstances led to an unusual phenomenon. The units themselves dropped dramatically in price on the resale market and could be had for a song (or even a verse), but they could hardly be sold because even if the market price was only a million yen or cheaper, whoever bought them would also have to cover the back taxes owed, not to mention the unpaid management fees, and together these two debts could run into milions and millions of yen.

At the end of last month, Asahi Shimbun ran a series of articles about a turnaround in Yuzawa, Niigata Prefecture, which is the closest town to one of Japan’s most famous ski and hot spring resorts. (It’s also where the Fuji Rock Festival is held in July.) Yuzawa has been for years the poster child for the crippled rizoman market, a place that saw a huge amount of construction in the late 80s/early 90s and which later stood as a symbol of pointless extravagance. According to a realtor quoted in one article, there are some 15,000 empty condo units in Yuzawa, accounting for 20 percent of all the empty resort condos in Japan. During the bubble period, when these units were new, they were so popular they could be sold at auction, and many went for as much at ¥100 million. Now, many are going for less than ¥500,000, depending on the size. Management fees, however, are still high owing to the fact that many buildings have large communal baths, swimming pools, recreation rooms, and exercise facilities.

But the situation seems to be turning around. In recent years, more units are being sold, mainly to retired seniors who are moving from Tokyo and other metropolitan centers. The local government, in conjunction with individual residents associations, are promoting Yuzawa as a good place to retire and using the empty rizoman as a resource and incentive. Local businesses are getting into the swing of things, as well. One supermarket offers free bus service five days a week that makes the rounds of the condominiums and brings residents to the store for shopping. The owner of the supermarket says he actually increased prices in order to pay for the bus, and it doesn’t seem to have dented demand, though the article doesn’t mention if he has any competition. In any case, a lot of the new senior residents have given up cars and even drivers licenses, which is pretty extreme given Yuzawa’s isolation. Though the closest Shinkansen station is about a half hour away by taxi, and the train takes a bit more than 90 minutes to reach Tokyo, there isn’t much else in the way of public transporation in the area. Older people with diminished mobility are basically stranded there, which is a problem because resort condos by definition are not meant to be primary year-round residences, but that’s how they’re being marketed to this demographic. There are obvious related problems with this scheme. Last summer, according to Asahi, heads of residence associations met with the mayor and the chiefs of police and the fire departments to talk about the fact that there are many infirm seniors living in the condos. One resident association head said that his condo has 18 single seniors living alone, and already he had one isolated senior who died and no one discovered his body for a few days. Another resident head said the same thing happened in his building and that now when a senior moves in he requires them to disclose next-of-kin information and to join the residents association, but it’s not easy. In many cases, the families of these people have bought the condo for them and basically dropped them off to fend for themselves. It’s not as desperate and final as a nursing home or assisted living facility, but it’s not much better if there is no community or local services to support them. A social welfare group who participated in the meeting says 4 residents are receiving regular caregiving services through the national caregiving insurance program, but that’s mainly because their families are still involved in their lives. They need to spread the word among seniors that these services are available. The police, however, are wary about infringing on residents’ privacy.

According to the Yuzawa government, 12 percent of the town population now live in rizoman. Ten years ago the portion was 5 percent. In addition to people who have owned a condo there for years and have decided to move there full-time, and seniors from outside the town who are newly buying units, there are also Yuzawa residents who, having entered their twilight years, no longer have the will or energy to keep up their homes (snow in the winter can be punishing) and so sell them to buy rizoman. The senior population for Yuzawa’s condos is 43 percent. The senior population of the town as a whole is 35 percent.

But certainly the main reason for the increase is the prices, which are ridiculously cheap by any standard. In 2010, the average price per square meter for a rizoman in Yuzawa was ¥14,000. Five years later it had dropped to ¥2,600. Resident associations, tired of covering the delinquent management fees and property taxes of absent owners, have taken matters into their own hands by buying units from those owners at rock bottom prices, fixing them up, and then turning them around to sell. Prices of units range from as low as ¥10,000 to a high of ¥1.5 million, but the amount of delinquent fees attached to these units range from ¥370,000 to ¥14.7 million. In some cases, if the residents association of a given building cannot contact the owner of an abandoned unit, they simply take possession of it and sell it outright with the help of the courts. Once the association gains title to the unit, they can waive the debt and sell it for only the purchase price. However, in some cases the problem simply comes back: new owners, who are often on fixed incomes, can’t keep up with the management fees and the property taxes, which are higher than they should be owing to guidelines from the Ministry of Internal Affairs and Communications. Property assessments for the purpose of property tax payments have little to do with location and everything to do with the value of the property when it was built. Since all of these rizoman were overvalued when they were constructed during the bubble period, their assessments are still high some 30 years later. The assessed value drops over time in accordance to the guidelines and not in relation to the real market value of the property when the assessment is made. For instance, a 1LDK unit built in 1990 and whose market value now is only ¥680,000 still requires an annual property tax payment of ¥60,000, which is more than many similarly-sized condos in Tokyo. Though residents associations are trying to get a special law passed to make assessments more rational, the local government isn’t too keen to do that since it would mean a considerable drop in tax revenues. Eighty percent of the town’s revenue comes from property taxes. Nevertheless, the biggest problem the local government faces is a delinquent tax bill, which now exceeds ¥940 million, with half of the scofflaws living outside of town. Almost all are rizoman owners. As a consequence, Yuzawa is now entitled to central government subsidies that are given to local communities in fiscal hot water. This is a new dilemma for the town, but as one expert interviewed by Asahi says, they have no one to blame but themselves. Back in the day they gave developers free rein to come in and overbuild.001

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4 comments

  1. Ari Salomon (helloari) · February 3

    Sounds like a fun opportunity to go in and start an artist colony. What is a typical condo association fees?

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  2. Ari Salomon (helloari) · February 3

    I found this info in one of your earlier articles.
    “Maintenance fees normally run between ¥10,000 and ¥50,000 a month, and repair fees about half that, so the cost of keeping a resort condo could conceivably end up outstripping the value of the property after a few years. “

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    • catforehead · February 3

      We scanned a couple of real estate portal sites and the management fees for resort condos in the vicinity of Yuzawa run between ¥15,000 and ¥35,000 a month, with monthly repair fees (shuzenhi) at about half those amounts, depending on the size of the unit. In a sense, the fees are slightly cheaper than those in other resort communities owing mainly to the fact that the condo complexes in Yuzawa tend to be huge–upwards of a hundred units and more in each building. The greater the number of units, the smaller the monthly fees. Resort condos in Izu, for instance, often get up to ¥50,000 for management fees because the buildings are smaller.

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  3. Cameron Hilker · 14 Days Ago

    I actually live in Yuzawa. I love it here. The property is CHEAP (except taxes and management fees), the scenery is phenomenal, the snow is fun, the hot springs are incredible, and I could go on. It’s a great place to be.

    However, our management fee is about 40,000 yen / month which hurts, but still isn’t anywhere NEAR the rent rate were we renting a similar place anywhere else in Japan.

    I’ll add a few things to your article–there is no competition for the owner of that grocery store. It’s the only big one in town. There are a couple small, even more expensive, grocery stores around town, but people only go to those when they forgot to get something at the big one.

    There is a shinkansen station directly in Yuzawa, not a half-hour away. It’s called Echigo-Yuzawa Station. However, Yuzawa is an enormous town (area-wise, not population-wise), so there are parts of Yuzawa 25 minutes from the station (or more if you take the bus), but the station itself is right in the center of town, so it has great access to Tokyo. The ride ranges from 70 to 85 minutes, depending on which shinkansen you ride.

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