One of the many negative economic by-products of the unavoidable decision to postpone the 2020 Tokyo Olympics for a year is the fate of Harumi Flag, the condo development project attached to the athletes’ village that was built on landfill in the Tokyo waterfront area. It was widely believed that the Olympics would produce a real estate bubble, but the coronavirus epidemic may have already prematurely burst that bubble. Harumi Flag will feature condominium towers, as well as schools and retail outlets to serve the large community that will be moving in after the games. The condos will eventually contain some 5,600 units and, in all, they are expected to attract more than 20,000 tenants, including renters. The entire area will cover the equivalent of three Tokyo Domes. Eleven developers are working together on the project headed by Mitsui Fudosan Residential.

For buyers, the complex has two attractions, according to a February article in Money Post: bragging rights that the units were once used by Olympic athletes, and cheaper prices. The average price of a new condo in the 23 wards of Tokyo is ¥80 million, which is about the same as it was during the bubble period of the late 80s. The median price of the 85 square meter units that went on sale earlier this year was ¥64 million. One real estate professional told the magazine that, per tsubo (3.3 square meters), the Harumi Flag units are 30-40 percent cheaper than new units in surrounding complexes. And a new 85 square meter unit in central Tokyo would go for ¥100 million at auction. A Tokyo municipal government researcher said that this may be the last chance to buy a new condo with the “big three” advantages—central location, large floor area, and affordable price. It’s the best place if you work in central Tokyo, and the schools will be very good.

Another attractive feature of the complex is that, because it is being built for Olympic athletes, the common areas are spacier and more comfortable. In particular, the elevators are larger. However, the negative points that have been pointed out are specific to the kinds of lifestyles of people who are buying the units. For one thing, transporation is not convenient. The nearest train station is Kachidoki on the Oedo Toei subway line, 20 minutes from Harumi Flag on foot, not counting the time it takes to get from one’s apartment to the ground floor by elevator. Mitsui says that there will be exclusive tandem buses operating between Harumi Flag and Toranomon during rush hour using a special lane, but until it actually starts it’s difficult to gauge how fast and convenient the buses will be. Given the density of the living conditions in the towers and the fact that they plan to operate twelve trips a morning with buses that hold a maximum of 40 people, they may not be enough. For that reason alone, one real estate journalist told Money Post that Harumi Flag is attracting few people who buy property as investments, since, in Tokyo at least, they usually aren’t interested in any apartment that is more than 10 minutes from a station. The same writer says that the initial Olympic legacy hook won’t mean anything ten years down the line in terms of resale value.

But those are relatively minor demerits. The postponement, however, could compound them in the eyes of potential buyers. Originally, tenants were supposed to start moving into their units in spring of 2023. Following the games, the village will be extensively renovated to make it appropriate for residential family living, with all new floor plans, and two more 50-floor towers will be added. Units first went on sale last summer, and so far 940 units have been sold. Buyers who have signed contracts were already prepared to wait up to four years to move in, but now they will have to wait longer, what with the postponement, and a lot can happen in five or six years. For one thing, interest rates may not be as attractive as they now are. When you make a housing loan, your interest rate is determined not when you make the loan, but when you move in. Right now Flat 35 loans, which are guaranteed by the government, are quite good for buyers, at 1.27 percent. After the Olympics, however, all bets are off, especially if the Chinese economy starts to recover, thus pushing interest rates up. Also Haruhiko Kuroda, the governor of the Bank of Japan, who has been set on keeping interest rates low, will retire from his position in April 2023. Someone who borrows ¥40 million on a 35-year mortgage ends up paying ¥1.35 million a year at 1 percent interest; at 2 percent, they would pay ¥1.59 million; at 3 percent, ¥1.85 million. The difference is significant.

On March 31, after the IOC announced it was postponing the Games, NHK interviewed a salaryman in his 30s who has already signed a contract for a 3LDK condo in Harumi Flag. The salaryman was obviously anxious about when he and his family would be able to move in, and had just received a call from the developer saying a decision would be made in a month’s time. Another worry that buyers have is that Tokyo Governor Yuriko Koike has said that the Olympic Village might be used to quarantine people with light symptoms from COVID-19, a move that buyers and realtors fear would make the condos less attractive because of the fear that such use would drive down the value. The salaryman told NHK that he thinks the developer should start discussing “compensation,” which we assume means that future sales will be at prices that are even cheaper than they were for this salaryman, and when that happens, people who have already signed contracts usually demand that they receive refunds themselves.

But according to an April 2 report in Asahi Shimbun, they may also demand compensation for the delay in moving in, since many buyers may have to pay rent on present accommodations for up to two more extra years. A construction finance expert told the newspaper that the worldwide recession caused by the coronavirus may seriously suppress any interest in the remaining condos, especially among Chinese investors, some of whom have already signed contracts for units. If the demand for Harumi Flag drops substantially, it would significantly affect the real estate value of the property, triggering a drop in property values throughout Tokyo, which would be a considerable problem for the local economy. Another point that is almost never brought up is that Tokyo sold the land to the developers at a cost that was only 10 percent of the value of surrounding properties (thus the cheaper prices) just because of the Olympics. With Tokyo losing a lot of money on the postponement, the deal could come back to haunt the prefectural government politically as well as economically.