One of the fees that condominium owners have to pay every month is called shuzenhi, which are contributions to a fund that will go toward large-scale repairs of common property in the overall structure, such as exterior walls and some plumbing shared by all the residents. This fee is separate from the management fee, which goes toward operation of the building and more immediate maintenance, including mandatory elevator inspections. Ideally, large-scale repairs should be carried out every dozen years or so, but they usually aren’t owing to difficulty in gaining approval from the needed majority of owners. As a result, many buildings fall into disrepair after several decades, but even when the homeowners get it together and vote for necessary work, there usually isn’t enough money in the fund to cover what has to be done. That’s because developers purposely set the monthly fees for the repair fund low so as to make it easier to sell units when they are first put on the market. We’ve read of cases where homeowners in some condominium buildings had to pay tens of millions of yen each on top of the money they’d contributed to the fund in order to get repair work done. Most condo operations are run by outside management companies, which may or may not be related to the original developers, and one of their tasks is to raise the shuzenhi gradually over the years so that there is enough money for the repairs, but, again, they need to gain the approval of the mandated portion of owners to do it, and that can be hard.

In response to this problem the construction ministry last month assembled a panel of experts to study a system, first implemented in 2022, for local governments to certify whether condo owners associations are operating properly. According to a ministry survey the amount of funds needed for long-term repairs is, on average, 3.6 times the amount collected using the original contribution calculation, but this real amount can go as high as 10 times the originally collected fund. Another survey conducted in 2018 found that 35 percent of condos nationwide have insufficient repair funds, which is likely a low estimate. According to a Feb. 23 article in the Asahi Shimbun, the ministry is trying to come up with better ways to persuade condo owners associations to increase their repair funds by adopting a savings plan based on long-term estimates of exactly how much money will be needed. Usually, when developers set the monthly contributions no such estimates have been made. The amount of the contribution is set arbitrarily based mainly on market considerations. 

The revised plan that the ministry has submitted to the expert panel for study says that the amount needed for long-term repairs should be calculated and then divided into the number of owners and number of months remaining between the start of the fund and the proposed repairs. The ministry recommends that the actual monthly contribution be no less than 60 percent of the estimate and no more than 110 percent. However, if the fee is set at less than what is needed for the eventual repairs, the association can increase it over time by up to 80 percent. This means that if the full monthly contribution for long-term repairs is calculated to be ¥20,000 based on what the cost of repairs will be in the long run, the developer or whoever makes such a decision can set the actual contribution as low as ¥12,000, but then can increase it over time to ¥22,000. 

Such a plan would be included in the management authorization system that local governments use to certify condo owners associations. Certification is based on whether the association has a long-term repair scheme. If the local government grants certification, the association is entitled to borrow money for large-scale repairs at a lower interest rate. 

In a followup report on Feb. 27, the Asahi looked at a condominium in Tokyo’s Adachi Ward that contains 28 units and was built in 2008. Three years ago, the owners association increased the repair savings fund contribution 3.5-fold. The 45-year-old head of the association said that when he took over the position in 2017 he realized that the fund was about ¥20 million short of what it should have contained according to the initial savings plan. The reason for the shortage was that previous association heads did not carry out contribution increases every three years in accordance with the initial plan. The current head invited an expert to talk to other members of the association about what they needed to do, saying that if they didn’t carry out these needed repairs, the building itself would need even more expensive work down the line just to keep it working. Though the owners approved the new contribution plan, it took two years and 8 months to convince them. 

The purpose of the ministry’s certification system is to avoid this kind of delay because increases in contributions would be incorporated into a plan, but as the Adachi example shows, even when such a plan exists it doesn’t mean the owners association will stick to it. The certification system is an incentive, but it is not mandated by law. For that reason, in addition to being eligible for lower interest rates to borrow money for repairs, the panel has suggested that associations who devise a plan and stick to it could have their property taxes lowered. As of the end of February, only 481 condo associations nationwide have been certified. The panel believes that the guidelines for the system should provide more of an incentive if such certification doesn’t have the force of law behind it.

Though the Asahi articles do a fair job of explaining how the government is addressing the repair fund problem, they don’t really explain what’s at stake. A Feb. 19 article in the Mainichi Shimbun does a better job of showing the bigger picture with regard to a proposed revision that will ease conditions for rebuilding and renovating condominiums. The community property law sets forth condo management responsibilities and rights, but as more and more condo buildings get older, the government understands that it has to do something to make associations carry out needed repairs. As the article points out, in addition to the buildings becoming old, the owners of the units contained therein are also old, which exacerbates the problem.

At the end of 2022, there were 6.94 million condominium units in Japan. About 10 percent of the population lives in condos, or 15 million people. Also in 2022, 1.26 million units were older than 40 years and by 2042 that number will increase by 350 percent. Many of these buildings have never undergone large-scale repairs, or, if they have, the repairs were minimal. Experts say that communal property must be repaired every dozen years or so, but, as pointed out above, most owners associations don’t collect enough money to carry out these repairs in a timely manner, and those that do usually deplete their funds before the building turns 40. The construction ministry estimates that 40 percent of the condos in Japan that are 40 years old have not carried out repairs in a timely manner, while 20 percent of buildings that are more than 30 years have not done so. This is a serious matter, as buildings that do not undergo regular repairs become dangerous: outside corridors can collapse and exterior siding deteriorates. Leaky shared plumbing is a common problem.

Consequently, units in such buildings become difficult if not impossible to sell, and the buildings themselves become “slum-like,” according to Mainichi. And just as the government policy of promoting new construction of single-family homes at the expense of existing single-family homes has led to widespread vacancies, the trend of people living in their condos their whole lives without keeping them up due to economic choices has led to buildings that have no value after 30 or 40 years. Moreover, half the heads of households in condos built before 1979 are in their 70s, which means there are fewer owners in these buildings capable or desirous of being owners association officers. And if these owners are on fixed incomes they are more likely to be delinquent with their monthly fees and contributions. Some who move and rent their units out also cause problems since they can ignore their responsibilities as members of the association. And if they die without leaving an heir, the association is stuck with a vacant, ownerless unit. 

The issue of aging owners impacts the decision-making process of associations, which are supposed to operate democratically, meaning a certain percentage majority must agree to a proposal, such as raising contribution amounts or carrying out large-scale repairs, before they can be implemented. Even in Tokyo, where there is always some demand for used properties, the municipal government says that 17 percent of condos built before 1983 are being “mismanaged,” an estimate we also believe is probably lower than it really is.

The Mainichi article goes on to explain how the revision will improve on the the community property law. Under the current law, owners in a building who cannot be located or contacted, as well as owners who don’t participate in decision-making due to apathy, are automatically counted in the vote-taking process as being in opposition to a given proposal, thus making it even more difficult to pass any kind of resolution. Under the revised bill, these absent or apathetic owners are not figured into the voting calculation; only those who actively participate in the voting count. However, there is a ringer: owners who are essentially “unknown” must be determined as such by a court, which could take years. (This condition puts the lie to the “perfection” of the koseki [family register] system, which is supposed to provide the authorities with easy-to-reach relatives and thus avoid such problems.) 

Another difficulty is that in recent years more foreign parties have become investors in Japanese condominiums, either as landlords or as absentee owners. According to one survey, between 2020 and 2021, foreigners accounted for 30 percent of all real estate investment in Japan. The revised bill will compel foreign investors to hire domestic managers for their residential properties who will vote as proxies in owners association matters. 

Another change that will be implemented by the revision is a lower threshold for majority approval. Under the present law, if the owners association wants to rebuild the condominium, meaning from the ground up, it must secure the agreement of 4/5 of the owners. Under the revision, this portion is lowered slightly to 3/4. The same majority portion applies to approving large-scale repairs. The monkey wrench here is renters, who have legal protections distinct from the laws that cover community property in a condominium. Under the present law, tenants must agree to move before any rebuilding takes place; which means if they refuse, no work can be done. According to the revision, the owners association can compensate the tenants who rent and demand they leave.

If the owners association decides to demolish the building and then sell the land, under current law 100 percent of the owners have to approve the actions, but under the revised law a 3/4 majority is enough.

The authorities believe that these changes will make it easier for owners associations to not only repair their buildings, but rebuild them or even destroy them if they so decide. Mainichi contends, however, that history indicates otherwise. The construction ministry says that as of March 2023, only 282 condominiums or condominium complexes comprising 23,000 units have ever been rebuilt in Japan. And in almost all the cases, these condos occupied tracts of land with lots of empty space, thus making it possible for the condo not only to be rebuilt, but to be expanded, thus adding value that helps pay for the reconstruction process. Unfortunately, many aging condos don’t have such surplus land that allows for increased capacity. Moreover, many are in locations that have become less desirable over the years, and thus adding capacity has little meaning if the new units can’t be sold at a certain price. In these cases, the cost of rebuilding will have to be borne almost completely by the existing owners. According to the ministry, up until 1996, the extra cost of rebuilding a condo per owner on average was ¥3.44 million, which sounds reasonable. However this cost increased to ¥19.4 million for condos that were rebuilt between 2017 and 2021, and you have to assume that these condos were in good locations so that owners could easily sell or rent them after the reconstruction was finished, because they were essentially new condos. That’s why Mainichi says that there is a “limit” to the kinds of condos that can be rebuilt in a practical manner. An expert told the newspaper that the revision’s idea of spurring reconstruction of older condos will only affect a few owners associations who are thinking of rebuilding. It won’t convince those who haven’t even considered such a move.

Consequently, the expert thinks that from now on there will be a steady increase in the number of condos that will become “unlivable.” The only realistic option for such buildings is demolition. The revision also simplifies the process for deciding whether to tear down a building and sell the land. The problem there is who pays for the demolition. If a developer wants the land, then it’s no problem, but if that were the case, a developer would be more inclined to rebuild the condo in collaboration with the owners association. If no developer wants that land, then the cost of demolition is borne by the owners, who, of course, end up with nothing afterwards except land that they may have difficulty selling, depending on the location. 

The expert concludes by saying that the real estate market and the relevant authorities have no concept of “limited use.” Condominiums are premised on the idea that as long as the owners continue to carry out needed repairs in a timely manner, the building can be used indefinitely, but, in fact, due to Japan’s penchant for constantly replacing older properties with new ones, buildings die just as people do; so the issue becomes how to let them end their lives. It’s not a question that anyone yet has answered.