As we’ve pointed out in previous posts, the prices of new condos in Tokyo have risen considerably in the past few years owing to the high cost of construction, lowering supply, and an increase in sales to investors, whether Japanese or foreign. A June 20 article in the Asahi Shimbun about the cheap yen includes remarks from realtors who say that new condos in central Tokyo will remain expensive for the near future, with some, in fact, explaining that now they only deal with high-earning double income couples and rich investors. 

In light of this situation, the news surrounding one large Tokyo condo complex has been instructive. Harumi Flag, which was originally built to be the athletes village for the 2020 Tokyo Olympics, finally started receiving residents in January after renovations to turn the living quarters into condominiums was delayed almost two years by the pandemic. However, according to a June 7 report by NHK, as of the end of May a good portion of the units in the 17 buildings that have been sold so far are empty, which NHK finds strange since the demand for the Harumi Flag condos was quite intense owing mainly to the fact that prices were reasonable compared to other real estate in the area. NHK’s investigation found that many of the units were bought by investors, which shouldn’t sound strange given the current real estate climate in Tokyo, but the Harumi Flag project was initiated by the Tokyo prefectural government for the secondary purpose of eventually selling the residences to people who would live in them, in particular families. That’s supposedly why the initial prices were set lower.

NHK checked the title registrations of 1,089 units of the 2,690 that have been sold so far in the Sun Village part of the complex. Mitsui Fudosan Residential, the company that headed the consortium of 11 developers involved in the project, has been selling the condos in phases, and in the most recent phase there were an average of 71 applications for each unit. There were no limits to how many applications a potential buyer could submit or units they could purchase if their luck was good. Under such circumstances, institutional investors applied for as many units as they could, since they could buy as many units as possible by borrowing money more easily. In fact, NHK discovered that 292 units out of the 1,089 they checked were owned by companies, or one out of four. Sales began in 2019, and four sales phases were carried out in 2021 and 2022, with the largest number of companies registered as owners with the justice ministry following the last of these. However, when NHK checked with the Chuo Ward office it found that there were no resident registrations (juminhyo) listed for 30 percent of the condos, meaning that, technically, no one is living in these condos. In fact, more than half the units sold during the last phase were bought by companies, with many purchasing more than one unit. The investors who own the 292 units in question comprise 147 companies, most of them dealing in real estate and investment. On further investigation, NHK found that only five of these units were being used by their corporate owners as offices. NHK makes a special note in the report that all these corporate owners are Japanese, which they think is surprising considering all the media attention being paid to foreign buyers of Tokyo real estate. 

One investment company from Fukuoka, in fact, owns 38 units, and while they wouldn’t talk to NHK, their home page mentions their involvement in Harumi Flag “at an early stage” to “ensure stable returns on investments.” Two other companies did talk to NHK on condition of anonymity. One had 3 units in the complex and owned properties in Tokyo and Yokohama, as well as in the U.S. Their total real estate investments amount to ¥3 billion. A different company owns “more than 4 units” in Harumi Flag, and says they applied for and bought condos during each sales phase. In the beginning, they weren’t sure if the investment was wise, but now they are very happy because they are sure they can sell them for a hefty profit, and that seems to be the case. NHK says that so far hundreds of units have already been resold or are on the market for prices that are from 50 to 100 percent higher than their initial sales price. According to one real estate portal site, a 4LDK, 100-square meter unit in Sun Village that originally sold for ¥106 million is now on sale for ¥238 million. 

But the market is still hot, so many of the investor-buyers are not planning on selling for a while and instead are renting out their units. Unfortunately, there are too many units for rent in the complex so few have found tenants, though there are other reasons for the low occupancy rate. Harumi Flag is 20 minutes from the nearest station and all the leases have a limit of two to five years, because the owners may want to sell the units if the price peaks. NHK doesn’t mention the cost of rent, but when we checked portal sites we found one 86-square meter unit asking for ¥420,000 a month and a 65-square meter unit going for ¥280,000 a month.

NHK talked to one couple in their 60s who made 7 attempts to buy a unit in Harumi Flag and failed. Their budget was ¥80 million, which was more than sufficient for a good-sized condo during the initial sales phases but not enough to buy one that is being resold, so they’ve given up, even though several buildings in the complex are still under construction.

A Tokyo official who was in charge of the first sales phase in 2019 told NHK that the situation has changed drastically over time. In the beginning, they were afraid they wouldn’t be able to sell many units because of the lack of nearby public transportation. That’s why they didn’t put limits on applications and sales. NHK says that records show sales were not particularly robust in the beginning, but in any event, once the local government realized that companies were buying so many units, couldn’t they have done something? The official said they didn’t fully realize that so many had been bought for investment purposes until after they were sold. There will be limitations in place for any future sales phases, though he didn’t specify what those limitations would be. 

NHK didn’t talk to Mitsui Fudosan Residential, but because Tokyo owned the land in the first place and insisted on keeping the units within the price range of the average Tokyo income-earner, it is they who need to explain how the situation came about. The Tokyo official interviewed by NHK said that since they were listed as the “builder” (sekosha) of Harumi Flag, according to the Urban Redevelopment Law, Tokyo couldn’t interfere with Mitsui Fudosan Residential, which was in charge of sales activities, though a representative of the construction ministry, which oversees the law, told NHK that there’s “no clear stipulation” that the builder can’t be involved with sales. Tokyo used to enforce a rule that prohibited companies from buying new residential properties developed with the participation of Tokyo prefecture, as well as a regulation that said buyers of such properties had to wait at least five years after buying the property to resell it. These rules, implemented to discourage speculation, were rescinded around 2000 because, according to the Tokyo official, “the market for real estate changed.” Professor Chie Nozawa of Meiji University, who writes often about housing policy, told NHK that Tokyo no longer sufficiently regulates the development of public lands for the benefit of people who need housing, and thus speculation is widespread at the expense of residents and taxpayers. 

Even before the Harumi Flag condos went on sale, a local citizens group sued Governor Yuriko Koike for selling the land to developers at one-tenth its value, thus robbing the prefecture of more than ¥140 billion, and without having the project scrutinized by the prefectural assembly or its own asset assessment panel. Two years ago, we wrote in detail about the suit, which failed in the lower courts. The Supreme Court eventually rejected it on appeal. Later, in response to the suit, according to Tokyo Minpo, the organ of the Japanese Communist Party members of the Tokyo assembly, Tokyo decided that if developers made a profit on the Harumi Flag condos that was greater than their original projection, they would return half of the difference to Tokyo, but Tokyo Minpo doesn’t say if this pledge was ever carried out. Then again, almost no major media outlet covered the lawsuit in the first place. If it weren’t for NHK, we probably wouldn’t even know about how the circumstances surrounding Harumi Flag have unfurled.