It says something that the big economic buzz word in Trumpworld—affordability—has entered the Japanese lexicon as a katakana term, though it seems to be restricted to real estate in Tokyo, which, as we’ve mentioned so many times, is the only real estate story that the Japanese media cares about. But while everybody knows that prices of residential properites in the capital are skyrocketing, less is said about rents, which are going up even more.
In February, the real estate portal site At Home announced that the average rent in Tokyo’s 23 wards had increased for 21 months in a row, a new record. Moreover, the average rent for a unit for one person, meaning a condo or apartment of 30 square meters or less, had exceeded ¥110,000 a month for the first time. In fact, the exact amount, ¥110,177, marked a 12 percent increase from the previous year, another record. One of the reasons for this massive increase is the replacement of old wooden apartment buildings with concrete ones, with the new units being made smaller so that more of them can be fit into the space the former ones once filled. But larger apartments also saw startling year-to-year increases: two-person units (30-50 square meters) averaged ¥124,378 a month, a 10.7 percent increase; and family units (50 square meters and larger) averaged ¥174,082 a month, an 8.2 percent increase. Tokyo apartments outside the 23 wards went up less, but still went up: ¥87,887 for a two-person unit, an increase of 5.7 percent.
The Tokyo Metropolitan Government anticipated these developments and, according to Asahi Shimbun, will start providing “affordable housing” in the prefecture starting this year. One of the related measures will be to levy a special tax on residential properties that remain vacant, though so far no details or timeline has been announced.
What has been rushed into realization is ¥10 billion in investments from Tokyo in new affordable housing in partnerships with four foundations set up by major real estate companies like Nomura Fudosan. These funds will be used to operate rental housing that on average will be about 20 percent cheaper than current market rates. This year 350 units throughout the city will be made available starting next month. All these units are existing apartments that have been renovated. In principle, Tokyo is not going to build any new housing for the project but rather use existing structures with the help of private partners and investors, who will earn dividends on the returns, though lower than other real estate investments since such investments are pegged as “social contributions.” Tokyo is currently studying a system that could create more rental units by easing capacity rates in order to encourage developers to build more affordable housing. (Though it should be noted that easing capacity rates was the scheme of the Koizumi administration to increase construction, which lead to the boom in high-rise condos.)
One affordable rental property has already opened. Neuvono Kikukawa, operated by Mitsui Real Estate, as a kind of model for the project. It is two buildings in Sumida Ward comprising about 100 units, each about 55 square meters in size. The target is families and all the units were quickly rented out. There is a licensed nursery school on the first floor that is always open.
An image of the residence described in the Asahi article located in the Koishikawa area of Tokyo
Though home prices in Tokyo occasionally drop temporarily, in general they now remain pretty much out of reach for most sentient humans, which isn’t to say that most sentient humans don’t try to buy a home in Tokyo when it suits their needs. Regardless of the effect of foreigners buying up properties as investments, it’s why Tokyo will always be very expensive while the rest of the country is pretty affordable, if not downright cheap. And by expensive, I don’t necessarily mean the prices themselves, but rather the conditions of owning a home, which include strictly enforced mortgage payments, high property taxes, and other ancillary expenses that come with owning a property, in particular a condo, in the capital.
So anything that makes owning such a property more “affordable,” to use the buzz word that even local media have katakanized, will draw attention. According to a March 20 article in Asahi Shimbun, the big trend right now among developers is constructing condos on rented land, a scheme that’s quite old and used to be more traditional but which more or less fell out of favor due to certain legal realities. Now the market is so hot that such restrictions seem like mere inconveniences, and the response has been very positive, since not having to pay full price for the land can reduce the price of a comparable condo by as much as 10 percent. According to the Asahi, last year 1,502 condo units were newly built and made available for sale on rented land. Previously, the number of new condos built on rented land peaked in 2008 at 1,281 before dropping continually year after year, so 2025’s number is a new record.
Asahi uses as its prime example a new condo building consisting of 522 units located in the neighborhood of Koishikawa, 12 minutes by foot from Korakuen Station on the Marunouchi subway line. The area is considered exclusive and very desirable. The average price for a 70-square-meter 3LDK apartment is ¥160 million, which is still very high but, as mentioned earlier, about 10 percent cheaper than a similarly sized apartment in the same area. In addition, the first floor of the new building will have a supermarket, a public library, and other common amenities. So far, more than half the people who have expressed interest in buying are couples in their 30s who either have children now or plan to have children.
The catch, if you want to call it that, is that the rented land beneath the building will have a 70-year lease. When the lease expires, the building will be demolished and the land returned to its owner to do what it wants with it. The owners of the units pay land rental fees on top of their management and repair fees, and they also pay into a “demolition fund” that will go toward the destruction of the building when the lease expires. So while the prices of the units themselves are cheaper than comparable condos in the area, the fees are higher. Another incentive is that property taxes are lower, since owners only have to pay taxes on the structure, not the land.
Real estate people say that rental land for condos in central Tokyo benefits buyers, developers, and land owners alike. For the developers, the advantage is obvious: it is less difficult for them to obtain land, whose value continues to increase over time. The reason it’s easier is that many land owners tend to not want to sell while the price is always increasing, so by renting the land they retain its value over time, at least theoretically.
In the case of the new condo cited, the land is owned by a printing company called Kyodo Insatsu, which used to have a factory on the plot. Some years ago, the company redeveloped the land by removing the factory and using a portion of it to house their headquarter offices, and part of the condo plan is to rebuild a new headquarters as part of the development project. Apparently, this sort of scenario is ideal for developers, which are often looking for land to rent, though it’s easier outside of Tokyo than inside. In the past, shrines and temples, which own a lot of land throughout Japan, would rent out tracts of land to developers of condos, especially as the numbers of their traditional followers dwindled, meaning they had less income. Renting out land to developers made up for this income loss.
According to an article in the Sept. 3 edition of Asahi Shimbun, 40 percent of all recent housing loans are so-called pair loans, meaning they are taken out by married couples, with both spouses’ individual salaries taken into consideration. In the past, banks did not offer loans to married couples but rather to one or the other spouse. This policy necessarily changed when women with careers married and earned salaries comparable to their husbands’, but mainly it had to do with affordability. The cost of buying a house outstripped the ability of a single breadwinner to pay it in a comfortable manner, so banks adjusted.
But now, says Asahi, even pair loan seem insufficient to buy a new condo in Tokyo, whose prices have been increasing nonstop. The article uses as an example a couple in their mid-30s living in Meguro who want to buy a bigger place in a neighborhood that is more amenable to raising children. They have two strict criteria that made their search more difficult: they want to live within Tokyo’s 23 wards, and they want a property that will retain its value over time, which is why they insist on buying a new condominium. They had already abandoned one initial criterion—the condo should be within reasonable walking distance to a convenient train station, because all the realtors they talked to said that there are “waiting lists” for new condos with ready access to transportation.
But the couple lucked out. Last spring they entered a lottery for the chance to buy a new condo in Minato Ward and beat out five other prospective buyers. The unit in question is an 80-square-meter 4 LDK that is only 6 minutes from the nearest station. However, the price is pretty steep: ¥160 million. So in order to make the deal happen the couple sold the condominium where they were living (Asahi does not say how much they got, which would be helpful is assessing how much a used condo in pricey Meguro is going for in real terms) and took out a 40-year variable interest mortgage of ¥150 million as a couple whose combined income is ¥20 million a year.
The whole idea of a pair loan is to make it easier for a married couple to borrow money by taking into consideration their income as a household, and as indicated above, this borrowing method is slowly becoming the norm for buying a home. A survey by the company Recruit found that in 2024 pair loans accounted for 37 percent of all new mortgages in the Tokyo metropolitan area. In 2018, the rate was 27.7 percent. The use of pair loans has roughly followed the increase in prices of new properties. One real estate research lab found that, nationwide, the average price of a new condo increased by 27 percent between 2018 and 2024, while in Tokyo the increase was 56 percent over the same time period. As has been widely reported, the average price of a new condo in the 23 wards as of July was ¥135 million.
More signicantly, the Ministry of Justice says that in 2022, the average debt balance for a family of four for the first time exceeded the average family annual income, meaning that while housing prices have gone up, income has not, or, at least, not as much.
The perhaps not-so-surprising media dominance of the right-wing Sanseito in the recent general election is predicated on the party’s perceived prioritizing of Japanese citizens over foreigners. As others have already pointed out, this analysis is an over-simplification of certain Sanseito characteristics, the most obvious one being its motto, “Japanese people first,” which has given rise to a contrasting hashtag, #gaikokujinfirst, meaning “foreigners first,” or the idea that foreigners in Japan have privileges that Japanese don’t. This belief is based on a few loopholes that Sanseito has fixated on, in particular a means for some tourists to be able to exchange their home country drivers licenses for Japanese ones. The present administration, spooked by the popularity of Sanseito, has pledged to study whether foreigners are getting special breaks and tighten up rules accordingly.
So it will be interesting to see if the government does something with another loophole related to the private lodging (minpaku) law, which regulates short-term private accommodation transactions, like those handled by AirBnB. The law is fairly strict about how many days a year an owner can rent out their property, as well as where and how they can operate. But the government did allow for “special districts” throughout Japan where such regulations are more relaxed, and one of these places is Osaka.
According to a recent article in the weekly magazine Aera, Osaka was given this special status during the runup to the current Expo 2025, since it was believed that Osaka did not have enough hotel rooms and other short-term accommodations to handle the expected demand. Consequently, Osaka has become a veritable bastion of private lodgings, causing problems on various fronts. Prof. Yoshihisa Matsumura of Hannan University is doing field work on the subject in Japan, and told Aera that he sometimes walks around Osaka neighborhoods with an open map looking for private lodgings and is often approached by local residents who think he is looking for one of these lodgings as a customer. Or they think he is a “Chinese realtor,” because many private lodgings in Osaka are owned by Chinese, be they residents of Japan or China. The local residents are afraid that Matsumura is scouting out possible new properties to acquire for Chinese clients.
Obviously, these residents don’t like it that Chinese are buying up properties for short-term rentals, the ostensible reason being that guests who use these lodgings are loud and don’t follow local ordnances. But in truth the “trouble,” as it were, goes deeper. Most of the properties that Chinese are buying are rental apartments, which means the new owner will evict any present tenants. The Aera article cites several examples of tenants who refused to leave but were then forced out because the new owner increased their rent. After the tenant leaves, the new owner renovates the property in order to make it more appealing to travelers.
There are also more ambitious buyers, usually developers or real estate companies, who buy up entire buildings and either kick out all the tenants or tear the building down and make a new one that is completely made up of short-term private lodgings that are sold piecemeal to potential lodging landlords. In some cases, these developers and real estate companies have Chinese connections and they work directly with Chinese buyers in China who see the purchases as good investments.
The Japanese media is reporting that monthly fees for condo owners have increased significantly in recent years. We’ve often talked on this blog about these monthly charges, namely building management fees and repair fees, and how in many cases the repair fees were initially set low by developers so as to make them more attractive to buyers. Since these fees go into a fund that will be used down the road for large-scale repairs, often they are insufficient to the task, and when the repairs are finally undertaken there is not enough in the reserve fund and owner-residents have to cough up more money. In a sense, the recent increases in repair fees is a reaction to this reality, since more and more condos are reaching an age when large-scale rapairs are required.
Consequently, the reserve funds for long-term repairs can be quite fat, depending on the size of the building and the number of residents, and with construction companies that specialize in residential buildings losing business because of the decline in population they are eyeing these funds as they expand into renovation. A recent article in the Asahi Shimbun reported on a strange trend that seems to be related. Apparently, non-residents are impersonating residents in order to get into homeowners association meetings so that they can vote on approving plans for repairs, usually earlier than needed. It’s believed these imposters are working for construction companies who want the work.
Asahi cites several cases in the Tokyo metropolitan area. In May, two employees of construction contractors were arrested for “trespassing” after pretending to be residents of a condominium in Kanagawa Prefecture. Since 2024, the two men had attended the condo owners’ association meetings a total of four times using names of real resident-owners. One of the building managers was alerted to the possible imposture and checked one of the names with the real owner, who eventually confessed that he had allowed one of the men to use his family name in exchange for some kind of “reward.”
The same thing happened at a condo in Chiba Prefecture. A man who did not live in the building attended 10 owners association meetings since July of last year by pretending to be the son of a resident-owner. Another resident who knew the owner in question felt that the “son” looked nothing like the resident and reported their suspicions to police.
A woman from a different condo who talked to Asahi said that in March of 2024 she received a flyer in her mailbox soliciting “interviewees” for a survey who would be compensated for their participation. She answered the ad and learned that the inquiring company was an Osaka-based marketing firm that was doing undercover work. They needed identities of real people so that they could patronize restaurants and other service providers to check their service. The woman thought it would be her doing the undercover work and thus could get some free meals, but when she met the martketing company liaison in person she found out the real purpose. The liaison said the service investigation was a ruse, and that their real mission was to check condo management associations to make sure they weren’t wasting or otherwise misusing funds. The liaison asked the woman if he could use her husband’s name to attend meetings. In exchange she would be compensated on a monthly basis. She accepted the offer.
Later, a different man contacted her saying he would impersonate her husband’s brother, and thus needed personal information in order to make the imposture more convincing. He even asked her for a duplicate key so that he could enter the building freely. She did as she was asked.
Eventually, someone from building management found out and visited the woman. When she tried to contact the marketing company she got no reply and eventually confessed everything to management and later the police, who arrested one of the imposters in early June.
For years we have been writing about the future of Japan’s condominiums, which is dire. Though condos continue to sell relatively well in Japan, especially in Tokyo where prices for new ones continue to break records, evidence is ever mounting that the life spans of the buildings themselves are more limited than most people previously thought, if, in fact, they thought of it at all. And while much of this problem is demographic in nature—Japan’s declining population is certainly a factor—the real culprit is everyday economics. The cost of maintaining the buildings so that they will be attractive to future buyers is usually too much for the people who do buy them, and so they aren’t kept up.
Now the Japanese media is finally coming around to this realization in a concerted way, as exemplified by the Japan Times, for which we once wrote a monthly housing column, running a feature about the difficulties being faced by condo owners as their properties slowly fall apart. Soon, they will be abandoned in increasing numbers, just like millions of single-family houses throughout Japan. However, the best coverage of this phenomenon we’ve seen so far was a multi-part series in the Asahi Shimbun about “shukatsu mansion,” with “mansion” being the foreign loan word used for condominiums as promoted by the real estate industry, and “shukatsu” an in-vogue word at the moment representing the increasingly valid idea of the importance of end-of-life planning. In other words, owners of older condominiums are facing the fact that they will be the last owners of their units, because not only will no one want to buy them, but they may not even be inhabitable.
The Asahi refers to these condos as “time bombs,” and while most are forty years old, a few are newer. One article focuses on a 19-unit, 30-year-old building in Kawasaki that’s a 15-minute walk from a station on the Odakyu Line. The design is terrace-style, which was popular in the 1990s and costs more to maintain and repair than conventional apartment buildings. The original buyers carried out large-scale repair work using funds from their saved shuzenhi (repair fee) contributions in the past, and the present owners say they need to do it again. One member of the homeowners association (HOA) told Asahi that they are thinking of “rebuilding” the whole thing, meaning they would tear down the present building and then construct a new one, hopefully with extra units whose sale can offset some of the rebuilding cost for present owners. However, when they hired a consultant to estimate how much such a rebuilding would cost each owner, they were shocked with the answer: ¥47.4 million. The average age of the present owners is somewhere in the 60s, meaning many are living on fixed incomes, which would make it not only impractical to spend that kind of money but impossible. The main problem is the capacity rate, meaning the amount of condo floor area that can be built in relation to the amount of land the building occupies. When the condo was originally built, it took up the maximum capacity allowed, and the local government has not changed regulations since then (many other local governments have done so in recent years in order to attract more developers). So they can’t add new units to a new building unless they reduce the floor area of all the new units.
Another problem is the 15-minute walk to the station, which in today’s market is considered far. It will become increasingly difficult to sell any of the units to someone who still needs to commute to Tokyo, unless they price the units much lower than what it would cost to build them. Consequently, it will be difficult to get a developer involved in the rebuilding, since there wouldn’t be much profit in it for them.
More high-rise condominium shenanigans. On Nov. 17, Tokyo Shimbun reported on 118 redevelopment projects being carried out with the help of local governments that don’t necessarily benefit people who live in the localities but nevertheless are contributing to the projects through local taxes. The article is based on a Kyodo News survey of local governments that found 90 percent of these entities paid or will pay a total of ¥1.0543 trillion in subsidies to developers and/or construction companies that are working on these projects.
Regional cities rely more on public funds than do large regional capitals, and four of the projects surveyed apparently received more than half their total funding from tax revenues. What makes the situation concerning is that 66 of these projects comprising 19 prefectures are centered on tower condominiums, which by definition are sold to upper income people, mainly as investments. Moreover, Kyodo found through the inspection of publicly available documents that there has been “no real long-term planning” attached to these urban redevelopment projects, meaning they are simply enterprises carried out by developers who want to sell condos in the short term. Local residents will receive no ascertainable benefits from these projects, though they are helping to pay for them. Kyodo calculated that as of the end of fiscal 2023, the 118 projects were costing a total of ¥8.52 trillion to build, with 12.4 percent of the cost of 104 of the projects coming from local governments, which would come to ¥1.0543 in subsidies.
Some projects received more public subsidies than others. A tower condo construction project at the North Exit 1 of Fuji Station in Fuji, Shizuoka Prefecture received 57.7 percent of its funds from public moneys; the Machikata-cho 1 project in Numazu, Shizuoka Prefecture received 56.9 percent of its funding from the local government; and the Yokote Station East Exit 2 project in Yokote, Akita Prefecture received 53.3 percent of its funding from tax revenues.
The major residential developer Sumitomo Fudosan will soon complete construction of two high-rise condominiums in the Sannomiya district of Kobe. The pair of 27-story buildings comprise 690 units, with apartments on the upper floors fetching as much as ¥200 million for their panoramic view of Kobe port.
Sales have been very good, and according to a recent article in the Asahi Shimbun it’s not just because of the great view and the vanguard amenities. Word has already gotten out that these two towers will be the last high-rise condos built in Kobe, thus increasing their scarcity value, which means that over time their resale value could go up.
But likely that would only be in the short term. The reason there will not be any more “tower mansions” erected in Kobe is that the city has decided to prohibit new housing construction south of JR Sannomiya Station, which is a commercial district. In addition, the city has restricted the capacity rate of any new residential construction around Sannomiya Station to 400 percent, which means no new tall apartment buildings. Essentially, the municipal government is limiting the amount of new housing that can be built in the city center.
Their reason for this restriction is worth scrutinizing. According to Asahi, many cities in Japan are competing with one another to attract new residents with high-rise condominiums in their respective city centers, the idea being that people want to live near their places of work. Osaka, for example, which is next door to Kobe, is redeveloping the Umeda district north of Osaka Station, a commercial area, and one of the prime features of this redevelopment is high-rise condominiums that the city leaders hope will attract well-to-do working people. The mayor of Kobe has said that this kind of policy doesn’t make any sense when a city’s population is decreasing, as Kobe’s is. When you build new housing while the population is going down, you’re basically creating waste for the future.
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.
We’ve written extensively about Tokyo’s current condo boom without really addressing what it will lead to in the long run. Most commentators seem to expect a burst bubble, like the one that happened in the early 90s following a similar over-valuation of properties in the late 80s. However, there is an important difference in that the current Tokyo bubble is being pumped up by rich people. The average price of a new condo in the capital has exceeded ¥100 million. In the late 80s, the bubble was caused by everyone, since the huge boomer cohort had secured its lifetime employment and banks were willing to lend them money. Even though housing interest rates are low in Japan compared to the bubble era, younger families with average incomes who still insist on buying new condos are finding it difficult to find anything they can afford in the 23 wards, according to local media.
A recent video on the YouTube real estate channel Rakumachi put the present bubble in perspective, especially in terms of what it holds for the future. According to Tomohiro Makino, a “real estate producer” whose career started in the 80s, people who say the Tokyo condo market is “over-heated” need to look at classic supply-and-demand. “Over-heated” suggests that the market will eventually cool, but since this particular bubble is being caused by rich people and institutional or business investors, it isn’t that simple. Scarcity is one of the factors fueling the over-heated prices: the number of new condos on sale in recent years is one-third the number that were on sale in a given year two decades ago. Much of the reason for this scarcity is the high cost of building materials and lack of labor. Building a condominium is much more time- and capital-intensive than it used to be, so developers have scaled down. And with prices so high, buyers trend toward people who benefit from certain financial realities, such as foreign investors who can exploit the historically cheap yen. Even rich elderly Japanese who don’t necessarily need a new place to live are buying high-end condos in Tokyo as hedges against taxes their heirs will have to pay when they die. So they invest their cash in real estate, which can lower the inheritance tax burden by as much as 70 percent. Those who do buy new Tokyo condos for living purposes tend to be so-called power couples—married people whose combined incomes exceed ¥15 million a year.
So the high condo prices are essentially being maintained by a small group of people. Nomura Securities says the number of “very wealthy” households in Japan, meaning they are worth more than ¥500 million each, is around 90,000, for combined assets (not counting debt) of ¥105 trillion. Merely “wealthy” households (¥100-¥500 million) number around 1.4 million with ¥259 trillion in assets; “less wealthy” (¥50-¥100 million) number 3.3 million with ¥258 trillion; upper middle class (¥30-¥50 million) number 7.2 million with ¥332 trillion; and the vast middle class (less than ¥30 million), numbering 42 million, is worth ¥678 trillion. Though the top two tiers account for a bit more than 2 million households, the amount of assets they control is considerable. Much has been made of the global income gap in recent years, and Makino says the top 1 percent in Japan has seen its wealth increase by 80 percent since 2013, when Abenomics. The investment market was flooded with easy money, but average households received no comparable benefit from the policy. Makino says that its effect on real estate has led to the over-heated condo market, putting Tokyo real estate out of the reach of the middle class. Developers don’t even think about this group of consumers, because they know that even if every condo they build is luxury-class, they can still sell them. Consequently, they don’t have to build that many in order to make as much money as they used to make when they sold to everyone. The average price of a new condo in the 23 wards as recently as 2015 was ¥60 million. Last year it was ¥115 million. And due to the lag in construction costs, prices will continue to go up for the near future.
And it’s construction costs that are the main concern for developers, since right now they account for 70 percent of the cost of a condo, the other 30 percent being land. This aspect is very significant, because while land prices vary greatly depending on location, construction costs do not. It costs almost the same to build a condo in the suburbs as it does to build one in the center of Tokyo, so most developers are putting as much of their money and resources as they can into the city. Even mid-sized developers that tend to do all their work in the suburbs are foregoing new construction to invest in new condos in Tokyo by borrowing money to buy them from major developers. Then they quickly resell them to make money. The most prevalent example of this kind of practice in the news right now is the Harumi Flag complex on the waterfront, which was built as the Tokyo 2020 Olympic athletes village and then sold or rented out afterwards. A substantial number of the condos remain empty because they’ve been bought by corporations, including developers, as investments, thus pushing the price of individual units up. According to Makino, some companies have bought from 10 to 20 units in Harumi Flag.
Makino sees this trend continuing as long as interest rates remain low, since most investors don’t use their own money to buy real estate. Once rates start to rise, he says, the market will cool as investors pull out. Now that the era of the “negative interest rate” has ended in Japan, he thinks that such a change is on the horizon, even if many experts believe the Bank of Japan won’t increase interest rates due to the amount of government bonds it has. But the BOJ doesn’t control interest rates. Other factors, including environmental disasters, international politics, even rumors, will always come into play, and once they do “the party will be over,” meaning even foreign investors will bail regardless of the exchange rate. This could prove to be a huge shock to the system. After all, young Japanese adults today know nothing about interest, having been born without any experience of bank deposits earning interest. It’s unrealistic to think that this kind of environment will persist indefinitely, but until it does change it’s also unrealistic to thing that average Japanese people will step in when wealthy investors drop out. It’s just too risky for the average household to buy a condo in Tokyo now or in the near future.
If Makino were to give advice to potential middle class homeowners who want to live in Tokyo, it would be to wait, probably until 2030, by which time he says the “market will surely change.” Not only will prices for condos, used and new, go down, but so likely will rents. And his reasons for thinking so are grounded in an unavoidable truth. Households headed by people over 65 in the Tokyo metropolitan area now number 9 million, with half of those headed by people over 75. That number will steadily increase. After 2025 all the 1.5 million boomers living in the metro area will be over 75, and while lifespans are also increasing, it won’t be long before this cohort starts dying out in record numbers, which means their property will either be left to heirs or abandoned, if it hadn’t already been sold. These people came to the metro area in their youth to work, and they bought homes. But their children, now middle aged, mostly own their own homes, too, and so won’t need their parents’, which means they’ll sell it or do something worse (pretend to ignore it?), but in any case there will be a lot of empty homes on the market. This, as Makino points out, is the heart of the akiya problem, which will only intensify by the end of the decade, throwing the real estate market, including Tokyo’s, into turmoil. Oversupply will become a chronic issue unless the construction industry and the authorities change their tune with regard to building new residences, which is pretty much all they think about now.
Cat Foreheads & Rabbit Hutches 