Sky’s No Limit

Last week the government released population figures for 2017 and to nobody’s surprise the Tokyo metropolitan area was the only region that saw any increases. Given that Japan’s overall population is dropping, it was notable that the three prefectures surrounding the capital saw increases, even if they were very slight.

It would be interesting to know how much of these increases were attributable to the construction boom in so-called tower mansions, or high-rise condos. Two weeks ago, NHK aired a look at the boom that attempted to weigh the merits of high-rise living with the demerits. Until recently, most of the tower condos, which the program defines as a building of at least 20 floors, or 60 meters, were being built on the Tokyo waterfront, but now they are popping up like spring bamboo in satellite cities like Kawasaki, Saitama, and Kashiwa, because local governments are encouraging developers to build them with subsidies. In 1999, the year before national building regulations were eased, there were only 150 tower condos nationwide, but by 2016 there were about 800.

The NHK show was particularly interesting to us, not only because we once lived in a high-rish in the shitamachi district of Tokyo (we rented, though), but also in the past resided in the two cities that were profiled in the report, Kawasaki and Saitama. In the case of the latter, when we lived there it was before the merger of Urawa and Omiya, and there were no tower condos near Omiya station, one of the biggest transporation hubs on the Kanto plain. Now, within walking distance of the station, there are 2,700 relatively new condo units in skyscrapers, and they’re very popular, it seems. A new building that recently opened has 776 units and they all sold out almost immediately. NHK visited one couple with two kids who bought their 3LDK, just four minutes from the station, for ¥50 million two years ago, which is about ¥10-20 million cheaper than such a place would cost in Tokyo. The wife works in Takadanobaba and the husband in northern Saitama prefecture, so their home is right in the middle. The say they are “100 percent” satisified with their purchase, and NHK attributed the popularity of tower condos to the kind of facilities they offer. This particular building included a gymnasium, a theater room, a music room, hotel rooms for guests, a dance studio, and lots of amenities. Read More

Pity the landlord

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These are the kinds of apartments subleasing companies build.

We’ve already talked about the sublease racket. The term has a special meaning in Japan that’s related to a specific real estate scheme designed to sell apartment buildings to people with extra money. Construction companies build small apartment buildings on unused land for the owners of that land and then manage the property for them through a sublease arrangement that requires them to pay a guaranteed “rent” every month. The logic is simple. The property owners have to pay higher taxes on land that is empty and so they build an apartment building for purposes of reducing those taxes and providing income. The construction company then does all the work of finding tenants and managing the property.

As we’ve mentioned in past posts about this scheme, it heavily favors the construction company, which gets out of its obligation for guaranteed payments to the landlord through various small print loopholes. The construction company, which usually has a real estate subsidiary, is only really interested in building, and understands that as Japan’s population declines it is going to be more and more difficult to find enough tenants to make even small apartment buildings profitable. Consequently, they make sure there is something in the management contract that allows them to get out of the deal if things go south, and invariably they do. Read More

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. Read More

Condomanic-depressive

DSCF2154Last week the media reported that the Ministry of Land, Infrastructure, Transport and Tourism was devising a plan to limit the number of abandoned houses and apartments in Japan to no more than 4 million by fiscal 2025. As of 2013, the year the results of the last ministry 5-year survey were released, the number of vacant homes in Japan was estimated to be 8.19 million, about 40 percent of which–3.18 million–were not on sale or for rent. At the present rate, the number of abandoned abodes would rise to 5 million by 2025, so the ministry has decided to put into effect measures to bring down that number. They will announce these measures in March.

According to reports, the plan would involve “putting some abandoned houses and apartments back on the market and removing others,” as well as “offering such houses and apartments to low-income earners and families with children.” In addition, the government would also promote “the replacement of aging condominiums.” Any of these measures would require a much larger existing home market, which was worth about ¥4 trillion in 2013. The ministry thinks it can boost it to ¥8 trillion by 2025 and increase the remodeling and renewal market from ¥7 to ¥12 trillion. Since there would be no attendant increase in the population, the new home market would probably have to decrease in order for these targets to make sense; that and salaries would have to see a boost.

Since new housing starts has always been a chief economic motivator in Japan, it’s difficult to imagine that the government would do anything to discourage new home construction, and as long as it’s a priority it will be difficult to reduce the vacant home problem. For one thing, only new home buyers get tax breaks. More to the point, while the problem of abandoned single-family homes can be addressed in a relatively direct fashion–either fix them up to make them sellable or tear them down–the problem of abandoned units of collective housing is not so simple. For one thing, in order for a building to be rebuilt or “replaced,” four-fifths of the owners of the building’s units must approve, and that’s a hard portion to reach, especially given the fact that a lot of condo owners do not live in their units but rather rent them out. According to Yomiuri Shimbun, the government is thinking of changing the law so that absentee owners of condo units can be ignored if for whatever reason they do not participate in the vote for rebuilding. Read More