The Lie of the Land

Here is another chapter from our unpublished book about housing in Japan based on our own experience of trying to buy a home. This one is about residential land usage.

Example of a private road built for a future fukurokoji housing development

“It’s about the size of a cat’s forehead” – proverbial Japanese rejoinder when asked how much land a person owns

The real estate agent picked us up at the train station in a company car with long scratches on the side, probably inflicted during attempts to park in tight, unfamiliar spaces. We drove to the property through dense suburban sprawl overshadowed by pylons and interrupted by small plots of farmland. 

The two-story house had royal blue siding and was sixteen years old. The owner moved out two years ago. The wallpaper was discolored, the laminate wood floors spongey, the second floor “veranda” filled with debris. The price: ¥5.8 million. We estimated it would take at least ¥6 million to make it livable, but ¥12 million for the whole thing seemed too much. Moreover, anyone who bought the house would have to assume the lease for the land, which was ¥38,000 a month.

The agent explained that the same landlord owned the property under the other four houses on the street. The owners all had them built at the same time and paid the same rent. The leases were 50 years, which meant the owner of the blue house was still paying rent even though he didn’t live there any more, and would continue paying rent until he found someone to buy the house and take over the lease. He originally wanted ¥12 million, but had come down to ¥5.8 million about a year ago. We asked what the options were if he couldn’t find a buyer.

“Oh, he could easily rent this place, depending on how much he asked,” the agent said. “Many people in this situation do that.”

This concept of owning a house on rented land, in Japanese called shakuchiken, isn’t uncommon. According to the land ministry, between 1993 and 2007, 35,492 single-family homes and 18,937 condominium units were built on rented land, a trend that peaked in 2001, when many companies in the Tokyo Metropolitan area starting selling off property, fueling a development boom characterized by cheaper condos. When prices rose after 2005, shakuchiken started becoming popular again. The agent said that the number of people building houses on rented land was increasing, “but you don’t see so many for sale.”

As a rule, the value of homes in Japan depreciates rapidly, but land is still expensive, and not just in urban and suburban areas. Because of usage laws that make it difficult to shift land designated for agriculture to residences, even the countryside can be costly. 

We had decided to check out shakuchiken after talking to a friend, also self-employed, who had a house built on rented land seven years earlier. He and his family wanted to live in Kamakura, the trendy center of traditional culture located on the Miura peninsula just south of Tokyo, but were looking to rent since they didn’t think they could afford to buy a house there. A real estate agent directed him to a plot of land being developed by a housing company. The plot was owned by a local Buddhist temple.

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Last Resorts

Here is another draft chapter from our unpublished book about our house-hunting adventure. This one is about second homes and so-called resort mansions. 

Second-home inspecting in Nikko

One late summer morning in 2012 we were on the Tokaido Shinkansen super express and ran into a friend we hadn’t seen in years. He asked us if we were still living in Tokyo and we said we had moved some time ago because of the earthquake. He then asked what we were doing on the bullet train and we said we were on our way to Atami on the Izu Peninsula to look at some properties we might be interested in buying. He gave us a funny look. “That would seem to be the worst place to live if you’re afraid of earthquakes.”

True. Just the day before Japan’s Cabinet Office Disaster Council had updated its projections for a major earthquake occurring in the Nankai Trough, the deep indentation in the sea bed off the Pacific coast, and Shizuoka Prefecture, which contains Izu, was deemed the worst location in terms of projected casualties, though, technically, most of those casualties would be in the western part of the prefecture, not Izu. In any case, we weren’t completely serious about buying a place there. Having been frustrated in our search for a home we could afford, we were entertaining the idea of keeping our rental and buying a cheap old fixer-upper in a location with cooler summers. If our income situation worsened and we had to give up renting, then we would at least have a roof over our heads, and if things continued as they had been then we’d have a weekend/summer place. There are plenty of old dumps in the highlands of Tochigi and Nagano, or in the wilds of Chiba that can be had for under ¥7 million, though they’d require another ¥3-5 million to make livable. And during our search we noticed there were quite a few such places in Izu, too, mainly besso (separate homes), which we had avoided so far. Second homes tend to be built in specially designated developments managed by companies that charge yearly fees. Also, besso are usually impractical for year-round living, but since we weren’t necessarily going to be living in one year-round we thought we’d see what was available. And Izu is, as they say, the “Riviera of Japan.” More to the point, it’s cooler in the summer.

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The good landlord

In our previous post, we talked about rent relief, and how the Japanese government had expanded its assistance to at-risk renters after the onset of the pandemic. As a result, the number of approved applications in 2020 was 34 times the number approved the previous year, though, in the end, it may not be enough since the people who need the money have to apply anew every three months up to a total of 12 or 15 months. Groups that advocate for at-risk households have tried to convince the government to make the relief open-ended, but the current limits are in line with government policy regarding public assistance, which, as once outlined by former Prime Minister Yoshihide Suga, is made available after an individual had tapped their own individual resources, and then those of their “community.” Government aid is the last resort.

An article published by the Asahi Shimbun on Jan. 5 gives some idea of what kind of assistance the “community” might offer in these cases. The piece profiles a 42-year-old landlord named Tomoyuki Matsumoto, who owns about 80 rental units in Osaka, Kyoto, and Tokyo. He rents the properties to people who may have difficulty finding places to live otherwise because they are poor and/or elderly. The article illustrates Matsumoto’s business model by describing one of his properties, a 3-story nagaya (town house) located in Daito, Osaka Prefecture, that’s more than 50 years old. The interior walls are traditional doheki (wattle and daub), the roof occasionally leaks when it rains, and the toilet sometimes overflows. The tenant, an 81-year-old widow who has resided there 3 years, doesn’t seem to mind these inconveniences because the rent is only ¥35,000 a month, which means she can live there on her national pension. Matsumoto shows up once every two months to collect the rent in person, which she finds very agreeable. As he tells the newspaper, having a personal connection with his tenants is very important to him, and as a result he responds to maintenance problems fairly promptly.

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Harumi Flag Rising

That view!

Renovation work on the Tokyo Olympics Athletes Village that will turn the apartments into condominiums-for-sale won’t commence until after the Paralympics end in September, but already business media are exploring the future of the Harumi Flag residential complex, as it’s been dubbed by lead developer Mitsui Fudosan Residential. In the end, the various buildings will comprise about 4,800 units, and so far a bit less than one-third of those have already been sold. Since the Olympics was postponed in the spring of 2020, the date for moving into the complex has been moved back by at least a year to spring 2023, and there was talk that some buyers were angry because that means considerable added expense for them. Whether they have been offered a refund and an escape for their contracts isn’t clear, but, for sure, matters such as mortgage terms for the new condos and leases on rentals that the buyers may have to extend in the meantime could be serious hits to their bank accounts, especially given the current pandemic-affected economy.

However, those who have already signed contracts should be happy in one regard: the value of their condo seems to have gone up in the meantime, which means they got even more of a bargain than those who will sign contracts in the future. Condo prices in Tokyo have been steadily going up in recent months after dipping a bit last year, and it’s likely these increases will be reflected in the prices of the condos that will be put on sale starting in September. After the pandemic struck, sales activities for Harumi Flag were halted, which now seems like a good decision since Mitsui will likely be able to charge more. According to various real estate web sites, Mitsui will not put all the remaining units on sale at the same time, which would flood the market and bring the prices down. Though nobody seems worried right now that prices will drop over the coming months as more units are put on sale, the idea is to maximize demand as much as possible. As it stands, the units were already cheaper than comparable new condos on the waterfront by 30-40 percent, a situation that reportedly upset neighbors who paid premium prices for their apartments. The reason for the lower prices is that they are being repurposed and that the nearest train station is at least 20 minutes on foot (not counting the time it takes to get from one’s apartment to the ground floor), but also because Tokyo sold the land, which is reclaimed, to Mitsui and its partners at a 10 percent discount just because of the Olympics, a move that has also been criticized since Tokyo can’t really afford such largesse considering the larger-than-expected bill for the Games. 

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Dead houses

In the last year, we’ve seen a lot of headlines on social media about how you can buy a house in Japan for a song. The usual figure quoted is about $500 US, which makes us think that all these articles spring from one source that’s likely American. We haven’t bothered tracing the articles to one source, though we read a few of them and they all say basically the same thing: local governments throughout Japan are promoting the acquisition of abandoned houses in order to get people to move into their regions and lift the tax base. In some cases, they are even giving houses away, but in any situation these structures will need a lot of work before they are at all habitable. We’ve written extensively about the problem of akiya and since you get what you pay for it follows that the lower the price the more work that will need to be done. The worst akiya, it must be said, are not even on the market, meaning they were literally abandoned by the owner for any number of reasons—either because they moved out and couldn’t be bothered to try and sell it, or they did try to sell it with no success, or they simply disappeared in order to avoid having to pay property taxes, which, in all probability, were very low to begin with. Or they died—with or without an heir. There are a lot of akiya whose owners are dead, meaning they never transferred the title to anyone, and though heirs are still legally responsible in Japan they can be difficult to contact if they don’t want to be found. Those houses are probably unihabitable since they’ve been left to rot, and the local government doesn’t want to spend the money to have them demolished.

There are more than 8 million akiya and, not counting dedicated rental units, many are not livable and fewer are even sellable due to other factors such as location. So when you read an article about somebody who bought a house for nothing and fixed it up into a nice place it’s not just an exception to the rule, but almost an anomaly. Anytime a foreign person buys an old farmhouse or kominka and turns it into a monument to traditional Japanese craftsmanship they’re bound to get it featured in the news, but, again, it’s exceedingly rare. Most people prefer new homes, and because government policy has always privileged new house construction, potential buyers can always find something they can afford that’s new; and in many cases it will even be cheaper than an older house that requires extensive renovation, which describes a substantial number of old houses that are on sale. 

The reason these articles about cheap houses have proliferated in the past year is mainly the pandemic, which, for a while, cut into new home construction. People are moving out of the cities because they can now work from home, so used houses starting selling well, but, again, a lot still aren’t selling. We know of several houses in our general vicinity that are in good condition but they’ve been on the market for months, some even years. There are just too many cheap old houses that people want to sell and not enough buyers. Of course, much of it has to do with Japan’s decreasing population, but mainly it has to do with oversupply. When construction resumes apace, those old houses will become even more difficult to sell. 

More to the point, people who do sell their homes almost never make back what they paid for them. The exception is certain areas of big cities, but even in those cases it isn’t guaranteed, and then the seller will be even less likely to see a profit, especially when you factor in the interest they paid on their loan. (You’re more likely to make a small profit if you bought an old condo in a popular area of Tokyo and resell it later.) At this point, we think most Japanese people know this, despite all the talk about “maintaining property values” at all cost. We certainly know it. Almost as soon as we moved into our new house in 2014 the assessed value dropped by almost two-thirds—and that’s for property tax purposes, which tends to be higher than market assessed value. (Assessed value for land is a different matter) So we know we will never be able to make money on this house, which is one of the reasons why we had it built the way we wanted—meaning few other people would probably want it. But the problem as we get older is: What can we do with it when we reach the age where we can no longer live here? There’s a very good chance we won’t even be able to sell it. Since we don’t have children, there’s no one to inherit it. We’ve already brought up the possibility with some younger relatives that any of them can have it for free, and while they sound interested, we’re not sure if the idea of taking on a property is something they have the wherewithal to carry out. We’ve even thought of donating it to some organization, but that might run into problems with neighbors who find out about it beforehand. 

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Out of the city

Suburban street in Sakae

We’ve written in the past about how local governments come up with schemes to repopulate their areas, often by dangling cash incentives in front of families or couples who plan to have children. The coronavirus crisis has reinvigorated these efforts since more people are now working from home. Prior to the mid-90s, the pattern of home ownership was that breadwinners who worked in large cities but wanted their own home would buy one in the suburbs and commute, because they often couldn’t afford city prices. There was also the idea that it was better to raise a family in the suburbs. And because employers paid for transportation, they put up with ever more punishing commutes. However, some years after the bubble burst and the so-called ice age of stalled employment possibilities set in, younger people with no real certainty of promotion within their companies and less likelihood of settling down decided that they would live near their place of work, regardless of what it cost, because they didn’t want to spend two hours-plus on the train every day. Maybe their fathers did that and they decided, no way am I going to do that. So they live in cramped, expensive rental apartments in the heart of the city, even if they didn’t like the city.

So the increased ingress of young people to places like Tokyo is not entirely due to decisions based on desire. But now, if your employer says you can work from home there’s no reason to live “near the office,” and, according to news reports, more people are leaving the city because they don’t like living there. Some local governments are already trying to exploit that trend. Sakae, a town in northern Chiba Prefecture just west of Narita, is now offering families ¥50,000 if they move to their area. The catch is that the family has to prove that one or more of the members is teleworking, a condition we find a bit puzzling—if the purpose of the money is to lure families, then why limit it to only teleworking people? Also, a one time payment of ¥50,000 doesn’t sound like much of a mind-changer, especially since the family has to pledge they will remain in Sakae for at least three years. Read More

Make Mine Maglev (2)

Section of maglev route, in red, that goes through Shizuoka

Right now there are much more serious matters on people’s minds than the maglev Chuo Shinkansen, or “linear motor car,” as it’s called in Japanese. Nevertheless, the train, which will spirit bodies from Tokyo to Nagoya in about 40 minutes, is set to become a major public works project that many in government and industry probably think could help revitalize the economy in the new post-pandemic “normal,” though no one has actually taken the time to publicly explain its role in such a brave new world. But one thing is for certain. It’s not going to be finished by its planned completion date in 2027. Actually, we never thought that was possible in the first place, but now it seems to be definite because the major media have said so.

Though there are actually a lot of reasons why the project won’t be completed on time, the only one the media is talking about is the governor of Shizuoka Prefecture’s refusal to allow construction to proceed on the 10-kilometer portion that passes through his bailiwick. Consequently, Heita Kawakatsu is the scapegoat for everyone who has a stake in the maglev. The governor of Aichi Prefecture, Hideaki Omura, is especially aggrieved, since the city of Nagoya is spending a great deal of money redeveloping the area surrounding the new maglev station. If it doesn’t open by 2027 everything will be screwed up fiscally. A think tank has estimated that the maglev will generate ¥2.3 trillion for Nagoya during the ten-year period after the station opens.

Kawakatsu’s gripe is about water, specifically the water supply for the 600,000 residents who live along the Oi River, which is 168 kilometers long. In 2013, JR Tokai, the company behind the project, carried out an environmental assessment that found construction of the tunnel through Shizuoka would result in a loss of ground water amounting to between 1.07 and 2.12 tons per second, equivalent to 17 percent of the river’s volume at any one time. Read More

Viral market

Delivery of bathroom fixtures from Asia has been delayed

Since consumption has declined precipitously during the CV19 crisis, it’s no suprise that the real estate market has suffered considerably. The Nihon Keizai Shimbun has obligingly looked into the particulars, which are mostly predictable but worth looking at in detail. The Nikkei reports that people have essentially stopped looking for new homes, though the effect hasn’t been sustained enough to cause prices to fall just yet; and, in a sense, it might be better if prices did fall a bit, since that would encourage people who may be sitting on the fence to jump off and sign a contract.

The main problem at the moment is that people who have already signed contracts are getting cold feet, even if it’s too late at this point. Nikkei says that more than a few realtors it talked to have said they receive requests from customers to “disinfect” the used condos they buy, thus placing the realtors in a difficult position. As one agent told the newspaper, he understood the sentiment but how exactly he was going to convince the customer that he had cleaned the apartment “to their satisfaction” was going to be a problem. For people who had already signed contracts, it wasn’t a primary issue, but for those who were about to sign, the agent’s response could prove to be vital to the sale. A number of realtors said that more than the usual number of price negotiations had broken down since the pandemic developed. Demand is quickly evaporating unless something happens soon to change the situation. Read More

The now and future isolated

A superannuated New Town

Around the time the central government finally decided to declare a state of emergency to get people to stay indoors and help halt the spread of the coronavirus, we wondered if anyone would mention our pet peeve—tower condominiums—as an ideal residential accommodation for self-isolating individuals in Tokyo. The problem with living in a metropolis during an epidemic is that most people reside in collective housing, which makes it more difficult to not come into contact with others if you decide to emerge from your apartment. Consequently, the closer you are to the ground, the more insistent the urge to get some fresh air. High-rise apartment buildings make it that much more difficult to leave one’s home, since it requires getting into an elevator, which is the worst environment in a pandemic—cramped and unventilated—in order to come and go. So in a sense people who live in high-rises are already isolated to a certain degree, since, in our own experience as tower dwellers, such residents require more energy and initiative just to get out the door.

Novelist Jin Mayama doesn’t make this exact point in his essay for Asahi Shimbun that appeared April 18, but he comes close. He acknowledges that families will be trapped inside together for an indefinite period of time and hints that people in high-rises will be more stressed out owing to the cramped conditions. However, he sees this as a kind of opportunity, not so much for the residents, who are mostly stuck with their lot, especially if they bought their apartment, but rather for the rest of us who don’t live in high-rises. The epidemic puts the future of tower condominiums in a new light, or, maybe it would be better to say, a new shade.

Mayama predicts that the lot of tower condos will be strikingly similar to that of New Towns right now, which is that the latter have essentially become “slums.” Most of Mayama’s explanation mirrors what we’ve talked about at length in this blog, but it’s worth going through again for the sake of clarity. Collective housing is still a fairly recent trend in Japan, since it wasn’t anywhere near the norm, even in cities, before World War II. To him, the idea of collective housing as a social trend really took off in 1955, when the central housing authority started planning New Towns, which were based on a British idea but, physically, resembled Soviet apartment blocks. The New Towns were broadly covered by the media as being futuristic and progressive, and were instrumental in creating what was called “new families,” which, to Westerners, were basically nuclear families. Extended families, which had always been the norm and ideal in Japan, didn’t fit the new housing plan. Moreover, the New Towns epitomized the government’s drive to create a “100 million-strong middle class.” Read More

Harumi Flag at half-mast

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. Read More