Tokyo: 2016 Property Trends

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Investing in the Japan property market especially in Tokyo continues to be attractive for foreign investors as a result of affordability and the rental market. It’s not uncommon to have property sold in several days or within hours of being put on the market. One of the most popular areas of Tokyo’s 23 wards is Setagaya and as recently reported in Shukan Gendai, the Japanese weekly, it is common that “whatever is built in Setagaya can be easily sold.”

Historically it has been a case of all the units on new condominium developments were sold out long before any construction took place. But in the past year this trend has changed as new condominium construction developments had started before all the units were sold.  Setagaya now has 23 condominium towers out of 35 with unsold units that became available for purchase this past July 2016. The result according to Shukan Gendai is that it is:

….estimated that about 10 percent of all the new units in these buildings remain vacant. Consequently, the developer is desperately trying to sell these units while keeping a low profile, since other homeowners in the building could become angry if they discover the apartments are being sold at prices lower than what they paid.

Another condominium development has 20 percent of available units that are unsold.  ‘Potential buyers are being lured by premiums such as merchandise certificates and even free “Financial advice” from certified public accountants. If a party signs a contract, they can receive a “gift worth ¥1 million.’

Construction costs are also being blamed as the reason for price increases due to a shortage of construction materials, rebuilding natural disaster locations in the northeast of the country and venue construction for the Tokyo Olympics.

Hot Spot

The Nikkei Asian Review has reported: ‘The number of condominium units put on the market with per-unit prices of more than 100 million Yen ($880,000) in 2015 was 1,688 in the Tokyo metropolitan area. It marked a year-on-year rise for the first time in two years’ according to the research of Real Estate Economic Institute of Tokyo.

One example is the Proud Tower in west Tokyo, a 32-story 319 unit condominium complex. It is not located in the most popular area but it is connected to the Tachikawa Station in Tachikawa City. Units on the upper floors are being offered for 100 million Yen per unit with all of the units having been sold before the planned completion this past August.

Japan Property Central (JPC) reports another 30 storey-high tower is the Crest Tower at Atami Station in the Shizuoka Prefecture which is expected to be completed in February 2017.  Units are priced at 600,000 to 700,000 Yen. A 2-bedroom unit on the top floor was going for 145 million Yen. or 1.3 million USD.

The report stated that the average price for new apartments in greater Tokyo was 46,180,000 Yen in 2015.

JPC also stated:

Most of the demand for apartments, particularly in central Tokyo, has been driven by wealthy Japanese looking to reduce their inheritance taxes. Buying an apartment on a high floor with a market price of 110 million Yen might only have a tax value for inheritance purposes of 40 million Yen. The government and National Tax Agency are considering changing the valuation system for apartments in an attempt to curb this method of tax avoidance. 

 One concern has been the slowdown of the Chinese economy as its citizens have been active buyers and investors in Japans real estate market especially in new projects located in Tokyo’s bayside area.

In January of 2016 the Bank of Japan introduced negative interest rates and the retail banks thus reduced their fixed rate interest rates on mortgages. JPC reports: ‘In February, banks reported a 150% increase in the number of applications for loan refinancing and a 20% increase in the number of new loan applications.’

Tokyo Exodus?

Tokyo is well known for its crowded trains, shops, overcrowded schools and long waiting lists for pre-school are common in Setagaya and other city wards as more people continue to migrate to the capital. The Mayor of Tokyo, Nobuto Hosaka was quoted as saying in an interview with Nippon Tradings International (NTI) is that his goal is trying to the stop the flow of people from outside of Tokyo and instead to do the opposite. There are fears that some communities may completely disappear.

“We’re experiencing the opposite of the phenomenon that’s going on around the country,” said Mr. Hosaka, 60, in a recent interview at his offices. “It’s not my aim to have the population become more and more concentrated in the city. Regional industries are breaking down and there is no one to cultivate the fields, so if people in urban areas want to try it, we want to provide them with opportunities.”

The NTI report suggested that this movement of people to Tokyo could impact Prime Minister Shinzo Abe plans to counter a declining birth rate which he has discussed on many occasions. ‘Tokyo’s women, on average, have fewer children than elsewhere in the nation. “If the trend continues, it will mean the end of Japan,” said Mr. Shigeru Ishiba, Minister for Reviving the Regions. His own parliamentary constituency lies in Tottori, whose population of 570,000 compares with the more than 890,000 in Setagaya.’

Plans are being developed to re-locate government offices away from Tokyo such as the Cultural Affairs Agency that are moving its offices to Kyoto. The hope is that this will encourage private sector firms to consider a similar move.

“The government is telling private companies that they should consider spreading their functions around the regions, rather than concentrating them in Tokyo,” said Mr. Ishiba, the Regions Minister. “If the government keeps everything in Tokyo and tells just the private sector to move, it won’t be persuasive.”

By Kevin Murphy: www.kevinmurphy.london

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