This is a translation of an article that appeared in Japanese tabloid Nikkan Cyzo, so take it for what it is.
The March 11 Tohoku Disaster changed the mindset of many Japanese. The real estate market was no exception, with many a shift in the mentality of buyers.
Due to the liquefaction risk of the bayside area, buyers are now avoiding properties on reclaimed land and are looking further inland where the ground is more stable. There has even been a drop in demand for houses and apartments in Kamakura and Miura Cities and the Shonan region along the coast of Sagami Bay in Kanagawa Prefecture. This part of the coast was, up until now, a desirable area to live. However, the devastating images of the tsunami that hit the coast further north are still fresh in everyone’s minds. The seabed to the north of Sagami Bay is shallow and has a funnel effect on tsunamis. The Shonan coast suffered serious damage in the 1498 Tsunami which was caused by the 1498 Meio Nankaido earthquake. Following the 1923 Great Kanto earthquake, a tsunami of 10 meters hit coastal areas including Yui-ga-hama beach in Kamakura and the Enoshima causeway.
The Real Estate Information Network for East Japan (REINS) announced that the number of apartments sold on the secondary market in the Shonan area fell 10.7% compared to last year. Because the Miura Hanto Fault Group also lies just off the coast of the Shonan area, the March 11 Earthquake has increased the likelihood of an earthquake with a shindo-level of upper 6 occurring.
Outside of Kanagawa Prefecture, Chiba’s Urayasu City and Funabashi City also experienced damage from liquefaction. The sales of secondhand apartments in these areas fell by 28.9% compared to the previous year. A local real estate agent said that the Urayasu market has been devastated.
Financial institutions assign land value indexes to various areas for use in estimating mortgage amounts. The index value for Urayasu has been removed. Because of the lack in market movements in the area, they have no impetus to assign any value.
Another area of the real estate market that took a big hit as a result of the earthquake was the market for “tower mansions”, or high-rise apartment buildings.
There is a growing number of residents in tower mansions in bayside areas such as Toyosu and Ariake who are looking to sell and move to a low-rise building or house in the Yamanote area in Tokyo. (The Yamanote area refers to the hilly and elevated areas west of the Imperial Palace including the Bunkyo, Shinjuku, Minato, Nakano, Suginami and Meguro wards). Anyone who was at home in a a high-rise apartment during the quake was very frightened by the experience.
There is also fear over an earthquake happening directly under the Kanto area, and experts say that the desire to move away from tower mansions is far from over. Based on history, an earthquake occurring underneath the Kanto area is expected to produce a magnitude 7. This is not related to the Kanto earthquake which is capable of producing a magnitude 8. The last earthquake of this kind was the 1894 Meiji Tokyo earthquake with a magnitude 6.6 and an epicenter in the northern part of Tokyo Bay. This quake caused liquefaction in the Mita area in Minato-ku. Prior to that, the 1855 Ansei Edo earthquake with an epicenter underneath the then non-existant Toyosu Island had a magnitude 7 and triggered a minor tsunami. There is a 70% chance of an earthquake occurring directly underneath Kanto by 2036, however magnitude of the potential quake is unknown.
Apartment developers who had already purchased large blocks of land to build high-rise buildings are now worried about sales. There is fear of an over-supply and a crash in the market for tower mansions.
There are also areas in Tokyo that are experiencing a boost in popularity, such as Tachikawa and Kokubunji Cities and the Kokubunji and Musashino areas. These areas are relatively elevated and are on strong ground. Local real estate agents are reporting an increase in activity and believe that it may also influence land values. There is an active fault that runs underneath Tachikawa City called the Tachikawa Fault. It is capable of producing a magnitude 7.4 earthquake but officials say there will be no activity for thousands of years.
However, the liquefaction and earthquake will not have an immediate affect on apartment prices. Why? The process from start to finish for a developer can take over 3 years. The developer must find a suitable site, obtain building certification, submit plans to the general contractor, before constructing and selling the apartments. The apartments coming online now are projects that started 2 ~ 3 years ago where land was purchased relatively cheap. If the developer can get the land for a relatively cheap price, they can spend more on the finish of the building. So this is a good time to get value for money.
Even if there are no more large earthquakes in the next 10 years, the criteria that Japanese use when looking at real estate will still be influenced by earthquake risk. This means buyers will be looking at the strength of the ground, the construction, the height above sea level, the earthquake resistance and the infrastructure of the neighborhood before making a purchase.
Nikkan Cyzo, August 16, 2011