Two sides to Tokyo’s improving property market

Greater Tokyo New Apartments 2004 2014

Tokyo’s apartment market entered bullish territory in 2013, but 2014 could bring challenges for for some developers. 

According to the Real Estate Economic Institute, 56,476 new apartments were released for sale across greater Tokyo in 2013, up 23.8% from 2012 and edging closer to the recent peak of 61,021 apartments released in 2007. The contract rate was 79.5%, up 3.2 points from the previous year (anything over 70% indicates positive market conditions). 56,000 new apartments are expected to hit the market in 2014.

Abenomics led to a surge in the Japanese stock market and many took their new wealth and put it into the apartment market. There were concerns that the increase in consumption rate from April 2014 would lead to a fall in sales for the end of 2013*, however, home loan tax deductions and cash bonuses for low to middle income earners appears to have lessened this risk.

*Buyers of off-the-plan apartments that won’t be completed until after March 31, 2014, could purchase them under the 5% consumption tax rate if they signed purchase contracts before September 30, 2013. The consumption tax only applies to the building portion of new apartment sales and does not apply to land or sales of second-hand apartments between private buyers and sellers.

2 reasons for the increase in apartment prices

The average price of a new apartment across greater Tokyo was 49,290,000 Yen in 2013, up 8.6% from 2012. The reason for the increase in price was not only due to stronger demand, but also because of a jump in the price of labour, steel and other construction materials. An increase in foreign money seeking capital gains also helped to push up prices.

Winners and losers 

While the average figures look good across the region as a whole, on a prefectural level things become quite different. According to a report by real estate consulting firm Total Brain, the percentage of new apartment buildings in Tokyo’s 23 wards that are seeing positive sales was 48.1% in 2013, up from 31.6% in 2012. Other areas were not as lucky. In Saitama, the ratio decreased by 10.2 points to 27.3% and in Kanagawa it decreased by 7.4 points to 36.5%.

Even if prices increase in central Tokyo, the demand will still be strong. In the outer areas, however, the situation can be very different.

Smaller developers losing out

There is also a growing disparity between major and small to medium-sized developers. Larger developers have the buying ability to acquire development sites in prime areas in central Tokyo and are better equipped to withstand price fluctuations. The smaller developers, however, are usually left with sites in outer areas. The rising construction costs may push their apartment prices over the budget of their target buyers and they are at risk of being left with developments that are priced too high for the market.

This could lead to a shift in the industry as smaller players are pushed out while larger players battle for prime locations.

Source: Toyo Keizai, January 27, 2014.

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