Tokyo’s bayside apartment market is boiling, but for how long?

The Parkhouse Harumi Towers 1

The brand new high-rise apartment market in Tokyo’s bayside area has caught Olympic fever. Development of large-scale condominiums and other infrastructure projects are speeding up, as is demand from excited buyers.

The man-made islands saw a sharp drop in popularity following the 2011 Tohoku disaster when the earthquake caused liquefaction on some islands and left a lot of residents trapped in their apartments or trapped in the lobbies after elevators shut down. The risks of living on reclaimed land were quickly forgotten as soon as it was announced that Tokyo would host the 2020 Summer Olympics and Harumi would host the Athlete’s Village.

Mitsubishi Jisho Residence reported a surge in sales in ‘The Parkhouse Harumi Towers Krono Residence’ just after the Olympic announcement in September 2013. Sales for that month were four times higher than the average for the first half of the year. Earlier this year, the last 3 apartments were offered for sale and received as many as 14 purchase applications per apartment. Most of the buyers are in their 30s ~ 40s and with 2 ~ 3 person households. Several apartments have since been listed for re-sale at prices 25% higher than when purchased from the developer, but sellers could face a difficult time finding a buyer when the 800+ apartments on sale next door are 25% cheaper.

Sumitomo Realty & Development are gearing up for a spring sales campaign when they begin sales of their latest project which is just 200 meters from the planned Athlete’s Village and on the same island as The Parkhouse Harumi Towers. Deux Tours Canal & Spa will have over 1,450 apartments in two 52-storey towers. Apartments on higher floors are expected to be priced at around 1,100,000 Yen/sqm, which is about 30% higher than those in The Parkhouse.

It’s hard to argue that the price of new apartments aren’t rising. According to real estate consulting firm, Total Brain, the average price of a new apartment in Chuo, Minato and Koto-ku between January and September 2013 was 55,750,000 Yen, up 9% from the same period in 2012. This price is about 10% higher than the average for the entire greater Tokyo area. Sales are strong too, with a contract rate of 90% for these central areas (9 points higher than the greater Tokyo average).

The average annual income of a buyer in the bayside area is around 10 million Yen. In the outer suburbs, the average income is 6 million Yen.

The market has yet to return to the peak seen during the last mini-bubble between 2005 and 2007. In 2007, the average price of a new apartment in the bayside area exceeded 60 million Yen – about 10% higher than current prices. In addition, the number of apartments released for sale in recent years is still almost half of the level seen in 2006.

Tokyo bay apartment sales

A word of warning, however…

While conditions are looking good for now, there are some concerns for the future.

Buyers must be aware of the potential for an over supply of apartments in Tokyo Bay. There are currently as many as 15,000 new apartments in the pipeline for this area. 1 in 4 apartments released for sale in greater Tokyo are located in the bayside area. The head of one major real estate company, who chose to remain anonymous, remarked that demand in this area is likely to drop following the Olympics and that developers should be be cautious. From 2020, the number of households in greater Tokyo are expected to begin to decline, and this could lead to a  downturn in the market for new apartments.

Despite the strong sales, developers are still showing some restraint and are trying to keep prices at a moderate level.

Mitsubishi has not increased of the Tiaro Residence (the second stage of The Parkhouse Harumi Towers) which is now on sale, despite the neighbouring Krono Residence selling out prior to completion. Al 1,110 apartments in Skyz Tower & Garden in Toyosu sold out 12 months prior to handover, yet the developers are also keeping the prices in the adjoining Bayz Tower & Garden at similar prices.

Exclusive luxury developments in high-end neighbourhoods in central Tokyo that appeal to high income earners have a little extra legroom for price increases. Developers of large-scale projects catering to first-time home buyers in the bayside islands, however, have less room to move as pricing is limited by the average income of their target buyer. If they increase prices by too much, they risk pricing themselves out of the market. The rising construction costs are pushing the prices of some developments to their maximum limit.

Source: The Nikkei Shimbun, April 3, 2014.

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