One essential point to know about the property market in Japan is how the building age can affect pricing, both for sale and rental. When you are looking to buy or rent an apartment or house, newer construction is typically going to cost more on a price-per-square-meter basis than older buildings.
Obviously, a higher market value is given to a newer building with the latest in interior design and finish, while an older building with wear-and-tear and an outdated design is not going to command the same price. This is not a unique phenomenon to Japan. One thing that is unique to Japan, however, is that there can also be a noticeable difference in pricing between buildings built in the 1960s and 1970s to the older earthquake codes, and those built to the latest earthquake codes that were introduced in 1981.
To illustrate the difference in pricing, we can take a look at sales data provided by multi-listing database REINS for the first quarter of 2019.
In Tokyo’s 23 wards, the average sale price of an apartment in a building that was less than 5 years old was 1,003,000 Yen/sqm, almost double the price of a building over 30 years old (557,000 Yen/sqm).
Does the old adage of Japanese only buying new things apply? No. Nowadays this is almost absolutely a myth when it comes to the property market, as second-hand apartment sales have overtaken new construction. In the first quarter of 2019, apartments less than 5 years old accounted for just 10% of total sales, while apartments over 25 years old accounted for almost a third of all apartment sales.
THE PREMIUM FOR NEW OVER OLD
In Tokyo’s 23 wards, you can expect to pay an average of 80.1% more for an apartment less than 5 years old than you would pay for one over 30 years old. This might seem like a surprisingly high premium to pay, but it is considerably lower than other parts of the greater Tokyo area. In Chiba prefecture, the premium is over 250%.
The difference may be due in part to the inherent land value after a building has depreciated. In Tokyo, inherent land values may be higher overall than surrounding prefectures. Construction costs, meanwhile, are typically the same wherever you build. An apartment in central Tokyo is going to cost more than one in an outer suburban area, but the land value is going to account for a larger share of that price, which, generally speaking, results in less depreciation. As long as the land underneath the building is of some value, there should be some intrinsic value to the apartment itself.
Source: REINS, April 17, 2019.
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