Secondhand apartment prices in December 2014 – Tokyo Kantei

For the first time in three years, the average asking price of a secondhand apartment in greater Tokyo has increased from the previous year. According to Tokyo Kantei, the average asking price of a 70 sqm (753 sqft) second-hand apartment in greater Tokyo in 2014 was 28,510,000 Yen, up 2.1% from 2013. In Tokyo’s 23-ku, the average price in 2014 was 42,030,000 Yen, up 5.2% from 2013. It is now 6.3% below the peak seen during the last mini-bubble in 2008.

Prices in December

The average asking price in Tokyo’s 23 wards was 43,790,000 Yen in December, up 1.1% from the previous month and up 7.7% from December 2013. The average building age was 22.2 years.

In central Tokyo’s six wards (Chiyoda, Chuo, Minato, Shinjuku, Bunkyo and Shibuya), the average apartment asking price was 61,970,000 Yen, up 1.1% from the previous month and up 12.8% from the previous year. The average building age was 21.4 years.

The average price across greater Tokyo was 29,870,000 Yen in December, up 0.5% from the previous month and up 2.3% from the previous year.

Demand from local and foreign buyers continues to push prices higher

Recently, both new and secondhand apartments have seen a steep rise in prices, yet rental prices have remained relatively flat. As a result, yields have been falling with the typical gross yield across greater Tokyo dropping to the 4 ~ 5% range.

The increase in demand from wealthy Japanese looking to reduce their inheritance tax burden as well as renewed interest from foreign investors is thought to be the main driver behind the jump in prices.

Domestic investors looking to reduce inheritance taxes

High-rise apartments have been in high demand as their inheritance tax value is a fraction of their actual market value, offering a potentially large decrease in the tax burden for heirs. While there might be a 20 ~ 30% difference in the market price of an apartment on a high floor versus a low floor, both apartments (assuming they are the same size) are given the same value by the tax office. Buying an apartment on a higher floor, therefore, could provide a bigger deduction than one on a low floor. Compared to cash and other financial assets which are taxed based on their face value, the value of a high-rise apartment for tax purposes might be reduced by as much as 80% from its market value*. Wealthy Japanese have been actively buying up high-rise apartments, including those that might seem comparatively expensive.

What’s in store for Tokyo’s residential real estate market in 2015?

Let’s take a look at what some analysts are predicting for the Tokyo residential property market in 2015.

Unfavourable conditions for new apartment market?

In 2013, the supply of new apartments reached 56,000 units in greater Tokyo. However, several factors caused the supply to drop by as much as 24% in 2014. An increase in the consumption tax rate to 8% in April 2014 led to a boost in demand from buyers looking to lock-in the lower tax rate (this tax applies to the building portion of new apartment sales). In addition, reconstruction efforts in Tohoku, redevelopment projects for the 2020 Summer Olympics and a weakening Yen have led to a steep rise in construction costs and a shortage in labour. This has reduced the profit margins for developers and has caused some projects to be delayed or cancelled.

Severe shortage in Tokyo apartment supply not necessarily due to high demand

Rising construction costs and project delays are causing the supply of new apartments in the greater Tokyo area to plummet. In 2013, the total number of brand new apartments to hit the market dropped 23.8% from the previous year to 56,478 apartments.

From August 1, MUFJ, SMBC and Mizuho Bank lowered the prime rate on their 10-year fixed rate home loans to a record low 1.3%. While long-term interest rates are showing signs of falling, the recent rise in the consumption tax rate has led a drop in housing starts as well as a drop in sales of new apartments. Banks are now competing to attract borrowers.

While new apartment sales have slowed, they still remain at healthy levels. The contract rate on new apartments in June was 76.6%. Although this was a decline of 5 points from June 2013 and 2.3 points lower than the previous month, it is still above the level of 70% which is considered the threshold for healthy sales.

What is worrying, however, is the drop in supply. According to the Real Estate Economic Institute, 3,503 brand new apartments were offered for sale in the greater Tokyo area in June 2014, down 28.3% from June 2013 and down 18.5% from the previous month. This level is very close to the last low of 3,441 apartments offered for sale in June 2011 (a few months after the 2011 Tohoku disaster). 

How Japan’s current property market differs from the 2007-2008 mini-bubble

In 2013, Japan’s real estate market began to awaken after a long slumber. This was later confirmed in March 2014, when the latest data on assessed land values (chika-koji) showed that commercial and land values in Tokyo, Osaka and Nagoya rose for the first time in six years.

Many real estate experts are suggesting that the real test, however, will be whether Lone Star Funds can offload the Meguro Gajoen banquet facility in Tokyo for the minimum asking price of around 110 billion Yen. Recent reports suggest that the Government of Singapore Investment Corporation are close to acquiring the property for 134 billion Yen.

Tokyo’s leading indicator of a market recovery can be seen in the Ginza district. With an assessed land value of 29,600,000 Yen per square meter, the land underneath the Yamano Music Ginza Store is the most expensive commercial land in Japan. It increased in value by 9.6% from the year before. Five of the ten commercial land survey sites with the highest gain in land values were located in Ginza.

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