Recent news reports have suggested that real estate prices in Japan are set to rise and that a property bubble is imminent. But how true are these reports?

The prices of brand new apartments in Japan’s major capitals has certainly increased (up 3.0% over 12 months in greater Tokyo in March 2013). However, the main reason for the increase in price is not a property bubble, but an increase in construction costs.

Construction costs saws  steep rise following the Tohoku disaster in 2011 as labour and material costs increased. The majority of construction workers were sent to northern Japan to assist with reconstruction efforts. This left a shortage in available workers in greater Tokyo, which subsequently caused labour costs to increase. The weakening Yen has caused the price of imported construction materials to rise.

The average construction price per apartment has risen from 14 million Yen prior to 2011, to 20 million Yen.

Landowners of development sites in major cities, citing Abenomics as a reason, are taking a stronger bargaining position and are demanding higher prices to sell their land. This means that condominiums to be released for sale in six months from now will almost certainly have higher asking prices.

A sales agent at a major developer noticed a shift in the pattern of buyers that first began in December 2012. Initially there was an increase in buyers who were public servants as well as those in managerial positions of government offices. Then, buyers who had made money from the stock market came forth. ‘Sales have doubled since this time last year’ he said.

While apartment sales are looking good in central areas, this effect has not flowed onto family-type apartments in the outer suburbs. The typical salaryman does not feel that Abenomics will provide them with any direct benefit. There is no strong desire to purchase an apartment while their wages remain the same. It appears that the only real winners (and apartment buyers) are those who have made money from recent gains in the share market.

The consumption tax rate will increase from 5% to 8% from April 2014.  The majority of those in the industry are sceptical that the increase in apartment prices in major cities will spread across the country. Without any real and sustained improvement in the economy,  some believe that following the tax increase the current buying frenzy will stop and real estate prices will again fall.

Source: Zakzak, April 21, 2013.  

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