Buying with resale value in mind

There are a lot of factors that can help determine the future resale value of an apartment. Two apartments bought at the same time 10 years ago can have very different resale values today.

For example, one apartment was purchased for 50 million Yen and now has a resale value of 51.5 million Yen (3% gain). The 70 sqm 3-bedroom apartment is a 3 minute walk from a station on the Yamanote Loop Line and was purchased from the developer. It is a south-west corner unit on the 10th floor with good light.

The second apartment was purchased at the same time for 45 million Yen and now has a resale value of 35 million Yen (22% loss). It is a 79 sqm 3-bedroom apartment and is 12 minutes from the same station as the apartment above. It is on the 3rd floor but faces east so it loses the natural light in the afternoon. It was also purchased new from the developer.

The first apartment can be rented out for 240,000 Yen a month and takes around 1 ~ 2 weeks to find a tenant. The second apartment can be rented out for 190,000 Yen a month but takes 2 ~ 3 months to find a tenant.

Take another example of an apartment in Tokyo’s suburbs. It is a six minute walk to the nearest station and is 40 minutes by train to Otemachi. The 87 sqm 3-bedroom apartment is on the 5th floor and faces west. It was purchased 10 years ago for 34.8 million Yen but now has a resale value of just 19.8 million Yen (43% loss).

What makes an apartment retain its value?

Apartments with added value and certain features that make them rare or scarce are more likely to hold their value, or decline at a slower rate than others. Some of these ‘premium’ conditions include:

  • Within 5 minutes walk of the train station.
  • The nearest train station offers convenient access to Tokyo’s popular destinations. It may be a popular train station or on a popular train line.
  • The area has been undergoing development over a long period of time. The neighbourhood already has established shopping, restaurants and medical facilities and is a popular place to live.
  • On elevated and stable ground. Most of the area west of Tokyo Tower is bedrock, while much of the land fronting Tokyo Bay is reclaimed. Reclaimed land, including man-made islands and infill along former riverbeds is prone to liquefaction in an earthquake and the soft soil can amplify the shaking.
  • In an area with good schools and universities.
  • In an area that was once home to the estates of daimyo and samurai. These neighbourhoods remain exclusive residential districts today. In Chiyoda-ku, it includes areas such as Bancho, Kioicho and Nagatacho. In Minato-ku, the Tokugawa shogunate’s direct retainers had their residences in Akasaka and Minami Aoyama. Ichigaya in Shinjuku-ku and Shoto in Shibuya-ku are other historically valuable and high-end neighborhoods.
  • A brand-name building built by a major developer. Eg. Mitsui Fudosan Residential, Sumitomo and Mitsubishi Jisho are the top three developers. Nomura’s ‘Proud’ series of apartments are also considered to be ‘brand-name’.
  • Close to a well-known park. For example, Yoyogi Park, Hamarikyu-teien, Shinjuku Gyoen National Garden. However, proximity to smaller parks that may have a homeless population are negative sales points.
  • South-facing and with good natural light. Alternatively, south-east or south-west facing can also be acceptable.
  • Corner apartment. Preferably the east, south or west corner.
  • Top floor.
  • Views that are unobstructed by other buildings (and unlikely to be blocked in the future). Apartments fronting onto parks, universities and temples and shrines with lots of greenery are less likely to lose their views. There is also a premium for apartments with views of Mt. Fuji.

Other additional features that future buyers could consider a bonus:

  • Popular school district.
  • Close to a general hospital.
  • All bedrooms have exterior windows.
  • Living room has a wide frontage to allow extra light (vs. a long and narrow living/dining space which can be dark).
  • Access to a supermarket with long opening hours.
  • Access to libraries and sports facilities

Finding a property that meets all of the requirements above and falls within your price range may not always be possible. But you may find one that ticks many boxes.

These points may seem quite obvious, but buyers can sometimes be swept up in the sales talk and opulently decorated model rooms when visiting the showroom of a new development in an area they were not initially considering.

Even if you plan to live in the apartment for the rest of your days, circumstances can change and you may find you need to sell or lease it out. For this reason, it is important that you always keep in mind the potential saleability of your apartment in the future.

Source: Mynavi, October 29, 2013.