Price growth in Tokyo more subdued than the 2007 mini-bubble

Earlier this year, rosenka tax values at a section of ultra-prime commercial land in Tokyo’s Ginza district increased by 26% from the previous year to a record high of 40,320,000 Yen per square meter, exceeding the previous high of 36,500,000 Yen/sqm in 1992 and causing some to warn of an impending bubble and overheating of the property market in the nation’s capital.

There is valid cause for concern in some sectors of the investment-property market due to potential over-construction and over-lending to landowners to build small blocks of ‘apaato’ type rental flats in suburban areas with low rental demand.

But are current conditions mimicking previous bubbles?

This time around Japan is getting more foreign tourists than ever before, boosting revenues for both hotels and retails shops, making the increase in commercial real estate values much more pronounced than the residential market which relies more on real domestic demand.

On the residential side of things, government valuations are not showing the same crazed growth rates that were seen in 2007. Growth bands are smaller, and percentage growth, although in positive territory, is lower than it was 10 years ago.

When compared to the change in government assessed land values (chika-koji) during the previous mini-bubble in 2007, the range was considerably smaller in Tokyo’s 23 wards in 2017. When looking outside of Japan’s three major urban centers of Tokyo, Nagoya and Osaka, the price change bands are somewhat wider.


Why? Sophisticated investors understand Japan’s declining population and are being much more prudent in what cities and locations they invest in.

Rather than being in a bubble, the property market in the three major urban centers could be considered to be driven by underlying demand from investors seeking secure and stable returns in high population areas, while avoiding high-risk regional areas suffering from an aging and declining population. Nationwide, a suburb in Chiba’s Kashiwa City recorded the largest drop in chika-koji residential land values in 2017, with values falling 8.5% from the previous year. The sleepy bed-town is within 30 ~ 40 kilometers of Tokyo, and about a 1 ~ 1.5 hour commute by train. Land values for neighbourhoods outside of a reasonable commute distance to Tokyo and some distance from a train station are expected to continue to decline as local residents age and younger generations continue to move closer to the city centers.

The Ministry of Land, Infrastructure, Transport and Tourism.
President Online, September 11, 2017.
The Yomiuri Shimbun, August 28, 2017.