Popular myths about Japanese real estate

There is a lot of incorrect and misleading English information about the Japanese real estate market. This PR-type article from PropGoLuxury.com is a typical example of the type of misinformation.

“Japan real estate remains one of the priciest in the world. Tokyo came fourth in the Global Property Guide’s 2009 survey of the world’s most expensive markets, behind Monaco, London and Moscow. The average price for an apartment in Tokyo city centre is a staggering US$17,998 per sqm”

FALSE

The Global Property Guide 2009 list with the above $/sqm price is here, and states the average apartment price in Tokyo as USD$17,998/sqm (1,500,000 JPY/sqm). Average prices in the metropolitan area are closer to a third of this amount. In central Tokyo’s 3 wards (Chiyoda, Minato and Chuo), the average sale price per square meter in November 2014 was 966,600 Yen/sqm. High-end apartments can range in price from 2,000,000 ~ 3,000,000 Yen/sqm, but do not represent the entire market.

Using the price-to-rent ratios, the Economist house-price indicators show Japan to be 34% undervalued (the most undervalued out of all the countries surveyed). Perhaps this disclosure on the Global Property Guide says it all: “We draw our figures from our own, in-house analysis”.

“A recent study by The Economist Group reports that on average Japanese houses last for only 30 years.”

SOMETIMES TRUE

The 30 year lifespan figure is actually the average age of a building when it is demolished. Buildings are demolished for a number of reasons, such as redevelopment. Through proper maintenance and repairs a house can last much longer, but with low construction costs and changing lifestyles and family structures, many homeowners or buyers find it easier to rebuild. Wooden homes may be said to last around 30 years while concrete construction may last 50-60 years, and there are now 100-year concrete products available.

“Buildings have little value – the land does” Davis says, “which means there is basically no market for second-hand residences.”

TRUE AND FALSE

“Buildings have little value – the land does”TRUE.

Land in central Tokyo is expensive and makes up a higher proportion of the total price (approximately 70% for a newer property, and 80-90% for an older property). In the rural areas where land is much cheaper, these figures are reversed – land may make up to 30% and the construction costs may make up to 70% of the price.

“There is basically no market for second-hand residences” FALSE.

The second-hand market in Japan is very strong. There are many more opportunities in this market. According to a report conducted by REINS on real estate movements in Metropolitan Tokyo for 2009, the total number of second-hand houses sold in 2009 totaled 10,835 (average price of 30 million JPY), while only 3,472 new houses were sold (average price of 35 million JPY).

In 2013, 36,432 secondhand or ‘used’ apartments were sold in greater Tokyo, and 44,886 brand new apartments were sold.

“Roppongi Hills and Tokyo Midtown are available only for lease – catering to a large base of expatriate as well as local families – while Mitsubishi’s upcoming project is available for sale with prices starting at US$8 million.”

  • Some apartments in Roppongi Hills Residence A & B units (and sometimes Residence D) are for sale while Residence C is only for rent.
  • Tokyo Midtown is for rent only.
  • Mitsubishi’s project – Azabudai Parkhouse is for sale, but on fixed-term leasehold land rather than freehold. Prices actually started from 65 million JPY (US$776,000) and the most expensive unit was 840 million JPY (US$10 million).

“Location, in particular proximity to a subway station, is an absolute requisite for luxury residences in Tokyo”

Location is key. Convenience to subway and aboveground stations is important, especially when trying to attract tenants, but is not the sole factor in high-end central Tokyo properties where residents are less likely to rely on public transport. In Minato and Shibuya-ku you are never too far from a train station. Sometimes the best areas are not too close to noisy stations, for example Shoto/Kamiyamacho is a 10 minute walk from Shibuya station but is much more highly desirable as a residential area compared to the area directly around Shibuya Station.

“Last March, London-based HSBC Group announced it would tie up with two Japanese real estate companies to extend mortgage loans to foreign residents so they can buy property in Japan more easily.”

FALSE

HSBC Premier offers mortgage products to Premier members living in Japan regardless of the real estate agency they use. The National Australia Bank also lends to foreign residents in Japan.

*Update: In 2011, HSBC Premier Japan stopped offering home loans in Japan. In 2015, the National Australia Bank limited lending to existing clients only.

Sources:

The Real Estate Transaction Modernization Center Foundation

“Froth and stagnation House prices in parts of Asia continue to soar, despite efforts to slow them”, The Economist, July 8, 2010