Tokyo Bayside Condominium Market – From Boom to Bust

Three months have now passed since the Tohoku Earthquake and Tsunami. The affected areas of Tokyo Bay are seeing a growing disparity between the desired purchase and selling prices of condominiums on the secondary market.

Difference of 10 million Yen between buyers and sellers

Buyers are anticipating a huge slump in prices for bayside apartments. On the other side, sellers are still hoping to sell their apartments at pre-earthquake values – a time when the bayside areas were seeing huge rises in popularity.

Urayasu City, just across the Kyu-Edogawa River from Edogawa-ku in Tokyo, was a relatively expensive ‘brand-name’ residential area. However, land liquefaction and damage to infrastructure such as the water supply has burst the city’s real estate bubble. The secondary apartment market in this area is in a dire situation.

A 100sqm secondhand apartment purchased 10 years ago for 50 ~ 60 million Yen may now be listed by the seller with an asking price of 45 million Yen. Buyers, however, may have a desired purchase price of only 35 million Yen.

When such a large gap in expectations exists between buyers and sellers it becomes a stalemate situation. A seller cannot sell at a cheap price if it is below the remaining balance of their mortgage, while buyers are in no rush to purchase.

Real estate information service company, Tokyo Kantei, says there is almost no movement in real estate transactions in Urayasu City.

Transaction activity across all of Tokyo is weak.

According to the Real Estate Economic Institute, sales of new units by developers in the greater Tokyo area for the month of April fell 27% compared to the year before. Sales of secondhand apartments were also weak, with only small price movements.

At the end of April, the average price of a secondhand apartment sold in Tokyo’s 23 Wards was 42,200,000 Yen for a 70 sqm apartment. This is a fall of 1.1% from the month before. In Chiba, prices fell 0.8%, but in Saitama they increased by 0.5%.

A return in demand not expected for another 3 months

Following the Great Hanshin Earthquake of 1995, apartment transactions in the disaster-hit Hanshin area stagnated for approximately 6 months, after which the market returned to pre-quake levels. Although there was an outflow from the disaster-hit areas, sales of both new and secondhand apartments in Kobe City had rebounded.

If the 6-month rule is applicable this time, transactions in Tokyo’s bayside areas should start to see a recovery in another 3 months time. At that point, buyers and sellers should start to reach compromises on prices.

This is, however, relying on the assumption that the brand image of the bayside area can be restored. In order to have a big effect, the local governing bodies need to enforce policies that impart a sense of security to potential buyers – this would include foundation stability work and improvements to infrastructure.

Secondhand apartment price movements (prices in Yen)
APR 2011 MAR 2011 FEB 2011 JAN 2011 DEC 2010
Tokyo 23 Ku’s 42,220,000 42,710,000 42,880,000 42,940,000 42,960,000
Yokohama City 27,210,000 27,150,000 27,150,000 27,250000 27,210000
Chiba City 18,490,000 18,630,000 19,290,000 18,550,000 18,530,000
Saitama City 21,960,000 21,850,000 21,810,000 21,730,000 21,680,000
Osaka City 21,920,000 21,640,000 21,580,000 21,510,000 21,750,000
Kobe City 18,320,000 18,440,000 18,630,000 18,740,000 18,870,000
Nagoya City 18,550,000 18,550,000 18,510,000 18,660,000 18,550,000

*Based on a 70sqm apartment. Data provided by Tokyo Kantei

The Nikkei Shimbun, May 30, 2011.

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