Japan’s emerging share house market

In an aging society that is seeing falling occupancy rates in the property market, unused real estate is becoming an increasingly serious problem. However, this has led to a creation of a new market for share house developers. According to an investigation by a major real estate company, the number of sharehouses has risen 26-fold in the past 8 years, with Tokyo being the most popular location.

In a typical share house, tenants have their own private rooms while the kitchen, living and bathroom areas are shared. Unlike a typical Japanese guest house which is designed for travelers staying for a short period, share houses cater to long-term tenants.

While it may be common in many countries for the younger generation to rent an apartment or house with several friends, share houses in Japan are only a recent phenomenon.

How is a share house created?

Typically a real estate or share house company will rent a 60 ~ 100 sqm apartment from a landlord and renovate it (with the landlord’s permission) so that it can accommodate up to 10 or more tenants. The company’s profit comes from the difference in the rent received from the tenants and the rent paid to the landlord, along with any operating expenses.

A share house company may undertake a variety of tasks such as renovations, advertising for tenants and managing the property. Buying the property outright can be risky, so many companies prefer to sublease.

Renting a property at a very cheap rate from the landlord is key, so companies will target older properties that are 30 to 40 years old.

Unique Themes

As more companies join the industry, there has been a need to create unique share houses to be competitive. In 2011, a farming-themed share house was opened in the high-class residential area of Motoazabu in central Tokyo. Called ‘Motoazabu Farm’ it features a vegetable plot, gardening and cooking lessons. Prior to its conversion, it was an expat residence called ‘Azabu Flats’ with just four family-sized apartments. It now has 17 rooms and a large communal lounge. It also hosts several community events, including barbecues where neighbors are invited to attend.

Motoazabu Farm Share House

Management Style

The majority of share house developers are small-to-medium sized real estate companies and entrepreneurs. It is a niche market that major corporations find difficult to participate in. The reason is that the management, operating and tenant advertising is more time-consuming than normal private rentals.

Ozeki Lab. manages five share houses in Tokyo under the ‘Bowhouse’ name. The company began by designing retail stores, but moved into renovating and creating share houses with a unique style.

One of their projects is Bowhouse Minamisenju. The property was a typical 30+ year old Japanese style wooden property that was previously used as a company dormitory. Ozeki Lab.  renovated the property in a traditional Taisho Roman style, which blends Japanese and Western styles. As of August 2012, the 12 rooms were all occupied, and any rooms that do become available are quickly filled. A representative said they have found success by giving new life to something old.

Bowhouse Minamisenju

How to avoid any problems with tenants

The secret to avoiding any management and operating problems with a share house is tenant selection. Tenants are interviewed to make sure that they can uphold the rules of communal living. Some of the rules include washing your own dishes, storing any non-perishable food in your own private locker, filling in a guestbook before any friends arrive, and so on.

For agents that have no experience in managing a share house, problems with tenants can  occur very easily. If the management is poor, the property can become messy, appliances can break and not be repaired, and tenants will begin to move out. This can cause the investment to quickly lose its value.

Some well-managed share houses will have an employee of the company reside in the property as a care taker.

The tenants’ perspective

For a property owner, the main benefit of converting their house or apartment into a share house is the resulting high occupancy rate and a secure long-term contract with the share house company. But what are the benefits for tenants?

Approximately 70% of share house tenants are female. One of the reasons for the popularity among female tenants is that living in a share house is thought to be relatively safer than living alone. Many parents also feel the same way. About 80% of share house tenants, male and female, are in their mid-20s to mid-30s.

The benefits to tenants include relatively cheap rent, easy move-out procedures, greater opportunities for socialization and a sense of security. They offer low start-up costs as appliances such as fridges, washing machines, kitchen goods etc, are all provided.

But share houses are not always a lot cheaper than single apartments. For example, rooms in Bowhouse Nishiazabu range from 140,000 to 153,000 Yen a month (1700 ~ 1850 USD). Meanwhile, similarly sized studio apartments in old buildings in the same area can be rented for between 60,000 to 100,000 Yen a month (725 ~ 1210 USD). Despite the higher rent, apartments in Bowhouse share houses are almost always 100% occupied. This is said be to due to their value-adding through careful and thoughtful renovations and closely-managed properties.

One of the tenants in the ‘Motoazabu Farm’ share house said they enjoyed being able to communicate with people outside of their family and company. In an era with a growing reliance on communication through the internet and email, share houses may see a rise in popularity from those looking for the opportunity to socialize outside of work.

Source: Business Journal, November 24, 2012.

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