In July, the number of unsold new apartments across greater Tokyo fell to 4,247 units – the lowest level seen since 1990.

In the first half of the 2000s, land prices started to rise as a surge in activity by real estate funds started an investment boom. In addition, strong demand for steel from emerging economies pushed up construction costs in Japan. As a result, developers repeatedly pushed up apartment prices. The sudden drop in demand from buyers when the global financial crisis hit in 2008 left a growing inventory of unsold apartments.

By the end of 2008, inventory levels had risen by 15% from the previous year to 12,427 apartments. Many developers were forced to sell apartments at a discount. Some were purchased in bulk by real estate companies at 40 ~ 50% of their original price, and then re-sold to consumers at 20 ~ 30% discounts. While this helped to reduce stock levels, it caused market prices to plummet.

Developers are cautious to avoid a repeat of this scenario.

In 2012, Nomura Real Estate Development Co. supplied 6,181 new apartments to the market, making them the top developer. By 2016, they aim to supply 7,000 new properties each year. However, after deducting detached homes, the number of apartments in the supply line is similar to last year.

Mitsubishi Jisho Residence plan to increase their annual supply by 10% to 5,500 units.

There are, however, concerns that last-minute buying before the increase in consumption tax will lead to a drop in demand after the tax hikes. However, expectations of higher interest rates and higher property prices in the future may sustain continued demand. If demand remains at a high level, we may see a possible shortage of apartments in 2014.

Source: The Nikkei Shimbun, August 13, 2013.

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