Apartment voting ratios under review

The government may soon introduce new measures to make it easier for old, ageing apartment buildings to be redeveloped. Currently, 100% of apartment owners must agree before their building can be demolished and the land sold, but this ratio may be reduced to 80%.

It is hoped that this will encourage the development of newer and more earthquake-resistant buildings which will improve the safety of neighbourhoods. It may also help to revitalise the real estate market.

The new plan will be submitted to the Diet as early as next year.

It is expected that the target of the reforms will be apartment buildings built prior to the change in earthquake resistance building standards in 1981. Of the 5.9 million condominium apartments across Japan, approximately 1.06 million are in buildings built to the older construction codes (called ‘kyu-taishin‘). Over half of these are in buildings that have not been earthquake retrofitted and are at risk of collapse or serious damage in an earthquake that produces a seismic intensity level (shindo level) of 6 or higher.

It is not just apartment owners that have to agree before the land can be sold, but tenants and banks who have provided mortgages on apartments must also give their approval. It is almost impossible to obtain 100% approval, and there are concerns that many ageing and deteriorating buildings will be left as is unless the law is changed.

The proposal would reduce the voting ratio to 80%. Voting rights will be based on the number of owners as well as their exclusive ownership area. Voting requirements of tenants and financial institutions will also be eased.

While it is possible to redevelop a condominium with agreement from 80% of the owners, this is done under the premise that the original owners will move back into the new building and restricts the freedom of the developer. Apartment owners must also find temporary accommodation while the new building is under construction. The government is also considering reducing this ratio from 80% to two-thirds.

Generally, developers are more interested in buying potential development sites rather than taking on reconstruction projects with landholders. As such, they may be willing to pay more for vacant land which means apartment owners may stand to receive a little bit more money.

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) currently offer financial assistance to apartment owners who need to find temporary accommodation while their building is being redeveloped. They are considering extending this assistance to owners who sell their building and land. In addition, they may also consider increasing the building size ratio which would allow a larger building on the site, thereby improving the value of the land. Land in Tokyo is relatively under-utilised. The average floor space ratio (yosekiritsu) in Manhattan is four times that of Minato-ku.

Current voting rules for condominiums:

  • Demolish and sell the land: 100% agreement
  • Rebuild: 80%
  • Major repairs: 75%
  • Earthquake-retrofitting: 50%

Sources:
The Nikkei Shimbun, August 29, 2013.
The Sankei Shimbun, August 29, 2013.

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