Redevelopment not an option for many apartment buildings

Harajuku DanchiBuying an apartment in an older building may be appealing because you can get more space for your money, but what will happen down the track when the building has reached a point where it needs rebuilding?

According to the Ministry of Land, Infrastructure, Transport and Tourism, only 218 apartment buildings nationwide have either been redeveloped or are in the process of doing so. This represents just 0.5% of the 38,000 buildings built before 1981 – the year when the major change to earthquake-resistant building codes was introduced.

So why are there so few examples? 

An apartment suitable for redevelopment needs to be in a desirable location and must have excess building space available to build a larger building in its place.

For example, the costs of reconstruction may be covered if the new building is larger and contains more apartments than the older one. In this case, a developer would receive the additional apartments which they can sell to cover construction costs and to make a profit of their own. However, it is said that less than 2% of apartment buildings meet these requirements.

Under current legislation, 80% of owners must agree to redevelopment.  If the original apartment building is already at its maximum allowable size for that site, apartment owners would have to cover the reconstruction costs by themselves. This can be a substantial cost and something very few owners are willing to agree to.

With the remaining 98% of apartment buildings facing very little chance of redevelopment, purchasing an older apartment can be a risky choice for unassuming buyers.

The government is considering providing some relief by increasing the maximum allowable building size as well as lowering voting ratios to encourage redevelopment or even the sale of the building and land.

If you are lucky enough to buy into an ageing building that has plans for redevelopment, you could receive a brand new apartment of the same size as a replacement a few years down the track at no extra cost.

How can you find one of these treasures? 

The easiest way is to ask your real estate agent for copies of the minutes of the building association’s general meetings for the past three years. Check through the minutes to see if any discussion on redevelopment has been brought up in past meeting.

Unfortunately, these apartments are rarely offered for sale. You may find ones in buildings where the owners have to pay part of the reconstruction cost (eg. Nakagin Capsule Tower). If you do find one in a building where owners have no financial burden for reconstruction, you may find the old apartment is exceedingly expensive.

Furthermore, as redevelopment discussions usually take around 10 years before any actual work begins, you may have a lot of time to wait before the new building is completed. In some cases, discussions can stall midway (eg. Coop Olympia Harajuku).

Coop Olympia Harajuku

 

Coop Olympia in Harajuku (pictured above):

  • Built in 1965.
  • A 2-Bedroom apartment may be priced as high as 180 million Yen (1,500,000 Yen/sqm) in 2013.
  • Redevelopment plans were brought up in 2007.
  • 91% of building association members voted in favour of redevelopment, but based on the weight of voting rights, only 72% of votes were in favour (below the 80% required).
  • The commercial occupants (primarily the 7 retail spaces on street level) control 20.09% of the voting rights due to the size of their commercial space. They have not been in favour of redevelopment and it has stalled.
  • The building height limits and floor space ratios have changed since Coop Olympia was built and a new building could not be built to the same size unless the site is merged with a neighbouring block, or special relief is provided by the government.

Source: Zakzak, December 15, 2013.

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