Japan’s property renovation market is experiencing a boom as small, medium and even major developers get in on the action.  The recent rise in the price of new apartments is driving some buyers to consider older and cheaper apartments on the resale market. Real estate companies have noticed this trend and are busy renovating apartments to re-sell. On May 29, Mitsubishi Jisho Residence announced plans to renovate a number of ageing office buildings located in prime areas in Tokyo. They have already completed two renovation projects. One of the buildings was built in 1974 and is 40 years old. The owner was having difficulty finding tenants for the old and dated offices. Mitsubishi rented the entire building from the owner under a 10 year lease and are sub-leasing the recently renovated space to tenants.

Old apartments are also drawing attention from real estate companies. Osaka-based Sanyo Homes Corporation acquired two apartment buildings – one in Takarazuka, Hyogo Prefecture, and another in Shinjuku-ku, Tokyo.  After renovating the buildings, they plan to offer the individual apartments for sale later this year.

Tokyo-based renovation company Intellex are working with Star Mica on the renovation of a 33 year old apartment building in Minamiaoyama, Tokyo. Sales of the renovated apartments in Nikko Kodama Palace Minamiaoyama have began in May with 59 sqm 1-bedroom apartments priced at around 46.8 million Yen. Intellex renovates and re-sells approximately 1,100 secondhand apartments each year. To date, they have renovated over 14,000 apartments. Based on data supplied by Tokyo Kantei, Intellex believes that the number of 20+ year old apartments in need of renovation work could reach 2,720,000 units by 2025 – an increase of 80% from 2012.

Nikko Kodama Palace Minamiaoyama 1
An apartment renovated by Intellex near Omotesando Station

Under their ‘Reno Marks’ brand, Cosmos Initia recently renovated an entire rental apartment building in Meguro and are now offering the individual apartments for sale. The five-storey building was built in 1996. Two-bedroom apartments are priced from 60 million Yen, with an average price around 800,000 Yen/sqm.

Reno Marks Megurohoncho
Reno Marks Megurohoncho (formerly Nishikoyama Court)

Although the majority of apartment buyers lean towards brand new or near-new buildings, rising construction costs are pushing up new apartment prices to levels that might exceed buyers’ budgets. Buyers who have been priced out of the new apartment market are starting to look at properties on the re-sale market. Older, but renovated, secondhand apartments are usually priced at around 20 ~ 30% less than an equivalent brand new apartment in the same area.

The government is also looking at ways to stimulate growth in the market for used homes and apartments. Typically detached wooden homes depreciate in value to zero after 20 ~ 25 years, with 25+ year old homes considered worthless by lenders, and, as such, buyers. The Ministry of Land, Infrastructure, Transport and Tourism is currently considering introducing measures to encourage lenders to place value on renovations and upgrades to homes to extend the depreciation of a home to around 50 years. In greater Tokyo, 36,000 secondhand apartments were sold in 2013, while the supply of new apartments was around 60,000 over the same period.

Sources:
Nikkei Business, June 4, 2014.
SankeiBiz, June 6, 2014.

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