Revision to condominium redevelopment law could unlock potential development sites

A revision to the Act on Facilitation of Reconstruction of Condominiums is scheduled to be introduced from December that will reduce the voting ratio to sell a building and land. For buyers of brand new apartments, this news might seem insignificant, but this new amendment could influence the supply of new apartments in the future.

The Act was introduced in 2002 to encourage the redevelopment of old apartment buildings. Currently, a minimum of 80% of apartment owners must agree in order for a building to be reconstructed. For a building and land to be sold, however, the current act requires 100% of owners to be in agreement. The revision in December will reduce this to 80% for buildings built before 1981 to the older earthquake codes (called ‘kyu-taishin).

Of the 5,900,000 apartments across Japan, 1,060,000 (20%) are in ‘kyu-taishin’ buildings.

The number of condominium redevelopments in Japan is quite small. According to the Ministry of Land, Infrastructure, Transport and Tourism, there were only 183 buildings containing 14,000 apartments nationwide that were redeveloped as of April 2013.

Redevelopment plans frequently stall for the following reasons:

  • When apartment owners would be required to contribute a large sum towards their new apartment.
  • When there are a lot of elderly residents in the building who (a) cannot afford the cost of rebuilding or (b) are quite happy living in the building as it is and do not want to move out, even if temporarily.

Will the revision cause an increase in the supply of apartments in central Tokyo?

The vote to redevelop a building is already at 80%, yet actual redevelopment cases are rare. Reducing the vote to sell a building and land to 80% is not likely to cause a dramatic increase in the redevelopment of ageing buildings, but it may provide an additional option for developers and apartment owners.

There is a chance the supply of new apartments could increase. When reconstructing a condominium, only the excess floor space in the new building is sold as apartments with the remaining floorspace going to original landowners. If the building and land is sold and the developer qualifies for an allowance to the building volume ratio, a much larger number of new apartments can be built and sold.

Mr. Tamura from the Real Estate Economic Institute believes that we are likely to see an increase in the number of building and land sales in prime areas in central Tokyo. While the bayside areas are seeing a number of large-scale redevelopment projects, prime development sites within the Yamanote Line in central Tokyo are very rare. The shortage in available land has severely limited the supply of new apartments. The revision may provide the chance to unlock sites for redevelopment purposes.

Source: Suumo Journal, October 23, 2014.

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