Recently, both new and secondhand apartments have seen a steep rise in prices, yet rental prices have remained relatively flat. As a result, yields have been falling with the typical gross yield across greater Tokyo dropping to the 4 ~ 5% range.

The increase in demand from wealthy Japanese looking to reduce their inheritance tax burden as well as renewed interest from foreign investors is thought to be the main driver behind the jump in prices.

Domestic investors looking to reduce inheritance taxes

High-rise apartments have been in high demand as their inheritance tax value is a fraction of their actual market value, offering a potentially large decrease in the tax burden for heirs. While there might be a 20 ~ 30% difference in the market price of an apartment on a high floor versus a low floor, both apartments (assuming they are the same size) are given the same value by the tax office. Buying an apartment on a higher floor, therefore, could provide a bigger deduction than one on a low floor. Compared to cash and other financial assets which are taxed based on their face value, the value of a high-rise apartment for tax purposes might be reduced by as much as 80% from its market value*. Wealthy Japanese have been actively buying up high-rise apartments, including those that might seem comparatively expensive.

Inheritance Tax Simulation
Asset Tax Value
100,000,000 Yen in cash 100,000,000 Yen
100,000,000 Yen apartment
used as a personal residence
25,000,000 Yen
[Building: 15,000,000 Yen]
[Land: 10,000,000 Yen]
100,000,000 Yen apartment
rented out to a tenant
20,000,000 Yen
[Building: 12,000,000 Yen]
[Land: 8,000,000 Yen]

Foreign investors

Foreign buyers from across Asia are also seeking apartments in central Tokyo. Compared to the property prices seen in other Asian capitals, and the weakening Yen, real estate in central Tokyo appears to be relatively inexpensive. Unlike domestic buyers, foreign investors, or speculators, are buying in Tokyo with the anticipation of capital gains.

Luxury apartment developments are popular with foreign buyers, particularly those with some kind of status symbol, such as views over the Imperial Palace. Detached homes, however, have been largely ignored.

Prices up over 30% in popular buildings

Secondhand apartments in popular buildings and in quality locations have recently been selling at prices 30% higher than in 2013. These gains, however, are more evident in high-rise buildings over 20 storeys.

Not all high-rises are seeing the same rise in prices. Those that are located some distance from the nearest station, with poor transport options, little retail development in the area or that were too expensive when brand new, have not benefited from recent market conditions.

Some of the top price rises:

Building Avg. price/sqm in 2014 % change from 2013
Grand Suite Rokubancho
Chiyoda-ku
1,760,000 Yen +32%
Park House Akasaka Hikawa
Minato-ku
1,390,000 Yen +30%
World City Towers
Minato-ku
992,000 Yen +30%
Bancho Park House
Chiyoda-ku
1,595,000 Yen +22%
The Tokyo Towers
Chuo-ku
959,000 Yen +21%
City Tower Takanawa
Minato-ku
1,254,000 Yen +21%
Grande Maison Nishiazabu
Minato-ku
1,356,000 Yen +20%
Park Court Akasaka The Tower
Minato-ku
1,590,000 Yen +20%
Park Court Toranomon Atago Tower
Minato-ku
1,552,000 Yen +19%
City Tower Azabu Juban
Minato-ku
1,478,000 Yen +18%
Daikanyama Address
Shibuya-ku
1,584,000 Yen +17%
Proud Tower Chiyoda Fujimi
Chiyoda-ku
1,563,000 Yen +16%
Toranomon Towers Residence
Minato-ku
1,499,000 Yen +16%
Aoyama The Tower
Minato-ku
1,533,000 Yen +16%
The Roppongi Tokyo
Minato-ku
1,726,000 Yen +15%
Motoazabu Hills
Minato-ku
1,906,000 Yen +15%

The worst performers:

Building Average price/sqm in 2014 % change from 2013
Asahi Mansion Komaba
Meguro-ku
1,010,000 Yen -18%
Classy House Oyamadai
Setagaya-ku
981,000 Yen -18%
Foria Komazawa Koen Parkside
Setagaya-ku
682,000 Yen -18%
Lions Mansion Nogizaka
Minato-ku
1,319,000 Yen -12%
Park House Suwayama Presence
Meguro-ku
1,231,000 Yen -10%

The above data is based on the difference in average transaction price of a second-hand apartment over 12 months to September 2014.

Where is the market headed?

  • Demand for apartments in prime locations in central Tokyo has been propped up by both foreign buyers and wealthy Japanese. While the market is quite small in scale, prices have remained at relatively high levels.
  • Supply in urban and suburban areas is falling as price rises have not been met with actual demand. These areas are dominated with home buyers, rather than investors, and are limited by income levels, home loan interest rates and other tax measures.
  • Studio or ‘one-room’ apartments have seen a similar trend to the high-rise apartment market and prices have seen a steep rise. One-person households in central Tokyo have been increasing which could support continued demand. However, this is very much dependent on location. For older properties, it is essential to focus on buildings with facilities and that are very well maintained.

*Note: The tax office may not always rely on the rosenka tax values when assessing the value of real estate for inheritance tax purposes. There have been cases where they valued the assets at their market value, rather than tax value.

Source: Diamond Q, January 2015 Edition.

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