As we previously wrote about in May last year the property market in central Tokyo has indeed switched to a seller’s market.
In December 2014, the supply of secondhand apartments in Chiyoda, Chuo and Minato reached a record low. Compared to 2011, there are currently less than half the number of apartments on the market. Meanwhile, sales activity has increased with the number of transactions in 2014 up 47% from 2011. Transactions in February 2015 were up 50.8% from the previous month and up 8.1% from February 2014. This was the busiest February seen in the past five years.
The supply of new apartments is also shrinking, while prices in February reached a five year high. Future supply is also looking to be limited with growing construction costs, increasing land prices and a shortage of suitable development sites causing great stress for developers.
We are noticing that even the old stock is starting to be snapped up as buyers get desperate. January, February and March are typically the busiest months in the real estate industry, as companies scramble to make last minute sales or purchases by the end of the financial year, and people get settled in their new homes before the start of the school year.
Naturally the higher demand and lower supply is pushing prices upwards. We noticed an especially steep increase in prices from July ~ August 2014 onwards, with some sellers increasing their asking price while the property was still on the market.
What does this mean for you as a buyer?
First of all, your options have already halved from a few years ago. Depending on your requirements, you may not have a lot to choose from.
Secondly, you are now competing with more buyers thanks to recent changes to the inheritance tax system which has spurred investment from wealthy Japanese, and a weaker Yen which has added to the number of foreign buyers. These kind of buyers are typically cash buyers who are prepared to move fast to secure a property.
Think about your requirements. Chances are you are looking for a nice property in a good location and at a fair price. Unfortunately so is everyone else. Good properties are selling very quickly, some within a few days of being listed, and even listings in 40 ~ 50 year old buildings are starting to move.
We are always hearing stories of buyers who missed out on their ideal property because they were competing with several other bidders, and would like to provide some tips to help improve your chances of securing a property.
How can you compete?
Get an agent on your side.
Think of your agent as a friend, not an enemy. A good real estate agent will be keeping constant track of the properties on the market and will let their clients know as soon as anything is listed. If you want to be on the top of their priority list, make sure you tell them as much as possible about what you are looking for and your ability to purchase. A real estate agent needs to be assured that you are a qualified buyer and have the funds. The agent is the one pushing for you in negotiations (unless they also happen to be working for the seller) and will be putting their company reputation on the line, so they need to know you can afford the property and are a serious buyer.
Have your funds ready to go.
We cannot stress this point enough.
If you plan to use finance, a seller will not even consider an offer unless you can provide the name of the bank, branch, amount you plan to borrow and the amount you have in cash.
You will also need to have pre-approval from your bank prior to signing a contract. Pre-approval from a Japanese bank can take around a week. Banks may require quite a few documents such as tax certificates, registered seals and possibly even medical checks. Any delay in obtaining pre-approval could see the seller accept an offer from another buyer who already has their stuff together.
Think about your bargaining position.
What makes your offer appealing to the seller? Sellers will take the offer with the best terms, not necessarily the offer with the highest price, so try to think about it from the perspective of a seller. Are you a cash buyer offering quick settlement, or do you need time to arrange finance and pre-approval?
Be ready to sign and settle.
If you find the right property, how soon can you sign the contract and how soon are you able to close?
The sooner you can pay the 10% deposit and sign the contract, the better. And, the sooner you are able to pay the remainder and settle on the property, the better. For a general guide, contracts are usually signed around a week after making an offer, with settlement around 4 weeks from the contract signing. This is to allow the buyer time for a bank to provide full loan approval, and for the seller’s bank to cancel their mortgage (if applicable). If you are a cash buyer, and the seller has no lien on the property, it may be possible to do a contract and settlement on the same day.
Understand that you are probably not the only buyer out there.
We are seeing a lot of cash buyers in the marketplace. You will be competing with local buyers who are prepared, have done their due diligence and are ready to act quickly when they find a property they like. Don’t be discouraged. You may miss out on your first or second choice because you did not act quick enough or were up against a better offer, but understand that this can happen to anyone.
When submitting a purchase application, it is usually the case of first in, best dressed. Once someone has submitted a offer on a property that the seller is happy with, bids from other buyers will not be accepted. You will not receive any advance notice that someone is preparing to submit a bid, and will not have a chance to outbid them. To secure a property, you need to be the first buyer to submit a satisfactory offer.
A word of warning
Do all of your due diligence before submitting and offer and do not make an offer unless you are absolutely sure this is the property you want to buy. Although offers are not legally binding, backing out before the contract could see you blacklisted from agencies and could make future negotiations on other properties difficult for you (especially if the next property is represented by the same agency). The real estate industry in Tokyo is smaller than you may realise and dominated by several major companies.
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