Myths about Tokyo’s residential real estate market during the pandemic

One of the most frequently asked questions we have been receiving over the past 17-ish months has been about the pandemic and its effects on the residential property market here in Japan and in Tokyo. Let’s take a look at some of the arguments we hear.

Sellers must be desperate and oversupplying the market


We are seeing fewer and fewer properties come up for sale, while inventory continues to dwindle. And there is data to back this up. The number of existing apartments (resales) put on the market each month across greater Tokyo has seen year-on-year drops for the past 21 consecutive months. In the Tokyo metropolitan area, new listings in January and February 2021 were down 22.3% and 24.3% from last year, while May saw a 9.9% year-on-year drop.

Remaining inventory has been shrinking year-on-year for the past 18 months and the rate of decline has been expanding. In May 2020, remaining inventory across greater Tokyo was down 0.9% from 2019, but in May 2021 it had dropped 27.3% over the past 12 months. It was a similar story in the Tokyo metropolitan area, with inventory seeing year-on-year declines since December 2019. As of May 2021, inventory was down 24.3% from May 2020.

Transactions meanwhile, at least in central Tokyo, have remained high. Some months have been setting record-high transaction volumes. Demand continues to remain stable, with buyers competing for less stock.

For new construction, most of it is controlled by a small number of major real estate developers. They are huge conglomerates and not in dire financial conditions, and have the ability to weather any storm while not flooding the market with inventory. Most of the small-to-medium-sized developers were wiped out in the global financial crisis over a decade ago. They have also been struggling to find land to develop in recent years. High land prices and high construction costs also make it difficult for them to undercut on pricing. 

Remote work will see Tokyo become a ghost town


Not all jobs can be done remotely. Even for employees that can work remotely, some companies still require them to visit the office a couple of times a week. There are also assumptions that the majority of workers will return to the office close to full-time once the pandemic is over given the importance of face-time in Japanese business culture.

The Japanese population of Tokyo’s metropolitan area as of June 2021, was 13,309,910, down 9,526 from June 2020, but up 61,839 from June 2019.

Demand is driven strongly by owner-occupier buyers rather than purely speculative investors. The buy-to-let investors are still active as residential apartments can provide stable rental income. Yields are at record lows, but higher than the interest rate on savings accounts. The low inheritance tax rates on apartments continue to make them an attractive option for wealthy families.  

This is just like the 2008 crash


The global financial crisis in 2008 and 2009 saw a tightening of credit, and its effects were wide-reaching. The effects of the coronavirus pandemic in Japan, however, have largely been limited to the hospitality and apparel industries. Some industries are suffering terribly, while others are not. Wealthy investors and apartment buyers are not feeling the pinch. The Nikkei Stock Average, for example, hit a 30-year high in February, and as of June 2021 was up about 33% over the past two years. Instead of credit tightening, there have been heavy monetary easing measures.

The latest government land values as of January 1, 2021, showed some dramatic double-digit percentage drops in land prices around the heavily tourist-dependent retail destinations like Dotombori in Osaka, and Asakusa and Ginza in Tokyo. Residential land values for the most part remained flat or saw minor declines in suburban areas. Some historically wealthy and sought-after residential areas in central Tokyo bucked the trend and continued to see land prices increase this year. 

The postponement and scaled-back Olympics is going to have a direct impact on real estate prices in Tokyo


Well yes, it’s not great for hotel assets, but for the residential sector it is expected to have no impact at all. We have been saying this for years now – the typical domestic buyer of a home or apartment in Tokyo doesn’t give a hoot about the Olympic games or any other sporting event. Tokyo is already a largely developed metropolis (a megalopolis?) with some amazing infrastructure that was in place well before the Olympics announcement. There is a lingering question mark over what impact it might have on the value of apartments in the Athlete’s Village, since they were marketed solely on the potential Olympic legacy. 

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