Over the past few years, more than a few people told us that property prices in Tokyo were artificially inflated by the coming Olympics and that they were going to wait until the games were over to ‘pick up a bargain’. Since the announcement of the Olympics, there were frequent opinion pieces that predicted property prices would crash immediately after the Olympics.

The delayed Olympics came and went with little fanfare, and a few protests, in the capital due to rising coronavirus cases and a state of emergency. Since the end of the games, residential prices continued to rise, buyers continued to buy, and inventory continued to shrink. The average sale price of a second-hand apartment in the Tokyo metropolitan area increased by the 23rd month in a row in March 2022, with prices up 11.3% from 2021. In central Tokyo’s 3 wards of Chiyoda, Chuo and Minato, the average reported sale price hit the highest level on record.

There are several reasons why Tokyo’s residential real estate market has been performing so strongly and none of them are related to the Olympics. Many of these are the same forces that drive residential real estate markets in the majority of free markets. 

[1] Domestic buyers don’t buy residential real estate because of a sporting event. First home buyers, families moving for work or school, those upsizing or downsizing, and investors, are buying due to a personal need that has nothing to do with the Olympics.

[2] Record low interest rates. Home loans currently have variable rates of around 0.5% and fixed rates of around 1%. 

[3] Rising stock market. The wealthier have seen their net worth increase, giving them more to spend on real estate.

[4] Double-income households have been on the rise giving families more buying power.

[5] High construction costs. The cost of labor and materials helps determine the pricing of new housing. If new housing is high, it also pulls up the price of older, existing housing as buyers priced out of new construction turn their focus to second-hand homes.

[6] High land prices. Similar to above, this is one of the major inputs into the price of new housing. Tokyo is incredibly built-up with land suitable for development in high demand and extremely scarce supply. 

[7] Shrinking inventory. In 2021, reported sales of second-hand apartments across greater Tokyo were up 38% from 2011, while new listings were down 6%. Remaining inventory as of the end of December 2021 was 6.4% lower than it was in December 2020 and 18% lower than it was in December 2011.

[8] A tax system that favors property ownership. Inheritances taxes, for example, value real estate based on a tax value assigned by the tax office that is often lower than the property’s market value. For high-rise apartments in central Tokyo, it might be as low as 20% of its market value. This allows wealthy families to reduce inheritance taxes by purchasing properties that meet various criteria. There are also cash-back incentives for homeowners with mortgages. 

[9] The pandemic. Anecdotally, homebuyers have been looking for larger spaces or homes with a small room that can be used as a home office. Holiday homes in popular areas within an hour of Tokyo have also seen prices rise due to wealthy Tokyo-ites purchasing weekenders. Karuizawa saw government assessed residential land values increase by 11.2% in 2022, and in 2021 saw a 16-fold increase in the annual transactions of houses priced over 80 million Yen (US$650,000).