Inheritance tax changes, not Abenomics, behind recent rise in apartment rent?
According to the Real Estate Economic Institute, the average price of a brand new apartment in greater Tokyo was 49,290,000 Yen in 2013, up 8.6% from the year before and higher than the average of 47,750,000 Yen seen during the ‘mini bubble’ in 2008. Sales of apartments priced over 100 million Yen have also increased, as has investment from domestic and foreign funds.
Apartment rent, however, has not shown the same trajectory. According to Tokyo Kantei, the average monthly rent of a family-sized apartment less than 5 years old in Tokyo’s 23 wards was 4,007 Yen/sqm in June 2014, up 9.2% from the previous year. For apartments between 6 ~ 10 years old, the average monthly rent was 3,461 Yen/sqm, showing almost no change from 12 months prior. For apartments aged between 21 ~ 30 years old, average rents dropped by 2.6% to 2,496 Yen/sqm, while rents for apartments over 30 years old had fallen by 0.5% to 2,616 Yen/sqm. Masayuki Takabashi, a researcher from Tokyo Kantei, said that the recent increase in the consumption tax rate has reduced the real income of consumers, which has made conditions difficult for landlords who want to achieve strong rental returns.Read more
Apartment price to income ratio worsens nationwide, but improves in Tokyo and Osaka
According to Tokyo Kantei, the average price of a brand new apartment in Japan in 2013 was 6.59 times the average annual income (up 0.06 points fro 2012), while a second-hand apartment (10 years old) was 4.58 times times the average income (up 0.02 points from 2012).
The rise in apartment prices has outpaced the increase in average income. The average annual income across Japan increased by 3.85% from the previous year to 4,320,000 Yen in 2013.
Meanwile, the average price of a 70 sqm second-hand apartment in Japan was 19,800,000 Yen in 2013, up 4.38%. The average price of a brand-new apartment nationwide was 28,620,000 Yen, up 5.07% from the year before.
In greater Tokyo (Tokyo, Kanagawa, Saitama and Chiba Prefectures), the price-to-income ratio of brand new apartments was 8.80 times (+0.06 points). The ratio for second-hand apartments actually fell 0.05 points to 6.07 times. Read more
Japan’s nationwide residential vacancy rate hits record high of 13.5%
According to the latest data from the Ministry of Internal Affairs and Communications’ Statistics Bureau, the total housing stock across Japan increased by 3,050,000 units to 60,630,000 units in 2013, up 5.3% from the previous survey in 2008.
Vacancy rates
The number of unoccupied residential properties increased by 630,000 units to 8,200,000 units, up 8.3% from 2008. The nationwide vacancy rate increased by 0.4 points to 13.5% - the highest level seen since record-keeping began in 1963. It is important to realise that these figures include homes that are vacant for a number of reasons. For example, 5.0% of the vacant properties are vacation homes, 3.8% are empty because they are currently for sale, and 38.8% of homes were vacant for other reasons (eg. due to the residents transferring for work, being hospitalised, or because the homes are in the process of being demolished). 52.4% of the vacant homes were rental properties that were sitting empty.
Risk of over-supply
From 2015, inheritance tax deductions will be reduced. As a result, investors have been actively purchasing or building rental apartments as a way to reduce their future inheritance taxes (inheritance tax on real estate is calculated on the tax value of the building and land, which is usually lower than its true market value, while the tax on assets such as cash or stocks is based on its face value. There are also deductions for real estate that is currently rented to a tenant). There is a risk that this trend could lead to an over-supply of rental properties in central areas. Read more
Rising construction costs causing suburban projects to be cancelled
- Apartment developments cancelled.
- Station-front redevelopment projects on hold.
- Slowdown in retail expansion.
Japan’s construction industry is facing an impending crisis as the construction boom brought about by the 2020 Summer Olympics and Tohoku reconstruction is causing construction costs to rise dramatically.
The rising costs and severe labour shortage is having a direct impact on apartment development in the greater Tokyo area.
In April, the Odakyu Electric Railway Company announced that they were cancelling their plans to develop a high-end residential neighbourhood on the site of the former Mukogaoka Amusement Park in Tama-ku, Kawasaki due to rising construction costs which no longer make the project profitable.
Other apartment developers are also taking a restrained approach. Some that have already acquired development sites are either holding off on construction, leaving the sites empty, or are changing their plans.Read more
More borrowers choosing full-term fixed rate home loans
According to the latest survey by the Japan Housing Finance Agency, the percentage of borrowers choosing a fixed interest rate for the entire duration of their home loan was 31.7% between November 2013 and February 2014, up 6.4 points from the previous period and up 8.6 points from the same period last year. The percentage of borrowers electing for a floating interest rate dropped 4.2 points from the previous period to 37.1%. Read more