Condominium developers in the greater Tokyo area have been hit hard by high material costs this year, as inflation has not spared the building industry.

This is one of the key reasons why supply of new condominiums in the capital region has fallen by 4.2% year-on-year for the April to September period, as was recently announced by the Real Estate Economic Research Institute (REEI). Developers released 12,271 newly built units for sale in the greater Tokyo area in last six months.

Although higher priced properties in good locations remain popular, developers have pulled back on supply partially because of soaring material costs, while some purchasers are taking a cautious attitude as inflation has started to hit people’s pocketbooks. The weak yen has also increased the cost of importing construction materials. At the same time, developers have been hesitant to release more units into the market, preferring instead to support price levels by restraining supply.

The strategy has seemingly been successful, as sales prices in the last six months remain at record levels. The REEI reported that from April to September, the average sales price of a newly constructed apartment in the greater Tokyo region was ¥63,330,000 ($423,000 USD). This was a year-on-year drop of 5.5%, but it was also the second highest price ever recorded for the April to September period. The record high price was set in the April to September 2021 period.

Contract Rate

If we only look at the overall contract rate for the greater Tokyo region, it may seem that buyers are much less interested in buying this year than last. For April to September this year, the contract rate for the greater Tokyo metro area was 67.7%, a year-on-year drop of 2.9 points.

The contract rate is the number of units contracted for sale divided by the number of units offered for sale. The 70% mark is considered the dividing line between a seller’s and buyer’s market. The average contract rate for greater Tokyo was 72.1% in the first half of 2022, which means that the first half of this year was a strong seller’s market, as demand exceeded supply.

Considering this, a contract rate of 67.7% would suggest that buyers are starting to pull back. This is true for some market segments, but the REEI report suggests that wealthy buyers are undeterred. For example, there was reportedly very high buyer interest in the high-end “The Park House Grand Sanbancho 26” development in Chiyoda Ward, Tokyo. Units in this condominium building have maximum listing prices of over 1.1 billion yen (about $7.5 million USD). It’s also worth noting that sales of properties near major stations in Kanagawa and Saitama prefecture have also been brisk.

The key issue in the Tokyo new condominium market is supply, not buyer demand. As of the end of September, total inventory of newly constructed apartments in the Tokyo metropolitan area was 14.6% lower than for the same period last year.

As prices continue to rise and supply remains sparse, prospective purchasers are also paying close attention to trends in interest rates and other housing options. The Bank of Japan has pledged to keep interest rates low for the foreseeable future, but more and more buyers are opting for variable rate loans. And in addition to newly built condominiums, more and more buyers are also considering buying previously owned condominiums and detached houses.

Supply and Average Prices by City and Prefecture

The chart below details the supply, contract rate and average sales price by city (Tokyo 23 Wards, Tokyo western suburbs) and prefecture in the greater Tokyo region.

Source: Real Estate Economic Institute (REEI), April to September 2022 Greater Tokyo Market Trends Report (PDF in Japanese)

Photo credit: Tokyo skyline seen from the Shibuya Sky building, via iStock kanzilyou

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