By Jeff Wynkoop
Sales of pre-owned condos and detached houses in the greater Tokyo metropolitan area were up for the second consecutive year in 2016, hitting historic highs. This is according to a recent report (in Japanese) on 2016 real estate market trends released by the Eastern Japan REINS (the “Real Estate Information Network System”).
The total number of new condos sold last year was 29,873 units (out of a total new supply in 2016 of 35,772 units as reported by the Real Estate Economic Institute). The total number of sales last year of pre-owned condos was 37,189.
Below we look at some of the reasons why sales of pre-owned properties outpaced that of new homes and the likelihood of the trend continuing.
One of the main reasons that more and more people are looking at pre-owned real estate in Tokyo is price level.
For example, in the Tokyo metropolitan area last year the average per tsubo (3.3 square meters) price for a new condo was ¥793,000, whereas the average per tsubo price for a pre-owned condo was ¥479,000.
Purchasing a new condo in the Tokyo central wards is even more expensive. The average per tsubo price for a new condo in the Tokyo central wards was ¥1.05 million tsubo last year.
There is simply a larger market of potential purchasers of more reasonably-priced dwellings, and demand has been intensified by the current extremely low financing costs. In addition, the pre-owned condo market is generally more flexible for purchasers since there is a much larger range of prices to choose from when compared to the new condo market.
Changing Consumer Tastes
Another important factor is the fact that mores in Japan are gradually changing. Much more than in the past, Japanese are showing an interest in renovating their own property, and this is affecting how they view purchasing secondhand real estate. The stigma of buying an “old” property is slowly fading.
Furthermore, Japanese banks are becoming more and more willing to lend to homeowners wishing to renovate their homes. All of this is influencing how people in Japan view real estate as an asset and a financial resource.
Evidence of how the market for residential properties in the Tokyo area is changing can be found by comparing current and past data. In 2016, the supply of new condos in the market was down 21.6% (according to Real Estate Economic Institute data) when compared to 2012 (the year before Abenomics really took off), but the number of sales of pre-owned condos in 2016 was up 18.4% compared to 2012 (according to data put out by Eastern Japan REINS). Simply put, the Japanese negative interest rate environment has pushed sales of pre-existing properties into overdrive.
On the policy front, the Ministry of Land, Infrastructure, Transport, and Tourism’s publicly stated goal of promoting sales in existing properties over sales in new properties seems to be working. As the popularity in secondhand properties grows, it is apparent that more and more Japanese believe the risks associated in purchasing a pre-owned property are worth taking, especially when considering the relatively high sticker price of newly-built Tokyo housing.