Average apartment price in Tokyo area hits record high in 2021, exceeding bubble era

The average unit price of a newly constructed condominium sold in the greater Tokyo region hit a record high of ¥62,600,000 ($550,000 USD) in 2021, up 2.9% year-on-year, and outstripping the previous high reached in 1990 during the asset bubble era. This is according to the Real Estate Economic Research Institute’s (REERI) report on the capital region condominium market for 2021.

Here are the main highlights from the report:

Developers in the greater Tokyo region released 33,636 apartments for sale, a year-on-year increase of 23.5%. The greater Tokyo region includes the city of Tokyo and the prefectures of Chiba, Saitama, and Kanagawa. This was the first time in three years that supply has exceeded the previous year’s results, indicating a strong recovery from the mid-2020 COVID-induced pullback on the part of developers.

The average price of a newly constructed condominium sold in the Tokyo 23 Wards rose 7.5% year-on-year to ¥82,930,000 ($729,000 USD), surpassing the 80 million yen mark for the first time in 30 years. This was also the second highest average sales price ever recorded (¥86,670,000 ($761,000 USD)), which was reached in 1991 and was also a jump of 10 million yen compared to the average price reached two years ago.

High-priced properties in central Tokyo, especially Minato and Chuo wards, were a key driver of the jump up in average sales prices in the Tokyo 23 Wards. The ratio of properties sold in the 100 million yen or higher range comprised 8.2% of the total. More units were sold in the “100 million yen or higher” price range than in any other price range recorded by the REERI. For example, units in Mitsui Fudosan Residential’s Park Court Chiyoda Yonbancho development, which have an average listing price of 200 million yen or higher, were extremely popular with well-heeled buyers.

Supply increased in all areas of the capital region except in the Tokyo western suburbs. In the Tokyo 23 Wards, the number of units released for sale was up 21.8% year-on-year, in Kanagawa prefecture supply rose 54.1% year-on-year, in Saitama supply rose 32.2%, and in Chiba prefecture, supply was also up but relatively less than other areas, at 5.9% year-on-year. In the western suburbs of Tokyo, supply fell 9.9% year-on-year to 2,921 units.

In December total inventory in the greater capital region stood at 6,848 units, about 2,000 units less than in December 2020 and the lowest level since 2015.

The 2021 annual contract rate for the greater Tokyo region as a whole was 73.3%.  The contract rate is the number of units contracted for sale divided by the number of units offered for sale. A contract rate above 70% is said to indicate strong buyer interest relative to supply.

Last year demand for newly constructed condominiums was not only strong in the Tokyo city center but also in the suburbs, especially as more people are working from home and as outlying areas are relatively less expensive. In 2021, the average sales price for a new apartment in Chiba prefecture was ¥43,140,000 ($379,000 USD), or about 52% the average sales in the Tokyo 23 Wards. The report pointed out that developments in the city of Ebina in Kanagawa prefecture, the city of Saitama, and the Kanagawa prefecture as a whole were especially attractive to buyers.

What is driving prices to record highs?

Supply and demand factors are both playing a part in pushing average sales prices upward. Land acquisition costs and labor costs, due to a long-term labor shortage in the construction industry are affecting how many new developments can be brought to the market. On the other side, there is a significant segment of the market which consists of high-income buyers and double-income income couples who have the means to purchase high-end units.

However, it is not just wealthy buyers. The pandemic has changed attitudes and corporate policies regarding working-from-home, so that a short commute time has become a much less important consideration. This has opened up more possibilities for developers to acquire less expensive land outside the city, knowing that there is demand for these types of units from office workers commuting into the city center (or who no longer have to commute at all). Workers moving to the suburbs are looking for more affordable apartments with more living space, but high-rise “tower mansions” in the city center are considered most likely to lead sales.

All of this is underpinned by Japan’s ultra-low interest rate environment. In many countries, housing prices have been increasing in recent years buoyed by quantitative easing by central banks working to support their economies amidst the pandemic. While central banks in Europe and the U.S. are signaling that they will likely be raising rates this year, the Bank of Japan said last week that it would maintain its easy money policy, as its two percent inflation target remains elusive.

Supply of new condominiums in the greater Tokyo is expected to increase 4.6% this year, but a newly built apartment is beyond the reach of many middle-income homebuyers in greater Tokyo. Based on current market trends, there do not seem to be forces that would significantly drive down land prices and construction costs. If consumer demand remains the way it is, it seems unlikely that we will see average sales prices in the metro region declining in the near future.

Sources: Real Estate Economic Research Institute, 2021 Greater Tokyo New Condominium Market Report (in Japanese), Nikkei newspaper, January 25, 2021 (in Japanese)

Lead image: Tokyo cityscape and Tokyo Skytree via iStock 332999260

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