By Jeff Wynkoop
In 2016 sales of pre-owned condos exceeded sales of new condos in the Tokyo area for the first time since records on both have been available (from 1996). Sales of pre-owned condos were up on a year-to-year basis by 6.9% to 37,189 units in 2016, whereas there were 35,772 new condo units sold during the same period (down 11.6% year to year) according to the Real Estate Economic Institute Co., Ltd.
Average Price of New Condos Down
The average price of a new condo in 2016 was down 0.5% on a year-to-year basis compared to 2015 to 54.9 million yen. This was the first time in the last four years average price decreased. The number of sales of new condos in Tokyo’s 23 wards was the lowest in the last 24 years.
Over the last three years, the average price for a new condo sold in Tokyo’s 23 wards exceeded 50 million yen. This is the first three year period in which the average price exceeded 50 million yen since 1992.
For a family-sized new condo of 70 square meters in Tokyo, prices are about 70 million yen, which is too much for most working families to afford, so demand has been spilling over from new condos to pre-owned properties.
Although the relative yield is better on pre-owned condos, foreigners appear nevertheless to still prefer to invest in new condos for their more modern facilities and higher construction quality.
Causes Behind Increased Prices in New Condos
An important reason why prices have been so high historically for new condos over the last three years is the severe labor shortage in the Japanese construction industry and resultant higher wages.
Further, since interest rates are currently so low due to the Bank of Japan’s loose monetary policy, developers are willing to hold properties on their balance sheets for longer than in the past, without having to worry that the financing costs (the monthly interest costs on developer loans) would too severely eat into their profits. Accordingly, it seems developers are relatively comfortable sitting tight and not reducing prices to stimulate sales more than at any time in the past.
Prices of Pre-Owned Condos Also Rising
According to Tokyo Kantei, in 2016 the average list price for a pre-owned condo with roughly 70 square meters’ space in the Tokyo metropolitan area was 34.76 million yen. This was an increase of 13.2% when compared to 2015 average price. In addition, this price level breached the record average price logged in 2008 and is the highest since 1994.
Many buyers are priced out of the new condo market, and given the lower number of new condos compared to pre-owned condos, more people are switching their target to the larger potential market of pre-owned assets.
Most of the growth in price for used condos is happening outside of Tokyo’s central six wards.
In December 2016, average prices were up 2.3% compared to December 2015 for Chiyoda-ku, Chuo-ku, Minato-ku, Shinjuku-ku, Shibuya-ku, and Bunkyo-ku, but average prices were up 9.1% for Tokyo’s 23 wards taken as a whole when compared to December 2015.
Source: Nikkei Shinbun, February 2 and February 4, 2017
Top photo: World City Towers, Minato Ward, Tokyo.