Buying a Condominium

Supply of New Condominiums in Tokyo Sinks to 24-Year Low

The number of new condominiums for sale in the greater Tokyo area in 2016 dropped 11.6% year-on-year to 35,772 units, hitting the lowest level since 1992, according to the Real Estate Economic Institute (REEI). The last time the supply of new condos dropped that low, the  Japanese asset bubble had just burst. Let’s look at the supply-and-demand behind this double digit decrease.

Supply and demand

According to the REEI, consumers are expressing less interest for new condos in the greater Tokyo region (which comprises Tokyo and the neighboring prefectures of Chiba, Kanagawa, and Saitama). At the same time labor shortages in the construction industry have pushed up construction prices, which are reflected in higher asking prices, and real estate companies have had a hard time marketing these higher priced developments.

Home buyers are also increasingly interested in renovating used houses, rather than buying newly-constructed condominiums.

On the supply side, the REEI said that real estate firms have been avoiding suburbs to concentrate on developments in core urban areas, where there is more competition for land, especially against hotel developers.

Sales contracts were closed for 68.8% of the total supply, below the 70% level for the first time in seven years since 2009, in the immediate aftermath of the global financial criss. A 70% close ratio is considered the benchmark for a bullish market.

The average unit price also dropped 0.5% to ¥54.9 million.

The REEI notes that the price decrease reflected a decrease in the number of luxury condos amid intensified competition for suitable land for development, as hotel operators are looking for similar building sites.

The Institute also estimates the overall new condo supply in 2017 will increase 6.2% to 38,000 units, led by a gradual supply increase in the suburbs.

In the Kinki region, which includes Osaka, Hyogo, Kyoto, Nara, Shiga and Wakayama prefectures, new condo supply fell 1.3% to 18,676 units.

Source: JiJi Press, Real Estate Economic Institute

Photo: Roppongi Hills Residences, built in 2003, considered by many to be the most desirable residential address in Tokyo