Tokyo New Apartment Supply Sinks to Lowest Level Since 1973 on Impact of Coronavirus

The Real Estate Economic Research Institute (REEI), a Tokyo-based think tank, announced that the number of newly built condominiums put on the market for sale in the greater Tokyo area fell 51.7% year-on-year to 686 units, the lowest number since the start of the survey in 1973. The greater Tokyo area consists of the capital, plus the three surrounding prefectures of Saitama, Chiba, and Kanagawa.

Developers in greater Tokyo have severely pulled back on new offerings in the midst of the state-of-emergency (SOE) declared in the greater capital region on April 7th. Many developers also stopped showing model rooms after the SOE was declared in order to comply with government requests to refrain from non-essential gatherings.

April’s results represent eight consecutive months of decline and follows March’s year-on-year drop of 35.8%. However, the longer term declining trend is also due to efforts by developers to keep supply limited in order to support price levels, as average sales prices have soared in the last year.

Average sales price

The average sales price per unit in April increased by 5.4% year-on-year to 62.16 million yen, surpassing 2019 results for the first time in two months. The high ratio of properties listed for sale in the Tokyo 23 wards continues to prop up high average prices throughout the capital region.

In the run up to the Tokyo 2020 Olympics (which have now been postponed to July 2021), the capital had experienced a building boom. This has led to severe shortages of building materials and labor, and high construction costs have in turn buoyed both listing and final sales prices.

Price outlook

Because construction costs are forecast to remain high, the REEI does not foresee a drop in average sales prices this year.

High average sales prices are also supported by the sales strategies followed by the country’s largest developers, who have deep enough pockets to spread sales out over a long period, rather than resorting to immediate price discounts in an economic downturn.

However, if Japan sees a long recession, even wealthy double-income households, who have been the mainstays in the Tokyo new apartment market, may pull back on how much they are willing to pay. In this case, developers may have to revisit their pricing strategy.

Looking at units released by region in April, the Tokyo 23 Wards had a year-on-year drop of 42.1%, Chiba of 88.8%, and Kanagawa prefecture of 55.6%.

The Institute estimates that the number of units expected to be released for sale in May will come in at about 500 units, which would be an all-time low.

Contract Rate

The contract rate is the number of sales contracts divided by the number of units released for sale for the period. A contract rate of 70% is the dividing line between a sellers’ and buyers’ market.

April’s contract rate soared to 78.9%, a year-on-year increase of 14.6 points. This represents two consecutive months of a buyers’ market.

However, the actual number of transactions (779 units sold) was less than half the number sold in April 2019 (1,940 units).

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Source: Real Estate Economic Research Institute

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