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A new wave of Japanese entrepreneurs is competing with foreign buyers for a limited supply of high-end Tokyo apartments, driving property prices in the city to levels not seen since the 1980s bubble.
The price per square metre of new flats for sale in the Japanese capital reached ¥1.62mn ($10,830) in the third quarter, surpassing the peak of ¥1.4mn in 1990, as reported by property consultancy Tokyo Kantei.
The Real Estate Economic Institute, which tracks the property market in Japan, revealed that the average price of a new apartment sold in Tokyo also hit a new post-bubble high of ¥88.7mn in the first half of the year.
“The main buyers are wealthy Japanese individuals,” said an official at the institute.
15Years needed for an average skilled office worker to afford a 60 sq m flat in central Tokyo
Although Tokyo’s prices are still lower compared to other major capital cities, UBS analysts estimate that apartments are more unaffordable for the average person, second only to Hong Kong.
According to UBS’s recent note to clients, it would take an average skilled office worker 15 years to afford a 60 sq m flat in central Tokyo, compared to 11 years in London, 10 years in Singapore, and eight years in New York.
“Housing market imbalances in Tokyo have increased from being undervalued 20 years ago to now posing a bubble risk,” stated UBS.
A scarcity of supply is also contributing to the issue. Consultancy Cushman & Wakefield reported that in 2022, there were only 10,800 condominiums for sale in central Tokyo, the lowest figure in two decades.
Tokyo Kantei stated that supply further contracted in 2023 and that the demand for high-end apartments was disproportionately impacting average prices.
Foreign investors from China and other countries are also being attracted by the inexpensive yen, which is at a near-50-year low, according to local brokers.
“The trend of increased purchases by foreign buyers is not likely to stop anytime soon,” remarked Mari Kumagai, head of research at Cushman & Wakefield in Japan.
Brokers report that there are only about 100 apartments on the market selling for at least ¥1bn, with Japanese buyers leading the way.
“Buyers from outside [Japan] just did not believe them when I told them that there was no availability in a size and price range equivalent to the high-end properties that routinely change hands in New York, London, and other major cities,” said Zoe Ward, CEO of brokerage firm Japan Property Central.
Tokyo’s collection of such properties was recently significantly expanded by the sale of numerous luxury apartments on 10 floors of the 330-meter Azabudai Hills tower, Tokyo’s tallest building. According to insiders, the most valuable penthouse property in the development sold for about ¥22bn.
Mori, the developer, confirmed that most buyers so far were Japanese but did not disclose the apartments’ prices.
One Japanese entrepreneur mentioned three people who had recently purchased apartments in the development – each being the Japanese founder of a company listed on the Tokyo Stock Exchange within the past 18 months.
“Among younger shacho [chief executives], the apartment is the new way of showing your prestige,” he said. “Founders used to buy land and build a big house. Now they want an apartment in the centre of the city.”
The Real Estate Economic Institute stated that rising prices in Tokyo are also driven by increased construction and material costs, as well as a chronic shortage of labor. Today’s situation is very different from the bubble era, according to the institute’s official.
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