Real Estate in Japan
When you make a trip to a far-away destination, you also want to learn more about the life of the locals. The real estate market is one subject that comes up in my tours sometimes when my customers have a specific interest in that. They wonder what percentage of Japanese people buy their homes as opposed to renting, what the average prices of a home and an apartment are, and what the general trends are in the real estate market in Japan. And what is up with those houses that are given away for ‘free’? Let us give you a general overview of the real estate market in Japan!
Historical Trends in Japanese Real Estate
Around 70% of Japanese land is uninhabitable because of mountainous terrain, which leaves only a part of the Japanese landmass for city development. With a population of over 120 million, this generally means that a significant number of people live in densely populated metro areas. As you may know, Japan’s population is currently decreasing, as the fertility rate has been below the replacement rate for a long time and it doesn’t look like this trend will reverse any time soon. Opposed to what you may think, this doesn’t take the pressure off of crowded cities because younger people move away from the countryside to the city in order to find jobs and escape their slowly dying villages and small cities. This means that living space in the city is still scarce and therefore expensive relative to the space you get.
Besides the limited amount of space, Japanese people always had to live with many kinds of (natural) disasters; earthquakes, volcanic eruptions, tsunamis, typhoons, and wars have more than once devastated large parts of the country’s densely populated areas. This means that to some extent most people expect some kind of damage to their homes, and single-family homeowners often even expect to have to completely write off their house if a disaster would hit them.
In the 1970s and 1980s, real estate prices in Japan and especially Tokyo started to go through the roof when the economic bubble reached its peak, and then from the 90s on prices went down and have been hovering around a similar level for the last 10 years or so. Interest rates are very low, and at the moment around 60% of people in Japan are homeowners as opposed to renters. The average price for a second-hand 70m2 apartment in Japan is around 175.000 USD while the average price for the same in Tokyo is 480.000 USD. A new apartment in Tokyo costs around 575.000 USD.
Land Prices in Japan
Anyone can buy land in Japan, and it is not prohibited for foreigners to buy land like it is, for example, in Thailand. Like anywhere else in the world, there is a large difference in m2 land prices depending on where you want to buy land. You can find very cheap land in the countryside and also in unpopular suburbs of large metro areas like Tokyo.
On the other side of the spectrum, there are the sought-after areas in popular cities like Tokyo, Osaka, and Kyoto. These are the only areas in Japan where there is a good chance of your property increasing in value. Of course, these plots of land and apartments are hard to get to unless you have a very high budget. Especially the western side of Tokyo is quite unaffordable for people who are not bringing a huge amount of savings with them for the down payment, as this side of the city is beautifully developed with ample green and pretty streets and as a huge bonus, the western side of Tokyo sits on a relatively stable landmass that is less likely to be hit by a large earthquake compared to the eastern side of the city that is largely built on reclaimed land and areas near rivers.
If you would be interested in investing in real estate in Japan, trying to run a share house or other housing for temporary residents in B-areas is probably your best bet. You’d be best off trying to find a gem that is undervalued in an area that is likely to be prettified by the city in the years to come. Otherwise, if you bring a large amount of money with you, buying a ‘used’ apartment in a popular part of the city, near a metro station, in a well-kept building would be the best way to go. Other types of property, generally, lose their value over the years, making it very hard to make a good profit from your property. This tendency is strongest for apartments in unpopular (suburban) areas and single-family homes where the land doesn’t increase in value.
Single-family Homes in Japan
While structures like temples and higher buildings are built to withstand strong earthquakes, smaller buildings and especially single-family houses are not built to last and are often expected to be torn down again after 25-40 years. This also means that home improvement is not done as often as in the West as they are costly and deemed unnecessary for a property that is not expected to stand for many more years. As soon as you move into your brand-new home the value of the house goes down, and it will keep decreasing steadily until it is worth a minus amount of money because new landowners would have to first have the old house demolished.
Single-family houses in Japan often come as a prefab package which makes many houses that were built around the same time look quite similar. You can often see from the style of the house around which year it was probably built, as fashion trends come and go, also in housing tastes. A few examples of the large corporations that build these prefab homes are Sekisui, Daiwa, and Asahi Kasei. As bathrooms and kitchens are also often done by the same companies, those tend to look similar in many Japanese homes as well. The bath areas are usually large plastic units that can quite easily be replaced if necessary. What is worth noticing is that standard Japanese single-family homes don’t come with good insulation and double-paned windows. This drives the costs of keeping the house cool in summer and warm enough in winter up and makes it worth looking into paying extra for good insulation if you buy a new house from the catalog.
A completely new home is not that expensive in Japan, and you can get a single-family unit for as little as USD 100.000 although this market is quite varied and you can buy a custom-designed house or a house with many extra luxuries built for a lot more money as well. If you have enough money to for example buy land in a popular area on the west-side of Tokyo, it might be worth investing in a nice and higher-quality house as you will likely live there for a long period of time and either hand over the land and house to the next generation or sell it for a profit.
The largest part of the cost of a single-family home in Japan is usually the land unless you buy in the (non-popular) countryside or far-away suburbs. The value of the land should be quite steady on average, it usually doesn’t go up unless the area is urban and/or very popular, and the value of the land also should not decrease too much as long as it is not in an area with net-emigration. If children inherit a property in a very unpopular region, it can happen that the land will be sold for (nearly) free. They inherited the worthless house and nearly worthless land, they live in the city far away, and they don’t want to deal with the costs associated with demolishing the house and trying to sell the nearly worthless land. Oftentimes, they would even lose money in the process. This results in small towns and suburbs with many derelict houses and empty plots of land that no one wants to have, making the surrounding houses lose even more value and ending up in a vicious circle that is very hard to get out of. One way to partly solve the problem for the inheriting party is to convert the land into a parking lot. Taxes are different for parking areas compared to a residential piece of land, so that way the inheriting parties don’t lose too much money.
A special category in large metropolises around the world is the very large high-rise condominium complex. In Japan, these gigantic apartment buildings are called ‘tower mansions’. The first tower mansion was built in Japan in the early 1970s, and currently, it is a large part of the market with 1/5th of units sold being an apartment in a tower mansion. By far most tower mansions are located in Tokyo and the Kansai area. Developers mainly try to attract young power couples and semi-wealthy 50+ people as new buyers and try to lure them with flashy lobby design, 24/7 security, and nice extras such as a gym or an on-premise public bath. This makes units quite easy to sell when they are brand-new.
But is an apartment in a tower mansion a good investment for the future? What will make a unit in a tower mansion attractive as an investment is that it is very likely that the trend that younger people will keep moving from the countryside to the city will continue, ensuring a steady stream of new buyers. But as the population is shrinking, and Japan is not likely to adopt a strategy of mass immigration in order to set off the population decline, this could threaten prospects to sell your unit 20-30 years from now. Another large drawback of tower mansions is their proneness to disaster-related issues. You won’t need to worry too much about the whole building collapsing, as especially tall buildings are built especially to withstand earthquakes and even tsunamis, but the power can be cut for multiple days which means you will have to climb a lot of stairs if you happen to live on the 50th floor. But also in a non-emergency, the elevator situation can turn out to be less than ideal as many tower mansion residents complain about having to wait for a long time during the morning rush to just catch an elevator.
But the main problem with tower mansions is the astronomical cost associated with general building renovation and upkeep. There is an owners’ fund that everyone should pay into, but in reality, this often doesn’t happen. Many owners don’t even live in their unit and they often don’t feel the need to chip in for the fund. This results in the tower mansion community not having enough money to pay for the very costly large renovations that are necessary every 10 to 15 years to keep the building safe and livable. The result is usually that either the renovations just don’t happen and the tower mansion slowly turns into an undesirable place to live, or in very high bills of sometimes tens of thousands of dollars for the residents who are committed to having the renovations done and are willing to pay for it. This means that if you are thinking about buying a unit in a tower mansion, especially one that is over 10-15 years old, you have to make sure to ask how the renovation fund is doing.
The big question is whether tower mansions are heading in the same direction as the danchi, which are large housing development projects in Japan that often date back to the 1950s-1970s. The word ‘danchi’ literally means ‘group land’ and consists of a large area with many rows of flats, and they were touted as the dream of every young family to live there with modern amenities like a laundry machine and a fridge. The post-war economic boom made the danchi successful in attracting plenty of young families when they were just built, but the problem is that the people who originally moved in still live there in large numbers, meaning that the danchi areas are currently mainly inhabited by elderly and childfree people as there are no longer any schools nearby. The old structures also don’t look attractive, and many areas where the danchi were built are no longer lively areas. Some tower mansions, where the needed renovations are not going to be done, seem to be headed in this direction.
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