How increased job security will affect real estate prices in Tokyo

Residential real estate is Tokyo is driven by no one else than the local Japanese population. Sure, there are foreign buyers and sellers, renters and landlords but the vast, vast majority are Japanese.

At the moment, 60% of the people within the 23 wards are renting as opposed to owning.

Prices in the city would rise significantly if even 1/6th of these renters became owners.

Financing is available at cheapest interest rates in the developed world and there is even a government backed loan program called Flat 35 that can lend 100% LTV for borrowers that have trouble qualifying for private sector loans.

So why don’t more Japanese people purchasing their own home? Simple; Japanese people are not confident in their employment future.

For decades, companies hired contract based employees over regular full time employees.

With fewer benefits and job security, many Japanese people were understandably hesitant to go into debt to purchase a home.

Hiring contract workers is great for the corporate bottom line. The largest expenditure on the balance sheet is staff, so if there is a way to lower the spend on people then profits rise.

If you are a contract employee you make less money, you don’t qualify for bonuses, you have fewer benefits and you can be fired at any moment should the economy take a wrong turn.

At present, contract employees make up 37.5% of the total workforce.

The government stepped in and created regulation that says a company must bring a contract worker to full time status should the employee desire after they’ve worked at the same company for more than 5 years.

Indeed, 2016 saw Japan Post Holdings, Fast Retailing and Japan Airlines convert a combined 20,245 contracted employees to full time status. These are just a few examples of many companies that followed the same path.

2017 is seeing the tightest labour market since the 1970’s with the job vacancy to applicant ratio currently at 1.01. This means that for every full time job available there was one applicant.

Should the Japanese public feel more confident in their job security, be paid well enough not only to survive but come back into it’s own as a thriving middle class – which is the backbone of Abenomics – then they will start buying more real estate for themselves to live.

More buyers then means greater demand which means rising prices. Corporations seeing their workforce not as a burden, but as a key investment moving forward, can be a great catalyst to turn this from idea to reality.