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HomeNewsroomMarketHot Market: Tokyo Residential Real Estate sees Strong Demand in a Tight Market, Prices Surge!

Hot Market: Tokyo Residential Real Estate sees Strong Demand in a Tight Market, Prices Surge!

April 13, 2022

Tokyo residential real estate prices continue their impressive ascent with a recent report showing prices at levels which have not been seen since the early 1990s. 

In March, the Real Estate Economic Institute reported the average price for a new apartment in February for Tokyo’s 23 wards reached JPY 96.85 million, a stunning 30% increase year-on-year. The average price per square metre was recorded at JPY 1.48 million. 1,2

Used apartment prices also climbed to an average of JPY 930,500/m2, a solid 9.1% increase year-on-year.3

Despite the wide perception of a stalling Japanese economy, the real-estate market appears to be very strong. What are the factors causing this rapid increase in Tokyo’s real estate prices?

Interest Rates and Currency

Rates continue to remain low with an ample supply of credit in the market.

On March 29th, the Bank of Japan (BoJ) announced it would defend the 25-basis point yield cap set on 10-year Japanese government bonds (JGB), offering to buy an unlimited amount over a two-day period.4 This has further increased downward pressure on the yen. Moreover, the BoJ has maintained its loose monetary policies, keeping rates very low with the discount rate at -0.1% and the long-term prime rate at 1.1%.5  At the consumer level this means borrowers can find mortgage rates ranging from as low as 0.375% up to 1.6%, depending on the type and term of the loan.6,7  With such low rates and cheap money readily available, there is a strong incentive to invest in real estate.

In contrast, other G7 central banks are raising interest rates to combat growing inflation.  Following the 25-basis point rate hike by the Federal Reserve in March, the 10-Year US Treasury yield hit its highest since 2019.8  With this, the 30-year fixed-rate mortgage has risen to 4.89% as of March 31st.9  This upward pressure in long-term rates outside Japan and resulting divergence in interest rates is causing downward pressure on the yen, which has reached its weakest point since 2015.10  This yen weakness may provide opportunities for foreign investors of Japanese real estate going forward, further adding upward pressure on real estate prices.

Chart showing USD/JPY over time, current yen weakness reaching levels not seen since 2015.

Population / Demographics

Japan has seen strong growth in urban populations at the expense of rural areas, causing Japan’s population density to become very polarized over time. 

This shift in population has a considerable impact on the real estate market; a study conducted by the IMF found that a 1% increase in population growth results in a 5% increase in housing prices.11

Of interest, the growing consumer segment referred to as power couples, high-earning dual income households, has doubled from 6.1 mil. in 1980 to 12.4 mil. households in 2020. The increase in discretionary spending of this segment is likely contributing to the increase in real estate prices.12,13

Raw Materials Supply

In February of 2022, the Japan Raw Materials Index recorded a new high of 149.40 points, while just one year earlier this index was recorded at 99.00 points, a 50.91% increase.14

This index is indicative of the significant cost pressures being felt by developers for building materials, resulting in an increase in the cost of construction, which is eventually passed on to consumers in the form of higher prices.

Land Prices

Official residential land prices (generally a conservative assessment) for Tokyo’s 23 wards have increased an average of 1.2 % YoY.15  Whereas, residential land transaction data indicate an average price of JPY 1,020,690/m2, a 2.99% increase YoY.16  Furthermore, land prices nationwide have seen an increase for the first time in two years, up 0.6% YoY.17  

These land price increases may also be contributing to higher prices, particularly in Tokyo where up to 70% of the cost in real estate is associated with land, versus construction.18

Market Outlook

Domestic demand for Tokyo real estate is strong and expected to continue throughout 2022. The weak yen may also spark a renewed interest from foreign investors as inbound travel resumes in the wake of the pandemic. Moreover, supply constraints, including construction cost increases and land scarcity are likely to continue to drive further gains in Tokyo residential real estate prices.

To help you navigate the challenges of buying or selling real estate in Tokyo, Housing Japan and its team of multilingual experts has been serving the community for over 20 years. We are ready to help. Please send an enquiry to info@housingjapan.com.

Sources

  1. Real Estate Economic Institute February 2022 Report; 2022 https://www.fudousankeizai.co.jp/share/mansion/501/Tft65cZay.pdf
  2. Real Estate Economic Institute February 2021 Report; 2022 https://www.fudousankeizai.co.jp/share/mansion/456/AtNtQs4w.pdf
  3. REINS February Market Watch Report 2014-2022; 2022
  4. Reuters Bank of Japan Ramps Up Battle to Defend Yield Cap Even as Weakening Yen Raises Economic Risk 2022; 2022 https://www.reuters.com/world/asia-pacific/boj-ramps-up-battle-defend-yield-cap-2nd-day-intervention-2022-03-29/
  5. Bank of Japan Prime Lending Rates 2022; 2022 https://www.boj.or.jp/en/statistics/dl/loan/prime/prime.htm/
  6. Mizuho Bank Home Loans; 2022 https://www.mizuhobank.co.jp/retail/products/loan/housing/index.html
  7. SMBC Housing Loan Interest Rate Plans; 2022 https://www.smbctb.co.jp/en/loan/products/pdf/housing_loan_interest.pdf
  8. CNBC US 10 Year Treasury; 2022 https://www.cnbc.com/quotes/US10Y
  9. Bankrate 30-Year Mortgage Rates; 2022 https://www.bankrate.com/mortgages/30-year-mortgage-rates/
  10. Trading Economics USD-JPY FX 2022; 2022 https://tradingeconomics.com/japan/currency
  11. IMF Demographics and the Housing Market – Japan’s Disappearing Cities 2020; 2022 https://www.elibrary.imf.org/view/journals/001/2020/200/001.2020.issue-200-en.xml
  12. JILPT Labor Statistics; 2022 https://www.jil.go.jp/english/estatis/eindex.html
  13. NLI Research Power Couple Household Trends; 2022 https://www.nli-research.co.jp/report/detail/id=69790?site=nli
  14. Bank of Japan Monthly Report on the Corporate Goods Price Index March 2022; 2022 https://www.boj.or.jp/en/statistics/pi/cgpi_release/cgpi2202.pdf
  15. Tochidai Tokyo 23-Wards Land Valuations 2022; 2022 https://tochidai.info/tokyo23/
  16. MLIT Land Transaction Price Overview 2021; 2022 https://www.land.mlit.go.jp/webland_english/servlet/BasicStatisticServlet?KND=01&SKC=13100&SKA=131
  17. MLIT Officially Assessed Land Values 2022; 2022
  18. Japan Housing Finance Agency 2020 Stats; 2022 https://www.jhf.go.jp/about/research/2020.html

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