Real Estate Prices in Japan Surge

Fueled by increasing demand and falling supply as well as rising costs of labor, materials and land, the selling prices of new apartments in central Tokyo reached record levels in the first six months of this year.

The average price surged 60 percent to ¥129.6 million ($930,000) from January to June 2023, according to the Real Estate Economic Institute, Co., which said it was the highest increase since records began.

“The overall trend of increasing prices will continue, though they won’t become this extreme,” Tadashi Matsuda, a senior researcher at the institute that has reported on sales since 1973, was quoted by local media.

There were almost 10 percent fewer new units on sale in central Tokyo during the same period and analysts explained that the record increase was caused mainly by a number of luxury units sold in early 2023, prompting the biggest increase since the Bubble era that ended in 1992.

In 2021, new condos in the Tokyo metropolitan area, which includes prefectures around the capital, started to achieve prices unseen since the Bubble era.

As well as the high cost of land in central Tokyo, sales of luxury developments suggested that wealthy residents’ lifestyles were changing as rich Asians diversify their investments to hedge their risks and move to Tokyo for the safer environment, convenience, value and better international schools.

The average price for condominiums in Tokyo and neighboring Kanagawa, Saitama, and Chiba prefectures grew 36.3 percent year-on-year to almost ¥89 million yen, the monthly report said. This aligns with observations that Tsuyoshi Hikichi, the founder of Azuki Partners, has made in analyzing the Japanese real estate market. 

Industry Insights

Photo by Aki Shimizu, RE/MAX Amistad

As Rob Williams, senior investment adviser at AP Advisers, explained, the popularity of foreign properties for international investors is also related to currency fluctuations, and warns that the Bank of Japan’s actions might affect further growth. “A weaker yen has attracted foreign buyers to the property market, which has caused prices in central Tokyo to rise sharply. The Bank of Japan seems to be remaining steadfast over their monetary policy, but if they do decide to allow interest rates to rise, higher mortgage borrowing costs, and a stronger yen may dampen the market.”

Argentum Co-Founder Martin Zotta pointed out that this trend is the extension of a dynamic that has been in play for a while. “Property prices in central Tokyo have been rising significantly for many years, so this is not something unique to 2023.” Co-Founder Lloyd Danon added, “I think what we’ve seen over the last five or six years is an acceleration of price increases, and this has surprised those who may not follow the real estate market closely and may still be stuck in the adage that ‘Japanese property does not appreciate.’ Again, this has not been the case for a very long time in central Tokyo as well as other major cities in Japan.” 

Zotta and Danon point out that Argentum has seen a steady increase in inquiries from their clients about purchasing real estate in Tokyo for residential and investment purposes over the last several years. 

Meanwhile, Zoe Ward, director at Japan Property Central, provided some further background about the demographics of property buyers: “In Tokyo the overwhelming majority of buyers of residential properties such as homes and apartments are local buyers. In some of the more high-end condos, I’ve seen numbers that suggest perhaps 20 percent may be foreign buyers and that number may include foreign residents, not just offshore buyers,” she said. “Some of the foreign buyers, resident and non-resident, may be buying for personal use, as a holiday home when they are visiting Tokyo, or as an investment property to lease out to tenants.”

Aki Shimizu, an experienced bilingual real estate agent, points out some of the lifestyle factors that will influence the condo price trend in Tokyo. “It looks like prices will continue to rise because people prefer to live in the central area for convenience. As there are more women who continue to work after getting married now, it’s convenient for a couple to live in the central area to commute to each of their offices and raise their family.”

She also adds that now could be a good time for potential buyers to enter the market, but older individuals shouldn’t wait too long to search for a home loan, given that rates are still good. “Though condo prices are getting higher, the interest rates of home loans continue to stay very low, which helps a lot for those who are looking to buy their own home. Also, because the maximum term of a home loan is 35 years and it needs to be paid off by the time that the loan holder is 80 years old, you don’t want to wait too long to start paying.”

Resort Areas Also Draw Demand

Photo by Hakuba Hotel Group

And it’s not just the Tokyo area that is booming in Japan. For example, the Hakuba area of Nagano Prefecture has been drawing attention. As Hakuba Hotel Group’s Marketing Manager John Blagys explains, he has seen land value appreciate significantly in sections of the area.  

“Hakuba land value in locations surrounding the Olympic Happo One Resort has appreciated by 12 to 13 percent every year during the pandemic. This trend makes Hakuba one of the rare destinations in Japan that has not only experienced growth, but has achieved double-digit growth.”

He explains that the pandemic proved to be a major driver for investment in Hakuba because wealthy Tokyoites began exploring the idea of permanent or semi-permanent remote work relocation. This awareness of the area then led to more investment, mainly in private chalets and villas throughout the Hakuba Valley. In fact, most of the investment in this area was in constructing private chalets by individual investors from Tokyo, as well as overseas investors from Asia–Pacific countries such as Australia, Hong Kong and Singapore.

Looking ahead, the Hakuba region is the center of larger-scale projects, including a large hotel that will be managed by a major western hotel brand and plans to develop the Hakuba Train Station and the surrounding area into a multifunctional complex with a hotel, retail, and restaurant space. Projects such as these would boost Hakuba’s status as a travel destination and further drive up property values.

Read more: Stepping Into the World of Tokyo Real Estate and Find Your Dream Property with Azuki Partners

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