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Real estate prices in Tokyo can be notoriously high. The city is a mainstay on top-ten lists of the most expensive places to live, and when you do find a place to call home it is often akin to taking up shelter in a rabbit hutch.

As the Tokyo skyline is increasingly dotted with high-rise developments—many seeming out of reach for the average buyer—what options are there?

The high-end real estate market has been growing substantially and, for many, these developments offer ideal homes for those arriving from abroad. But they don’t suit everyone’s budget, so what about the mid-market?

The ACCJ Journal spoke to Robin Sakai, marketing manager at Housing Japan K.K., and Lloyd Danon and Martin Zotta, managing directors at Argentum Wealth Management about trends in secondhand properties.

MIDDLE OF THE ROAD
“Prices are currently going up throughout Tokyo, but especially in the five central wards [Chuo, Chiyoda, Minato, Shibuya, and Shinjuku], which remain—both for Japanese and non-Japanese residents—the location of choice,” Sakai explained.

Despite this, Danon suggests that value for the money in Tokyo is comparably better than what’s available in other big cities.

“Here, everything works and is safe. Buildings are built to an amazing standard, to withstand almost any earthquake. Infrastructure is amazing and trains are always on time. And, when you compare prices for what you can get for the same money here versus New York and London, I think it’s still fairly priced.”

Sakai also notes some trends for mid-market buyers when searching for the perfect property. “Typically, mid-market buyers focus on an up-and-coming location, for example Musashi-Kosugi or Kichijoji—areas that are close to a major landmark or with especially good rail and metro.” This includes the lifestyle centers of Ebisu and Azabu-juban.

Areas such as Kichijoji add beautiful nature to city life.

But, as Sakai explained, “Staying in central Tokyo will mean sacrificing either size or modernity.” Despite this trade-off, he says the resale value will be higher.

“Those planning to stay in Japan long term tend to look for size, comfort, and a location that meets lifestyle requirements such as proximity to schools. This might mean looking at areas outside the Yamanote circle. For professionals who may not stay long term, liquidity and resale value are more important. For them, buying in premium locations that are closer to the center will make it easier to sell or rent out the properties if they leave Japan.”

WINDS OF CHANGE
The Tokyo market has undergone considerable transformation over the past five years. With an improved economic outlook, low interest rates, and societal changes, things are looking up for potential purchasers.

“Real estate cycles have an emotional component. There have been a number of events in the past several years that no doubt influence people’s thinking,” said Gordon Hatton, co-chair of the American Chamber of Commerce in Japan (ACCJ) Real Estate Committee. He named Abenomics and the Great East Japan Earthquake and Tsunami of March 11, 2011, as two influencers.

“Buying a home is now more affordable than renting, and developers are responding to these opportunities by investing in more and better homes to encourage ownership among Japanese,” Sakai said.

Hatton also believes that “the recent increase is primarily in condominiums for sale, not in rental properties. In some cases, buildings with mid-market rentals have been sold to condominium developers and renovated for sale, or demolished for redevelopment as condos to be sold.”

Japan’s declining population is another consideration, along with a migratory shift to the central areas of large cities such as Tokyo, Yokohama, Osaka, and Nagoya. Adding to this is an influx of non-Japanese from abroad as the government works to increase foreign direct investment.

“In Asia, Japan is one of the few countries where a foreigner has the ability to purchase not just the building but also the land, and can access financing even without permanent residency,” Danon told The ACCJ Journal.

Sakai believes that the Tokyo 2020 Olympic and Paralympic Games will play a key role in turning Tokyo into a top travel destination, bringing in waves of foreign business investment that will stimulate domestic activity. However, there is another major business investment Japan is looking to make that will have a larger impact: integrated resorts (IRs), properties that combine hotels entertainment, retail, and dining.

“The post-Games outlook is strong, and with the introduction of IRs—and continual space for the service sector to grow—the Olympic boost in Tokyo can be expected to continue long into the future.”

Hatton agrees that the Olympics have sparked a sense of optimism in Japan. “It will be interesting to see if that continues or is extinguished along with the Olympic torch.”

Zotta and Danon agree that 2020 is not the price-driver or sole key economic indicator with regard to the rise and fall of property prices in Japan. IRs will also leave a lasting mark.

Lifestyle centers such as Ebisu are very popular with mid-market buyers.

SECONDHAND ROOMS
For those looking at mid-market options, there is also a lot to be said for pre-owned properties.

“When comparing new builds to secondhand properties, there can be a significant difference in price—even for something that is just five or 10 years old. This is why secondhand properties make a lot of sense, in terms of returns, depreciation, and what you get for the money.”

He added that acceptance of the secondhand market here is shifting more toward that found in the West, referring to the idea that, in Japan, only new things hold value. Older properties are now finding a place in the market, too.

Danon explained that this also has to do with design and construction, but the quality of the secondhand market has certainly gone up. “The quality, fittings, overall layout, and design of properties built after 2000 is much higher, compared with something from the 1980s. This makes these newer secondhand properties more desirable as they come on the market.”

Sakai echoed this, explaining that values on the secondhand market are affected by the age of a building, whether a bank will provide a loan based on that property, and the fact that the lifespan of apartment buildings and houses can vary greatly, from 24 years for a woodframe structure to 65 years for a concrete structure.

“Buildings from the sixties and seventies have largely been replaced in Tokyo already, so it depends on what happens with buildings built in the eighties. They often can be retrofitted with modern earthquake-resistant features.”

Another consideration is a new generation of buyers in Japan. “A younger Japanese generation with more opportunities is encouraging home ownership in a way that wasn’t the case 10 or 20 years ago,” Sakai explained. “As younger Japanese come into the job market, they will benefit from more opportunities and growing wages.”

New regulations from the government in the secondhand market are also taking effect, with home inspections designed to make people feel more confident when participating in the market.

Zotta and Danon believe that Japan’s population is becoming more mobile. There is more liquidity in the market, and many are going abroad. This travel experience is changing how they approach their property investments in Japan.

Demand is increasing, and Tokyo’s population is increasing, too. Together with a candidate-short job market that requires companies to offer more generous compensation packages, these changes are breathing new life into the market and putting great property within reach for a new generation of prospective buyers—whether they come from Japan or abroad.

Maxine Cheyney is a staff writer at Custom Media for The ACCJ Journal.