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Property

Tokyo property prices near bubble-era levels

BOJ's easy monetary policy has channeled funding into real estate

High-rise condominiums seen on Tokyo's bayside area. (Photo by Kazuya Hiruta)

TOKYO -- Rising resource costs, a worsening labor shortage and a flood of easy money are pushing property prices in Tokyo to near-historic levels.

Prices for new condos in the greater Tokyo area last year averaged 2.87 million yen ($25,974) per tsubo (3.3 sq. meters), according to data from Real Estate Economic Institute, a private research company. That price peaked at 3.08 million yen in 1990 before the collapse of Japan’s asset bubble. 

Property prices skyrocketed during Japan’s asset bubble in the late 1980s. The bubble’s collapse signaled the start of the country’s long period of deflationary malaise, in which wage growth stagnated and consumption languished.

Japan’s labor shortage is driving up construction companies’ personnel costs, and raw material prices are rising. Increasingly fierce competition for land for construction is also pushing up prices.

In addition, the Bank of Japan has maintained an ultra-easy monetary policy since 2013, distorting the market, according to Hiroaki Muto, chief economist at Tokai Tokyo Research Center. "There’s a lot of financing flowing into real estate now."

"I think this situation will continue until about 2021," said Muto, noting that the BOJ will have difficulty tightening policy until then as global economic growth slows.

Tokyo’s property market has had its ups and downs. At the peak of the bubble in 1989, some condos were selling for more than 1 billion yen, and buildings with more than 30 floors started springing up.

After the bubble, prices plummeted. In 2002, the price per tsubo was about half that of the bubble era. But easier housing loans and low interest rates helped spur demand for new condos.

In 1999 through 2005, the market was marked by high sales volume, with more than 80,000 units sold every year. But with time, that number has dropped as consumers focus more on quality of condos. In the past three years, fewer than 40,000 units have been sold each year.

But while prices are rising, policy makers are not worried.

"Real estate is still green on the BOJ’s heat map, but it’s getting close to red," said Tokai’s Muto, referring to a report that assesses financial risk. "I think if it turns red, that’ll be something of a warning."

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