TOKYO -- Properties here are on the uptrend, thanks in part to growing demand for condominiums, strong appetite among Asian investors and foreigners working in Japan. However, overvalued prices and sluggish purchases by real estate investment trusts could prevent the trend from continuing.
The residential property price of Tokyo for all uses rose 1.8% on the year in 2014, according to data released in September by Japan's Ministry of Land, Infrastructure, Transport and Tourism. The capital maintained its strength, at a time when the average property prices nationwide have been falling. Particular attention is being paid to a 6.5% increase in Chuo Ward, where construction of residential tower buildings is underway on the waterfront. Other major gainers include Chiyoda and Minato wards, where redevelopment is in progress.
In Chuo Ward, Tsukishima is an old district well known for its many "monjayaki" restaurants. Monjayaki is a kind of Japanese pancake made of seasoned flour mixed with various ingredients and cooked on a hot iron griddle. Tsukishima also presents a different face as a waterfront district with high-rise condos. The average residential property price there rose the highest in the Tokyo metropolitan area. The 53-story condominium tower Capital Gate Place has 702 apartments and is currently under construction at a site overlooking Tsukishima subway station. All the units have already sold out for the building, whose construction is slated for completion in July 2015.
Likewise, new residents continue to flow into Toyosu in Koto Ward, drawn by the area's convenience. One man in his 30's working for a securities firm, who had gone to a viewing of a used high-rise condominium unit close to a train station, noted that the asset value is high in light of future development planned for the area.
Hironori Nakajima, president of Big Board, a Koto Ward-based broker of used condos, said that used condos on the waterfront have risen 10% or so in prices since Tokyo was chosen to host the 2020 Summer Olympics. Demand for properties in Tokyo is also strong among Asian investors in China and Taiwan. In addition, more foreign people working for foreign-capitalized companies have recently become residents of luxury rental apartments there. Nakajima also noted that occupancy rates are rising at serviced apartments operated by Sumitomo Realty & Development in Minato Ward and other locations.
Property prices are rising in commercial districts as well. In Chiyoda Ward, the Kioicho Building, an office tower in a neighborhood where a redevelopment project is underway, became a topic of discussion this month after Mori Trust Sogo Reit acquired the rights of the trust beneficiary for 34.3 billion yen ($317 million). The district's commercial property price index is up 5.3%.
The building is located on former government-owned land where Legal Training and Research Institute of Japan once stood. In the real estate industry, there is a widespread belief that the government's sell-off of properties to the private sector in the 1980s triggered a bubble. In that sense, the deal for such a property with a past in the bubble era indicates that a boom is forming in Tokyo's real estate market.
Looking closer, however, there are also cause for concern. Overseas investors have a fairly healthy appetite for Tokyo properties. But in the January-September period, the total value of properties acquired by REITs listed in Japan fell 30% on the year to slightly more than 1 trillion yen, according to Japanese brokerage SMBC Nikko Securities. Although Tokyo's property prices were previously driven by domestic REITs, the pace of buying is now slowing as the number of relatively expensive properties increases due to higher land prices.
Japanese REITs are not only those worried about high prices. One woman in her mid-30s, who lived in a rented house in Tsukishima until last year, at one time considered buying a home after she had a baby, but she gave up the idea because of high property prices in that area. She ended up moving to the suburb. The number of people unable to afford to pay higher prices will likely increase further, as wages are struggling to grow. With this in mind, the current boom could end up as nothing more than a mini-bubble.