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Commodities

Tokyo's ratio of new condo prices to income marks first drop in five years

Cheaper units nearby, rising wages pulled figure down slightly to 10.68 in 2016

The average price of new condos in Tokyo is almost 11 times the average annual income.

TOKYO -- The ratio of new condominium prices to average annual income of salaried workers fell in the greater Tokyo area, for the first time in five years, thanks to rising incomes and more affordable apartments in nearby Chiba and Saitama prefectures, according to data compiled by real estate research firm Tokyo Kantei.

The average price of new condos in the greater Tokyo area was 10.68 times the average annual income last year.

The price-to-income ratio is obtained by dividing prices of new 70-sq.-meter condos in each prefecture by average annual income. Average annual income is obtained from prefectural accounts of each prefecture.

New 70-sq.-meter condos in greater Tokyo area were priced at an average 55.1 million yen ($498,700) last year, down 2% from the previous year.

On the other hand, average annual incomes of salaried workers in the greater Tokyo area rose 1% on the year to 5.16 million yen, pushing down the price-to-income ratio by 0.31 of  a percentage point .

Condo prices dropped in Chiba and Saitama prefectures. In Chiba in particular, average condo prices were down more than 10%, as many affordable large condos were put on the market in cities such as Chiba, Kashiwa and Matsudo.

With 100 million yen-plus luxury condos in prime locations and pricey condos in 23 wards accounting for most of the condo supply in Tokyo, condo prices jumped 2.5% last year and the price-to-income ratio surged to 11.46.

The price-to-income ratio could fall, though. Masayuki Takahashi, chief analyst at Tokyo Kantei, said some condos are being offered at prices 10% or so lower than the original prices.

Meanwhile, the ratio of 10-year-old condo prices in greater Tokyo area to average annual income stood at 7.13 last year, up 0.44 point, exceeding 7 for the first time in 23 years. An 8% increase in used condo prices helped push up the ratio.

Tokyo had the highest price-to-income ratio in Japan with 9.13, while Kanagawa Prefecture ranked third with 7.65.

"First-time home buyers flocked to used condos and pushed up prices," Takahashi said.

In June 1992, the government adopted at a cabinet meeting a five-year plan to ensure that workers in metropolitan areas can buy homes at prices about five times the average annual income. However, the price-to-income ratio has remained much higher than 5.

"The price-to-income ratio is unlikely to fall to 7-8 anytime soon, but is expected to decline gradually once condo prices enter a correction phase," Takahashi said.

(Nikkei)

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