Tokyo's condo price appreciation continues unabated despite pandemic

Average prices reached a new post-bubble high of JPY77.1 million in 2020.

Condo sales prices in Tokyo have been gradually increasing since 2011. According to Savills, on the back of improving economic conditions and a low interest rate environment, housing demand was rising, and developers were thus able to transfer the increasing costs of construction and land purchases to buyers. Now, however, the rising condo prices have made buyers increasingly cautious, leading to lower contract rates and supply, especially after 2015. Meanwhile, despite signs of demand cooling, prices remain elevated thanks to the unwillingness of deep-pocketed developers to lower prices. 

"The global pandemic has unquestionably shifted the preferences of the capital’s residents, and this has been observed in the demographics with some moving away from the 23 wards (23W) to more suburban areas. That said, the central wards remain popular, broadly maintaining positive population growth over the past year. With that in mind, a greater divergence in condo demand between prime areas and less popular areas could be on the horizon, leading to new market trends on which some shrewd developers could capitalise."

Here’s more from Savills:

Somewhat surprisingly, the trend of price appreciation remains uninterrupted for newly built condos in Tokyo’s 23W. Specifically, despite being in the midst of a global pandemic, average prices reached a new post-bubble high of JPY77.1 million in 2020. On a per sq m basis, growth was equally as impressive. According to the Real Estate Economic Institute (REEI), the capital’s central region posted an 11.4% year-on-year (YoY) uptick, in stark contrast to the 1.5% YoY rise found in similar condos outside of the 23W. Premiums between the two regions have understandably widened from 42% in 2019 to 55% in 2020 as a result. This trend is nothing new, however. Since 2011, the price per sq m of these new condos has risen 54% in the central areas compared to 45% for the equivalent outside of the 23W.

On one hand, the prolonged low interest environment has been supportive of demand, and as a result, the growth in condo prices in the 23W have shown no signs of waning. On the other hand, wage growth in the capital has been modest. The combination of these two factors has ultimately priced many residents out of buying condos, whilst those who have the finances have become increasingly cautious, resulting in some choosing to lease instead. Condo sales in Tokyo have decreased as a consequence, keeping the contract rate stubbornly below the symbolic 70% level since 2016. Perhaps in response, there has been a general increase in the number of housing starts for built-to-rent units in the capital. 

Despite concerns over declining contract rates and sales, major developers, backed by healthy balance sheets, have been unwilling to offer discounts. This has been particularly pronounced in Tokyo, whereby a handful of developers dominate the new condo market, and as such, the already lofty prices have been artificially maintained. Looking ahead, noticeable price declines are therefore unlikely, especially for well-located properties in central Tokyo and residential hubs close to major transport links.

Another way in which these developers have historically been able to exert an element of control is through condo supply – something that has been decreasing in Tokyo since 2013 (Graph 2). Of course, the global pandemic had a tangible impact to supply levels in 2020, with delays to construction and the suspension of sales activities marking a decade low. Things are set to reverse in 2021, however, with 17,000 units expected to be available for sale in Tokyo – 20% higher from the previous year. 

Going forward, developers are likely to opt to increase the supply of mid-to-large units, especially in suburban areas, in line with the shift towards remote work. In addition, supply is also expected to cool as rising costs of construction and the availability of land close to train stations becomes more limited, which will cause developers to be more selective about new developments.

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