Tokyo new condo prices jumped to a record for the third straight year in 2023, driven by low supply and rising building costs.
The average price of a new apartment for sale in the Japanese capital and surrounding areas surged 29% to a fresh high of 81 million yen ($548,000), according to the Real Estate Economic Institute, which has been tracking the data since 1973.
New condo values have now risen for five years in a row. They will probably keep climbing in 2024 even as the economy slows and the Bank of Japan looks to abandon its long-standing negative interest-rate policy that’s made home loans cheaper, analysts said.
“The strongest force driving price growth is construction costs, with the price of raw materials like steel rising rapidly, and wages for construction workers also increasing with the labor shortage,” said Shun Ogishima, a researcher at Sumitomo Mitsui Trust Research Institute. “Under these circumstances, developers who supply condos have no choice but to keep raising prices.”
Supply has also been falling, with the number of new units for sale in the Tokyo metropolitan area dropping 9.1% last year, although it’s expected to rebound in 2024, according to the report released Thursday. Average prices of new condos in central Tokyo, which fell slightly in 2022, jumped 39% to 114.8 million yen.
Other factors like the sale of several high-end properties and the rise of dual-income households are also contributing to the increase, Ogishima said. Last year, the number of apartments selling for over 100 million yen jumped 68%, the report showed.
Local homebuyers continue to have access to rock-bottom mortgage rates as the Bank of Japan sticks to its ultra-easy monetary policy while other developed nations tighten.
Still, the increase in condo prices is one of many signs that inflation is taking hold in Japan after decades of deflationary pressure — fueled by a housing market collapse in the early 1990s — prompting the BOJ to consider exiting negative rates.
Even if the central bank scraps the eight-year-old policy, it’s unlikely to have a big impact on mortgage costs or demand for apartments because banks are competing for home-loan customers, said Tetsuya Kaneko, the head of research at real estate company Savills Japan.
“Even if rates went up a little, people might think it’s better to buy now rather than later,” Kaneko said.