Tokyo and Osaka Lead Global Surge in Apartment Prices Amidst International Investment Wave

Apartment prices in Tokyo and Osaka have experienced the most robust growth among 15 major global cities, driven by a weakening yen that has drawn international investors. Data released by the Japan Real Estate Institute (JREI) on May 30th revealed a 1.5% price increase over six months leading up to April, surpassing markets like Singapore (1.3% increase) and New York (0.3% increase). This marks the first time since the survey’s inception in 2010 that both Japanese cities have simultaneously topped the rankings.

The price hike is attributed to rising costs for land, labor, and materials such as concrete. A real estate development company executive reported construction costs for an apartment have surged by 20-30%, with apartment prices following suit. Limited supply also poses a challenge, as new housing in prime locations becomes scarcer due to shrinking land available for real estate development. The Real Estate Economic Institute noted that only 11,909 new condominiums were introduced to the market in Tokyo’s 23 central wards last year, approximately 40% of the number a decade ago.

Additionally, Takashi Ueda, President of real estate development company Mitsui Fudosan, cited the wealth effect from a buoyant stock market as increasing buyers’ budgets.

Foreign capital inflows have also contributed to the price rise. Data from Jones Lang LaSalle indicated that foreign real estate investment in Japan rose from 45.1 billion yen (about $290 million) in the fourth quarter of last year to 177.3 billion yen in the first quarter of this year. While this capital primarily originates from institutional investors, there is also a growing trend of individual investor capital.

According to List Sotheby’s International Realty, wealthy foreign buyers and real estate investors favor luxury apartments in central Tokyo districts like Minato or Shibuya.

Mugi Fukushima, a branch manager at List, mentioned that the weakening yen is also driving the apartment market as it makes properties more affordable for foreign buyers. The yen has depreciated from about 141 yen per USD at the end of last year to around 157 yen per USD currently, equating to a price reduction of about 10% for foreign purchasers. The significant price increase is largely because the baseline prices in Tokyo and Osaka are lower compared to other major markets, which many observers believe leaves room for further increases. JREI’s survey compared luxury apartment prices across different markets in yen, using Tokyo’s Moto-Azabu district in the Minato area as the baseline of 100. Prices in Hong Kong and London are more than double, at 268.2 and 207.5, respectively, while Osaka stands at 68.2.

However, rising prices may become a greater barrier for buyers if they continue to increase. The NLI Research Institute reported that the average price of a new apartment in Tokyo was 9.7 times the median household income in the city last year, up from 7.3 times in 2013. This price level makes home buying challenging for average household budgets, leading those who cannot afford to purchase to turn to renting, thereby solidifying the rental property market.

The impact of rising interest rates has yet to be fully felt. Japan’s 10-year government bond yield hit a 13-year high of 1.1% on May 30th, reinforcing predictions that interest rates for fixed-rate home loans will rise. Analyst Takeshi Ide from Tokyo Kantei suggests that higher mortgage rates may deter new borrowing, thus dampening home buying demand.

Source: BingAI research