What’s to blame for Tokyo condominium prices being at an all-time high?

Condo supply saw a steep decline in 2024.

The high prices of condominiums in Tokyo can be attributed to both demand and supply factors, according to a recent Savills report.

“Firstly, the supply of condominiums in the 23W has been on a gradual decline over the past decade. Furthermore, supply in 2024 has seen a steep drop, with fewer than 5,000 units having been completed as of September 2024, compared with almost 12,000 units in 2023,” the report added.

Here’s more from Savills:

The low supply stems primarily from heightened costs of land and construction. For instance, according to the Ministry of Land, Infrastructure, Transport and Tourism, residential land prices in the 23W and Central 5 Wards (C5W) have increased by around 15% and 20% respectively since 2019, and the actual costs of land procurement for for-sale condominiums are likely to be even greater because such developments have become much more selective.

Elsewhere, according to the Construction Research Institute, construction costs of reinforced concrete (RC) residences have risen by about 30% over the same period, exacerbated further by stricter labour regulations. These sharp increments in construction costs have made project planning more difficult for developers, and in some cases have resulted in project delays or even cancellations.

One notable example was the redevelopment of Nakano Sun Plaza, a large mixed-use building. While originally scheduled for completion by 2029, its developer Nomura Real Estate announced in October 2024 that it would have to overhaul current plans because estimated costs ballooned from JPY181 billion in 2021 to JPY264 billion. Going forward, the supply of new condominiums is likely to be constricted by these factors, and prices should be pushed up accordingly.

Demand-side factors have also fuelled the rise in prices. Firstly, although seeing a transient dip during the pandemic, Tokyo’s population has continued to rise to record levels, which has naturally contributed to increments in housing demand overall. Secondly, interest rates are still at low levels, and have helped to reduce the cost of purchasing homes. Even with the Bank of Japan starting to normalise its monetary policy and raising policy rates in 2024, as of October 2024, bank lending rates have only seen slight increments, if at all.

Indeed, many banks appear to be prioritising sales volume over raising rates. In addition, according to the Ministry of Internal Affairs and Communications, the number of dual-income households has continued to rise nationwide, and is likely to have risen even more in Tokyo. The greater purchasing power has contributed to stronger demand for housing.

Furthermore, with the weakened yen, foreign buyers are still likely to find Japanese condominiums attractive, especially when compared to other developed markets in Asia like Hong Kong or Singapore.