Crazy rich Japanese: Who can afford Japan’s ultra-luxury residences?
Units could cost at least JPY1 billion or over USD7.3 million.
Given their extremely high price points, Savills says in a recent report that only a very small number of individuals could be considered as potential customers for ultra-luxury residences, most of whom are high profile business owners.
“In fact, the ultra-luxury residential market is very opaque as such units are typically marketed directly to high-profile clients known to developers or realtors, and little information is released openly to the public. As such, developers will need to be reasonably certain of the existence of a pool of potential buyers or tenants in order for the ultra-luxury residence project to be a success,” the report said.
Here’s more from Savills:
In general, developers of ultra-luxury units can feel more confident given Japan’s sizable population of wealthy people. Indeed, Japan has the third largest economy in the world, and is home to a large number of UHNWIs. Looking at Graph 1, the number of UHNWIs in Japan has grown considerably over the past decade, albeit a decline in 2022 primarily due to the depreciation of the Japanese yen.
Furthermore, a significant proportion of these UHNWIs are located in Tokyo. According to Wealth-X, Tokyo is the city with the fourth largest number of UHNWIs, only behind Hong Kong, New York, and Los Angeles. The relatively large number of UHNWIs concentrated in Tokyo suggests that some demand for ultra-luxury residences has always been present, but the limited supply has not allowed it to surface.
Given that one benchmark for ultra-luxury residences is units that cost at least JPY1 billion, only a fraction of even the UHNW population would actually be able to afford such residences. As such, many ultra-luxury residences are located in the top floors of larger developments, with a handful of units marketed at an ultra-luxury premium, while the remaining units are sold at more affordable prices to a wider audience, or are usually small-to-mid-sized properties.
At the same time, ultra-luxury rental units with monthly rents of JPY2+ million could still be afforded by some company executives or exceptionally highly skilled professionals. Wealthy business owners are nonetheless likely to be the primary customers of ultra-luxury units, with many owning or leasing several units.
Hence, some existing owners or tenants will likely have strong interest in new products that the ultra-luxury sector has to offer, as these tenants pay a high premium for experience and privacy. Many features and amenities must be available, and highly trained concierges that are able to solve a myriad of tenant requests are necessary to ensure top-notch standards in line with the high rents.
Tokyo has a foreign population of slightly over 4%, but the number of foreign nationals has been growing steadily over the past few decades except during the pandemic, and is currently the strong driver for Tokyo’s population growth. When considering the popularity of Tokyo as a global tourist destination, there should be a large amount of potential in this figure. UHNW foreign nationals are one growth driver of the ultra-luxury residences in Tokyo, and presently, approximately a third of ultra-luxury units are estimated to be occupied by foreign residents.
Given that the population growth of Japan is likely to be driven primarily by the influx of foreign nationals, this demographic will be a major source of demand for ultra-luxury units. Indeed, Japan is seen as a safe haven for individuals to store wealth due to the strong ownership laws of the country, and the presence of even a small number of UHNWIs in Tokyo will be enough to shape the market. In fact, the well-known billionaire Jack Ma is reportedly living in Tokyo, and is likely an owner or tenant of one or more of these estates.
Overall, the relatively low supply of ultra-luxury residences present in the market together with the large number of wealthy individuals in Japan that could prop up demand has led to an increased amount of interest shown in the sector.