Japan’s housing market losing steam

Japan’s residential property growth is slowing, amidst falling demand and weakening construction activity. During the third quarter of 2023, the nationwide residential property price index rose by a modest 2.4% from a year earlier, a slowdown from y-o-y increases of 4.8% in Q2 and 4.1% in Q1, according to the Land Institute of Japan. However, when adjusted for inflation, prices declined slightly by 0.6% y-o-y in Q3 2023.

Japan’s house price annual change

Quarterly, nationwide residential property prices fell by 0.4% (-1.4% inflation-adjusted) in Q3 2023.

The recent slowdown is in contrast to the strong annual growth of 7.2% in 2022 and 6.3% in 2021.

However, there are wide price variations in terms of location and property type.

In the Tokyo Metropolitan Area:

  • Existing condominium average prices rose by 9% in November 2023 to JPY 699,000 (US$4,730) per square meter (sq. m), following a y-o-y rise of 11.5% in November 2022.
  • New condominium average prices surged by 42.5% in November 2023 from a year earlier, to JPY 1,280,000 (US$8,661) per sq. m, a sharp acceleration from a modest increase of 3.1% in the same period in the prior year.
  • Existing detached house prices were up by 9.5% y-o-y to JPY 42.19 million (US$285,477), following annual growth of 3.9% in November 2022.

In Osaka Metropolitan Area:

  • Existing condominium average prices rose by 5.1% to JPY396,882 (US$2,685) per sq. m in November 2023 from a year earlier, after increasing by 9.3% in the same period in the previous year.
  • New condominium average prices were up by 5.1% y-o-y to JPY808,000 (US$5,467) per sq. m in November 2023, in contrast to the 15.4% decline seen in the same period the prior year.
  • Existing detached house prices rose by 6.5% y-o-y to JPY22.79 million (US$154,207) in November 2023, an improvement from the prior year’s meager growth of 1.3%.

Japan Residential Property Price Index graph

Demand is now falling. In Tokyo, sales of both existing condo units and detached houses fell by 9.8% and 12.2%, respectively, in the first eleven months of 2023 from a year earlier. In Osaka, sales of existing condominiums and detached houses both declined by 3.3%.

Land sales in Tokyo and Osaka also plunged by 20.2% and 13.8% y-o-y, respectively, over the same period.

Residential construction activity is also weakening. The total number of authorized housing starts in Japan fell by 4.7% to 755,037 units in the first eleven months of 2023 from a year earlier, after increasing by 0.4% in the full year of 2022 and 5% in 2021, according to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT).

Japan Tokyo Condominium Prices graph

Japan continues to post lackluster economic performance. In the FY 2023 ending March 2024, the Japanese economy is projected to grow by 1.6%, buoyed by the recovery in inbound tourism and automobile output, according to figures from the Cabinet Office, Japan. The International Monetary Fund (IMF) expects the country’s economic growth to remain sluggish at 0.9% during 2024.

Demand is slowing again

After increasing in the past two years, residential property sales are now falling again in both Tokyo and Osaka.

  • In Tokyo, the number of existing condominiums sold fell by 9.8% to 32,927 units in the first eleven months of 2023, a turnaround from an annual increase of 6.6% during the whole year of 2022, according to LIJ. Likewise, existing detached house sales dropped 12.2% y-o-y to 16,752 units, following a 1.8% growth in 2022.
  • In Osaka, existing condominiums sold fell by 3.3% y-o-y to 15,468 units in Jan-Nov 2023, in contrast to an annual increase of 5.8% in the full year of 2022. Likewise, existing detached house sales in Osaka also declined by 3.3% to 9,573 units, following a slight increase of 1.4% in 2022.

This is despite robust foreign demand, buoyed by the weak Japanese yen and the country’s ultra-loose monetary policy. Moreover, there are no legal restrictions on foreigners buying and owning real estate property in Japan.

Japan Existing Condominium Sales graph

Land sales plunging, urban land prices more or less steady

Land sales are also falling sharply. In Tokyo, land sales plummeted by 20.2% y-o-y to 9,027 units in the first eleven months of 2023, following a modest annual increase of 2.4% in 2022, according to LIJ. Likewise, in Osaka, land sales dropped by 13.8% to 5,746 units over the same period, after falling by 4.1% during the full year of 2022.

Despite this, residential land prices were more or less steady. During 2023, the nationwide residential urban land price index rose slightly by 0.7%, following a minuscule increase of 0.6% in 2022 and a slight decline of 0.2% in 2021, according to the Japan Real Estate Institute.

  • In six major cities (Tokyo, Osaka, Yokohama, Nagoya, Kyoto, and Kobe), residential land prices rose by 1% in 2023 from a year earlier, after increasing by 0.7% in 2022 and declining by 0.6% in 2021.
  • For urban land, except for the 6 major cities, residential land prices were up 0.7% last year, following an increase of 0.6% in 2022 and a slight fall of 0.3% in 2021.

Japan Urban Land Prices graph

Residential construction activity weakening; the available supply of new condo units falling sharply

The total number of authorized housing starts in Japan fell by 4.7% to 755,037 units in the first eleven months of 2023 from a year earlier, after increasing by 0.4% in the full year of 2022 and 5% in 2021, according to the MLIT.

In major areas:

  • In Tokyo Metropolitan Area, which accounts for about 36% share of total residential construction, the number of housing starts declined by 3% y-o-y to 269,505 units in Jan-Nov 2023, in contrast to annual growth of 2.8% in 2022 and 3.4% in 2021.
  • In Osaka Metropolitan Area, housing starts fell slightly by 1.3% y-o-y in the first eleven months of 2023, to 105,592 units, following annual increases of 0.5% in 2022 and 3.7% in 2021.
  • In Nagoya Metropolitan Area, housing starts fell by 7.6% y-o-y to 58,963 units over the same period, following zero growth in 2022 and an increase of 7.2% in 2021.
  • In other areas, housing starts dropped 6.6% y-o-y to 320,977 units in Jan-Nov 2023, following an annual decline of 1.5% in 2022 and an increase of 6.4% two years ago.

Japan Housing Starts graph

Unsurprisingly, the supply of new condominium units available for sale is declining dramatically. In Tokyo, the number of newly-built condo units put on the market fell by 12.2% y-o-y to 20,911 units in Jan-Nov 2023. Likewise, in Osaka, new condominiums on the market also dropped sharply by 22.9% y-o-y to 11,497 units over the same period.

Japan New Dwelling Units Put on the Market graph

Japan’s shrinking population is producing a surplus of housing

One of Japan’s biggest problems is its declining population. It is estimated that Japan will lose a third of its population over the next 50 years, and the population will more than halve from 126.8 million in 2017 to just 50.56 million in 2115, according to the National Institute of Population and Social Security Research. In addition, about 40% of the population will be over 65 by 2060.

During 2023, the country’s total population fell to 124.62 million, down by 550,000 people from the previous year. It was its thirteenth consecutive year of decline. Japan’s population is expected to fall by another 581,000 people this year.

The shrinking population is already producing a surplus of housing units. There are many sightings of abandoned homes in Tokyo. There are already an estimated 8.49 million unoccupied homes in the country, representing almost 14% of all residences, and up more than 24% from a decade ago, according to MLIT.

The number of abandoned homes is expected to rise to more than 20 million by 2033.

“The combination of a shrinking population, falling land values, patchy registration records, and a tax system ill-suited to the current situation has left ownership unclear on an estimated 4.1 million hectares, an area larger than Taiwan,” said an article published by The South China Morning Post.