Japan’s property prices continue to rise

Japan’s residential property prices continue to rise, despite weak demand and projected economic slowdown. During 2022, the nationwide residential property price index rose by 7.5% (3.4% inflation-adjusted), an acceleration from y-o-y rises of 6.3% in 2021, 3.1% in 2020, and 0.6% in 2019, according to the Land Institute of Japan.

Japan’s house price annual change

The house price growth continued early this year. But there are wide price variations in terms of location and property type.

In Tokyo Metropolitan Area:

• Existing condominium average prices rose by 6.8% during the year to Q1 2023 to JPY 698,300 (US$4,915) per square meter (sq. m), following a y-o-y rise of 10.8% the Q1 2022.
• New condominium average prices more than doubled in Q1 2023 from a year earlier, to JPY 1,999,000 (US$14,069) per sq. m, following a modest increase of 4.4% in Q1 2022.
• Existing detached house prices were up by 4.7% y-o-y to JPY 41.65 million (US$293,130), following annual growth of 8.3% in Q1 2022.

In Osaka Metropolitan Area:

• Existing condominium average prices rose strongly by 10.5% to JPY411,125 (US$2,894) per sq. m in Q1 2023 from a year earlier, from a modest 4.7% increase in the same period last year.
• New condominium average prices fell slightly by 1.3% y-o-y to JPY753,000 (US$5,300) per sq. m in Q1 2023, following a minuscule increase of 0.8% in the same period last year.
• Existing detached house prices rose strongly by 9.4% y-o-y to JPY23.63 million (US$166,310) in Q1 2023, in sharp improvement from the prior year’s meager growth of 0.5%.

The continued house price increase is surprising given weakening demand. In Tokyo, sales of both existing condo units and detached houses fell by 1.1% and 5.5%, respectively, in Q1 2023 from a year earlier. In Osaka, sales of existing condominiums declined by 4.5% while existing detached house sales increased slightly by 1.6% over the same period.

Residential construction activity is stabilizing. The total number of authorized housing starts in Japan rose slightly by 0.6% to 201,723 units in Q1 2023 from a year earlier, after increasing by 0.4% in the full year 0f 2022 and 5% in 2021, according to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT).

The outlook for Japan’s housing market is now clouded by rising interest rates, inflationary pressures, and heightened economic uncertainty.

The Japanese economy grew by an annualized 2.7% in Q1 2023, following a meager growth of 0.4% in Q4 2022 and a contraction of 1.5% in Q3 2022, buoyed by increases in private consumption and business investment. Despite this, the International Monetary Fund (IMF) recently downgraded its 2023 economic growth forecast for Japan to 1.3%, down from its earlier estimate of 1.8%. Japan’s economy expanded by 2.1% in 2021 and by another 1.1% in 2022, after contracting by 4.3% in 2020 due to the Covid-19 pandemic.

Demand is slowing again

After increasing in 2021, residential property sales are now falling again in both Tokyo and Osaka.

• In Tokyo, the number of existing condominiums sold fell by 10.8% to 35,698 units during 2022, a turnaround from an annual increase of 11% in 2021, according to LIJ. Likewise, existing detached house sales dropped 13.1% y-o-y to 18,054 units, following a 5.2% growth in 2021.
• In Osaka, existing condominiums sold fell by 3% y-o-y to 16,569 units in 2022, in contrast to an annual increase of 4.5% in 2021. Likewise, existing detached house sales in Osaka declined by 5.1% to 10,042 units last year, following a modest increase of 2.7% in 2021.

Demand remains weak in early-2023. In Tokyo, sales of both existing condo units and detached houses fell by 1.1% and 5.5%, respectively, in Q1 2023 from a year earlier. In Osaka, on the other hand, sales of existing condominiums declined by 4.5% while existing detached house sales increased slightly by 1.6% over the same period.

There are no legal restrictions on foreigners buying and owning real estate property in Japan.

Land sales mixed, urban land prices more or less steady

Land sales showed mixed results. In Tokyo, land sales fell by 10.1% y-o-y to 2,296 units in the first quarter of 2023, following an annual decline of 20.7% last year, according to LIJ. In contrast, In Osaka, land sales increased by 9% to 1,567 units over the same period, after falling by 15.5% during the full year of 2022.

Despite this, residential land prices were more or less steady. During 2022, the nationwide residential urban land price index rose slightly by 0.6%, following a slight decline of 0.2% in 2021 and minuscule growth of 0.4% in 2020 and 0.6% in 2019, according to Japan Real Estate Institute.

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

Residential construction stabilizing, the available supply of new condo units falling

The total number of authorized housing starts in Japan rose slightly by 0.6% to 201,723 units in Q1 2023 from a year earlier, after increasing by 0.4% in the full year 0f 2022 and 5% in 2021, according to the MLIT.

In major areas:

• In Tokyo Metropolitan Area, the number of housing starts increased by just 1.2% y-o-y to 75,067 units in Q1 2023, following annual growth of 2.8% in 2022 and 3.4% in 2021.
• In Osaka Metropolitan Area, housing starts rose strongly by 20.7% y-o-y in Q1 2023, to 31,084 units, a sharp acceleration from annual increases of 0.5% in 2022 and 3.7% in 2021.
• In Nagoya Metropolitan Area, housing starts fell by 13% y-o-y to 14,907 units in Q1 2023, following zero growth last year and an increase of 7.2% in 2021.
• In other areas, housing starts dropped 3.3% y-o-y to 80,665 units in Q1 2023, following an annual decline of 1.5% last year and an increase of 6.4% two years ago.

Yet, 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 15.9% y-o-y to 4,970 units in Q1 2023. Likewise, in Osaka, new condominiums on the market also dropped sharply by 17.6% to 2,831 units over the same period.

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 2022, the country’s total population fell to 124.49 million, down by 556,000 people from the previous year, according to government data. It was its twelfth consecutive year of decline.

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.