For successful apartment building management, it is essential to understand a building's lifespan accurately. Whether the property is newly built or pre-owned, understanding its useful life helps you establish appropriate future repair plans and sale strategies. In this article, we explain the useful life of apartment buildings from three perspectives: legal, physical, and economic, and provide a comprehensive overview of the options available after the building reaches the end of its life, how to calculate depreciation, and the key points for long-term operation.
What Is the Useful Life of an Apartment Building? Three Ways to Understand It
The useful life of an apartment building can be understood from three perspectives: legal useful life, physical useful life, and economic useful life. Because each has a different meaning, it is important to use them appropriately depending on your purpose.
Legal Useful Life
Legal useful life refers to the period during which depreciation expense can be recorded for accounting purposes. For reinforced concrete (RC) apartment buildings, it is set at 47 years. However, even after 47 years, this does not mean the property's performance declines or that it becomes uninhabitable. It is strictly an accounting standard.
Physical Useful Life
Physical useful life refers to the period during which a building remains physically usable. With current construction technology, an RC apartment building is said to last more than 100 years. With regular maintenance, it is also possible to extend its physical useful life.
Economic Useful Life
Economic useful life refers to the period during which an apartment building retains economic value. Unlike legal useful life, this includes cases where the property loses value because of changes in social conditions or redevelopment. Even if the building is still physically usable, it may reach the end of its economic life first.
Seismic Performance Can Also Indicate Lifespan
Japan moved from the old seismic standard to the new seismic standard in 1981. Even if seismic retrofitting work is carried out on apartment buildings built under the old standard, they may not achieve the same level of earthquake resistance as buildings under the new standard. If a direct inland earthquake occurs, apartment buildings built under the old seismic standard are highly likely to reach the end of their usable life.
What Happens When an Apartment Building Exceeds Its Useful Life?
Even if an apartment building exceeds its useful life, it does not immediately become unusable. However, the impact differs depending on the type of useful life involved.
If It Exceeds Legal Useful Life
Its accounting asset value becomes zero. This is highly likely to affect a sale, and the maximum mortgage term is generally limited to the legal useful life. For example, for an apartment building that is 20 years old, the longest available loan term would be only 27 years.
If It Exceeds Physical Useful Life
It may become difficult to inhabit, but regular maintenance can extend its life. Even among apartment buildings constructed more than 50 years ago, many are still in active use thanks to appropriate renovation work.
If It Reaches Economic Useful Life
In many cases, economic useful life is judged to be longer than legal useful life, but once the remaining economic useful life has passed, obtaining a mortgage becomes almost impossible. In some cases, the building may also be demolished before the end of its life because of redevelopment or land readjustment.
What Options Are Available When an Apartment Building Reaches the End of Its Life?
When an apartment building reaches the end of its life, there are four options: demolition, repair, rebuilding, or sale. It is important to make a decision after understanding the advantages and disadvantages of each.
Demolition
This is an option when deterioration makes continued occupancy impossible. It requires approval from at least four-fifths of the residents. Because everyone must move out, building consensus is the main challenge.
Continue Using It After Repairs
This approach extends the building's life by using reserve funds for repairs. Minor repairs require a majority vote, while major repairs require approval from at least three-fourths of the residents. In properties with many elderly residents, there is a tendency for more people to prefer repairs over relocation.
Rebuilding
This is a way to start over with a newly built apartment building, but it costs approximately 10 million yen per unit. Approval from four-fifths of the residents is required, and the burden of arranging temporary housing and other matters is also significant. However, the financial burden may be reduced by increasing the number of units and using sales proceeds to cover rebuilding costs.
Sale
This involves selling the property to a real estate company and distributing the proceeds among the residents. However, when an apartment building at the end of its life is sold, demolition costs are deducted, so very little profit may remain.
What Factors Determine the Lifespan of an Apartment Building?
The lifespan of an apartment building is determined by five factors: seismic standards, the condition of the piping, the condition of the concrete, maintenance, and location.
Seismic Standards
Seismic standards are structural strength standards established to avoid the risk of collapse during an earthquake. There are three stages: the old seismic standard before 1981, the new seismic standard from 1981 onward, and the newer seismic standard from 2000 onward. For apartment buildings, the key point is whether the new seismic standard has been applied.
Condition of the Piping
The service life of piping is generally about 30 to 40 years. Because it is located in places that cannot usually be checked, problems may already have developed by the time they are noticed. The useful life by material is as follows.
| Material | Useful Life |
|---|---|
| Iron pipe / lead pipe | 15 to 20 years |
| Copper pipe | 20 to 25 years |
| Stainless steel pipe | 30 to 40 years |
| Rigid polyvinyl chloride pipe | 20 to 25 years |
| Cross-linked polyethylene pipe / polybutylene pipe | 30 to 40 years |
Condition of the Concrete
Concrete itself can last more than 100 years, but as it ages and loses alkalinity because of carbon dioxide and becomes neutralized, reinforcing bars are more likely to rust, which affects durability. We recommend that the condition of the concrete be inspected by a specialist (home inspector).
Day-to-Day Maintenance
Regular maintenance based on a long-term repair plan is important. In older apartment buildings, there are cases where no plan has been prepared and repairs are made only after problems occur, which leads to reduced durability.
Location of the Building
Properties near the sea face a higher risk of salt damage, which accelerates corrosion of building materials and peeling of coatings. In locations with poor sunlight, moisture and mold problems are also more likely, so measures suited to the specific location are necessary.
What Depreciation Knowledge Should You Understand for Apartment Building Management?
Depreciation is an accounting process in which the acquisition cost of a fixed asset is allocated over its usable period. It is essential knowledge for calculating the profits of apartment building management accurately.
What Is Subject to Depreciation
Only the building portion can be recorded as depreciation expense; land is excluded. In addition, the building is divided into the main structure (frame) and equipment (electricity, water supply and drainage, and so on). The legal useful life of the main structure is 47 years, while equipment is 15 years.
How to Calculate Depreciation Expense
For a newly built apartment building, the amount is calculated from the building price and the legal useful life. For a pre-owned apartment building, the calculation depends on the building's age.
If the legal useful life has already been exceeded:
- Main structure: 47 years × 20% = 9 years
- Equipment: 15 years × 20% = 3 years (fraction discarded)
If the legal useful life has not yet been exceeded (example: 15 years old):
- Main structure: 47 years - (15 years × 80%) = 35 years
- Equipment: 15 years - (15 years × 80%) = 3 years
For apartment buildings purchased on or after April 1, 2016, only the straight-line method may be selected for both the main structure and the equipment.
Calculation Example
If a 20-year-old apartment building is acquired with the main structure valued at 50 million yen and equipment at 4 million yen:
- Main structure: useful life 31 years, depreciation rate 0.033 → 1.65 million yen per year
- Equipment: useful life 3 years (legal life exceeded), depreciation rate 0.334 → 1.336 million yen per year
What Measures Help an Apartment Building Operate for a Long Time?
Regular inspections and repairs are indispensable for extending the life of an apartment building. More apartment buildings are falling into situations where repairs cannot be carried out because reserve funds are insufficient. It is important to establish a specialist committee within the owners' association from an early stage and review the long-term repair plan.
The lifespan of an apartment building can be extended through regular maintenance and appropriate repairs. To help realize stress-free rental property management, it is important to build a structured maintenance and management system. It is also reassuring to review rental management regulations as well.
Frequently Asked Questions (FAQ)
Q. How many years is the legal useful life of an apartment building?
For reinforced concrete (RC) apartment buildings, it is set at 47 years. However, even after 47 years, this does not mean the building becomes uninhabitable; it is simply the depreciation period used for accounting purposes.
Q. What is the actual lifespan of an apartment building?
Physically, a reinforced concrete apartment building is said to last more than 100 years. However, this varies greatly depending on maintenance conditions and the surrounding location environment.
Q. Can an apartment building be sold after it has exceeded its useful life?
Yes, it can be sold. However, once it exceeds its legal useful life, its accounting asset value becomes zero, and because mortgage terms are also restricted, the pool of potential buyers tends to become limited.
Q. How can the lifespan of an apartment building be extended?
Regular inspections and repairs based on a long-term repair plan are the most effective approach. Appropriate repair reserve funding and periodic plan reviews by the owners' association are important.
Q. How is depreciation calculated for a pre-owned apartment building?
If the building's age exceeds the legal useful life (47 years), it is calculated as "47 years × 20% = 9 years". If it has not exceeded the legal useful life, it is calculated as "47 years - (building age × 80%)".
