When purchasing a used condo for investment purposes, the cost burden during rebuilding is a risk that tends to be overlooked. When rebuilding is resolved, investors (sectional owners) may also be required to pay high costs. This article explains the timing of rebuilding, cost burden structure, and measures investors should take.
Why Do Used Condos Need Rebuilding?
The main cause of rebuilding is aging. After 30-40 years of age, there are increasing cases where even large-scale repairs of exterior walls and plumbing become insufficient. Also, due to Building Standards Act revisions, properties built under old standards may be judged as having insufficient fire resistance and earthquake resistance.
Statutory Useful Life Is 47 Years
The statutory useful life for RC/SRC construction is 47 years. However, this is a tax depreciation standard and is not the age at which the building becomes physically uninhabitable. There are cases of properties maintained appropriately being used for 2-3 times the statutory useful life.
Actual Rebuilding Track Record Is Low
According to the Ministry of Land, Infrastructure, Transport and Tourism, the number of condos that have been rebuilt is extremely small. Most buildings that reach the statutory useful life continue to be repaired and used.
How Much Does Condo Rebuilding Cost?
The burden for rebuilding one condo unit is typically in the range of 10-20 million yen. However, this can fluctuate significantly depending on size, construction method, and location.
Cases Where Costs Become Unaffordable
In low-value aging condos, cases where purchase price is around 3 million yen but rebuilding costs reach 20 million yen can lead to the choice of either bearing costs or abandoning ownership.
What Legal Decisions Are Required for Rebuilding?
Rebuilding requires the resolution of 4/5 or more of all sectional owners. For buildings with many owners with financial difficulties or absentee landlords, reaching agreement can be difficult.
Risk Management Points for Real Estate Investors
Check the Repair Reserve Fund Accumulation Status
Confirm the repair reserve fund balance and annual accumulation amount. Insufficient accumulation increases the probability of special assessments and rebuilding discussions.
Be Cautious of Properties Under Rebuild Discussion
If there is already discussion about rebuilding at the time of purchase, cost bearing at the time of ownership transfer could be enormous.
Conduct a Long-Term Investment Simulation
Calculate scenarios where rebuilding occurs during the holding period and confirm whether returns are maintained. Second opinions from real estate investment specialists are also effective for risk assessment.
FAQ
- Q. Should I avoid investing in aging condos?
- A. Not necessarily. By confirming repair reserve fund accumulation status, management association activity, and past large repair history, you can assess whether the building is well-maintained. The key is not avoiding aging condos indiscriminately, but evaluating management quality.
- Q. Who bears rebuilding costs when the building is rebuilt?
- A. Basically, each sectional owner bears costs proportional to their exclusive area. Equity-style arrangements where rebuilding costs are covered by the new building's profit from increased floor area ratio are also sometimes employed.
- Q. What happens to my property when rebuilding is decided?
- A. After the rebuilding resolution, temporary move-out is required. Resale is also possible, but buyer prices may be suppressed due to anticipated rebuilding costs.
- Q. Can I sell a condo that has decided to rebuild?
- A. It is possible, but disclosure of the rebuilding decision is obligatory. Since buyers will have the rebuilding cost burden factored in, the sale price may be significantly lower than market value.
