When considering the purchase or sale of a pre-owned condominium, understanding price trends is essential. Real estate prices have been affected by major economic upheavals such as the bursting of the asset-price bubble, the Lehman Shock, and the COVID-19 shock. This article analyzes, from an investor's perspective, the four factors that influence prices and the outlook going forward.
How have real estate prices moved in the past?
Japan's real estate prices, having passed through the bubble era and the mini-bubble era, are currently in an upward trend.
Around 1990: The Real Estate Bubble Era
Monetary easing following the Plaza Accord pushed land prices to their peak. Subsequently, the enactment of the Basic Land Act and the introduction of total volume controls caused the number of buyers to plummet, and the bubble collapsed.
Around 2008: The Mini-Bubble Era
The advent of real estate securitization products increased the number of buyers, but the Lehman Shock prompted foreign funds to withdraw, and prices fell.
Recent Trends
Against the backdrop of monetary easing and international events (the Tokyo Olympics), prices have continued to trend upward in recent years, as also analyzed in our article on the exit strategy for the central Tokyo condominium bubble.
What are the four factors that influence pre-owned condominium prices?
Four factors shape prices: international events, demographic trends, the productive green land issue, and the consumption tax.
International Events
Decisions to host events such as the Olympics or a World Expo heighten interest from overseas investors and have the effect of pushing real estate prices higher.
Population Inflows/Outflows and Inbound Tourism
Population concentration in major cities and rising inbound tourism are key factors that boost housing demand.
The Productive Green Land Issue
The lifting of productive green land designations could result in a large supply of residential land, but government easing measures are expected to prevent any sudden price decline.
Consumption Tax Hikes
Last-minute demand before tax increases and the subsequent drop in demand cause price fluctuations.
How Long-Term Interest Rate Movements Affect Prices
When long-term interest rates rise, mortgage rates also rise and purchase demand is suppressed, making prices more likely to fall. Conversely, in a low-interest-rate environment, purchase costs decline and prices tend to rise. Interest rate trends are one of the most important indicators for reading the used condo market.
Price Fluctuations Caused by Investor Sentiment
Around events such as a consumption tax hike or the Olympic Games, investor buying and selling activity becomes concentrated, so prices tend to move significantly. Just as in the stock market, the "expectations" and "disappointments" of investor sentiment regarding the future amplify price fluctuations.
The Impact of Demographics
Japan's population is shrinking by about 500,000 people per year, and a structural contraction of housing demand is continuing. However, in central Tokyo redevelopment areas and locations with high convenience, population still tends to concentrate, and the gap between areas is widening.
What impact did the COVID-19 shock have on pre-owned condominium prices?
Pre-owned condominiums are considered relatively resilient to the impact of the COVID-19 shock. While the number of newly built units released for sale declined, the number of contracts and prices for pre-owned condominiums have shown no significant fluctuations since the Lehman Shock. Newer properties and those in prime locations continue to enjoy strong demand.
How to Research the Market Price of Used Condominiums
There are mainly two ways to check market prices that can be used for investment decisions.
Use Used Condominium Portal Sites
You can check, in real time, the prices of properties currently for sale in the area and floor plan you want. By comparing across multiple portal sites, you can get a more accurate sense of the market.
Use Transaction Case Databases (REINS / Land General Information System)
The Ministry of Land, Infrastructure, Transport and Tourism's "Land General Information System" allows you to view past contract prices and market trends for free. Checking "actual contract prices" rather than current listing prices is the foundation of accurate investment decisions.
When Is the Right Time to Buy a Used Condo for Investment?
The Decision Criteria Differ Between Residential and Investment Purposes
There is no "right time to buy" when purchasing a condo for residential use. On the other hand, for investment purposes, finding properties priced below market is important, and you should prioritize the property's cash flow evaluation over timing.
Properties Around 20 Years Old with Major Repairs Completed Are an Investment Benchmark
In real estate investment, there is the characteristic that "price fluctuations become smaller once a property is more than 20 years old." In particular, properties over 20 years old that have undergone major repairs have a high possibility of well-managed maintenance and repairs, making them suitable for long-term stable rental management.
Risks and Cautions in Used Condo Investment
- Check area demographics: Verify from a long-term perspective whether the area will sustain demand
- Check the status of the repair reserve fund: Verify whether the management association's finances are sound
- Design an exit strategy: Evaluate in advance the liquidity and price-sustaining ability at the time of sale
For the latest trends in the used condominium market, please also refer to our latest analysis of the Greater Tokyo used condo market.
Frequently Asked Questions (FAQ)
Q. When is the right time to buy a pre-owned condominium?
Make your decision by watching the balance between interest rate trends and supply volume. In a phase of rising interest rates, the number of sellers tends to increase, which may favor buyers.
Q. Will pre-owned condominium prices fall due to COVID-19?
Data as of 2020 indicates that the impact on pre-owned condominium prices was limited. In fact, a tendency emerged for demand to shift toward pre-owned units due to reduced new supply.
Q. What factor has the greatest impact on pre-owned condominium prices?
Monetary policy (interest rate levels) and demographic trends have the greatest influence.
Q. What is the difference between the "contract price" and "listing price" of a used condo?
The listing price is the seller's asking price, and actual contract prices are often about 5-10% lower than the listing price. Use contract price data for investment decisions.
Q. Is financing difficult for older used condominiums?
Generally, financing tends to become difficult for condos over 30 years old. However, since financing assessments change depending on the implementation status of seismic retrofitting and major repairs, it is important to consult financial institutions individually.
Q. What conditions should be the top priority when selecting a used condo for investment?
Location (distance from the nearest station, line, and access to the city center) is the most important. Next, comprehensively evaluate the management condition, repair history, and the balance between the rental market rate and yield.
Q. Where should I request a price appraisal of a used condo?
Requesting appraisals from multiple real estate companies and getting comparative quotes is the iron rule. We recommend grasping a sense of the market in advance with an AI appraisal tool, then comparing it with the opinion of an expert.
