Tokyo condo market: prices rocket amid tight supply

For decades after the 1980s asset bubble, Japan was synonymous with stagnant property values. Scars from the crash led to assumptions that land and housing would never again be viewed as attractive investments.

In Japan's major cities, that assumption has been overturned -- most dramatically so in central Tokyo. In the heart of the capital, condominiums priced above JPY 100 million (about USD 650,000) have become increasingly common.

We've visualized granular, localized datasets that CEIC has recently added from the Real Estate Economic Institute Co. Ltd.

As our first chart shows, prices for new condos in Tokyo's 23 central wards have surged far faster than equivalents elsewhere in the metro region, as well as the secondary market for existing condos.

There are several factors driving the rebound and central Tokyo's outperformance in particular.

One is residential land prices. As our second chart shows, they're growing at the fastest pace in a decade. In Tokyo, this is driven by limited supply and heightened investor confidence in the capital's long-term growth prospects.

Then, there are construction costs. They're up by roughly 30% over the past decade, driven by material price inflation and labor shortages.

Structural cost increases for land and construction have translated directly into higher prices for new builds. These factors have also made it more costly to launch new projects; housing construction starts have declined and supply is tighter as a result, especially in Tokyo.

Meanwhile, the weak yen and persistently low interest rates have fueled demand from foreign buyers and affluent domestic investors.

While Japanese property has become a favored asset in international portfolios, the price surge has been controversial domestically. Wages are not keeping up with this house-price spiral, sparking debate over whether stricter regulations are needed -- such as limiting purchases by foreigners and imposing stricter rules on condo resale.

If you are a CEIC user, access the story here.