Tokyo real estate prices rise ahead of 2020 Olympics

Commercial and residential buildings in Tokyo. (Zhu Zhu/MEDILL)

By Zhu Zhu

Since Tokyo was selected as the host city of the 2020 Olympics Games more than three years ago, home prices in the city have been increasing.  Whether those increases will continue is an open question.

Residential property and condo prices in Tokyo have risen—16 percent and 27 percent respectively—since Sept. 2013, when Tokyo was selected as the site of the 2020 Olympics Games.

Graph showing Japan residential property price index. (Source: Japan Ministry of Land, Infrastructure, Transport and Tourism)

One of the reasons for condo price increases may be that more people are investing before the Olympic Games, some experts say.

“Many people believe that the condo prices will go up after the Tokyo Olympic Games, especially in Tokyo, so they invested before that, pushing up the condo prices in Tokyo,” said Lei Zou, a real estate agent at Real Consulting in Tokyo, in an interview.

Condo prices in 23 wards of Tokyo increased by 13.7 percent in January from a year earlier, according to the Real Estate Economics Institute.

Residential apartments at Akihabara, Tokyo. (Zhu Zhu/MEDILL)
Residential apartments at Akihabara, Tokyo. (Zhu Zhu/MEDILL)

Low interest rates in Japan may be another reason for rising home prices. Japan’s key overnight discount rate remained at 0.3 percent, where it has been since 2009 after the bursting of the Japan real estate bubble in 2008, according to Federal Reserve Economic Data. Lower borrowing costs encourage investment in housing and real estate by making such purchases more affordable.

Jiro Yoshida, an expert of the Japanese National Land Council, and research fellow at the Housing Research and Advancement Foundation of Japan, sees less impact from the 2020 Olympics.

“I doubt [there is] any material impact of the Olympic games on the aggregate real estate price,” Yoshida said in an interview.

“GDP and interest rates are the two most important determinants of the aggregate real estate price.” Yoshida said. “You see a strong correlation between the current GDP growth and the home price appreciation rate.”

Graph showing the correlation between GDP growth home price appreciation rate. (Source: Graph provided by Jiro Yoshida)
Graph showing the correlation between GDP growth home price appreciation rate. (Source: Graph provided by Jiro Yoshida)

However, Japan’s GDP growth slowed in 2016.

Graph showing GDP in Japan. (Source: Trading Economics)
Graph showing GDP in Japan. (Source: Trading Economics)

“Since the economic growth is smaller for the past year, the housing price appreciation may become smaller soon,” Yoshida said.

Foreign investment, particularly from China, may also be boosting the real estate market.

“Strong condo prices are clearly affected by Chinese people’s investments. However, their strong demand is coming to an end because of the Chinese government regulation about foreign investments,” Yoshida said.

The Japan government requires a permanent status for Chinese investors, Zhao said.

“Many of my Chinese clients are investor immigrants. Also the housing loans are tricky for foreigners to apply now. Even though the maximum loan amount a foreigner can apply for from a bank may be $50,000, they can open 20 different bank accounts to borrow a total of $1 million,” Zhao added.

Some Tokyo residents think buying homes is a good investment no matter what impact the Olympic Games may have.

Shou Naomichi, a young adult, bought a condo after working for a couple of years in Tokyo.

“I bought a condo because the loans you need to pay each month are quite similar to the money you spent on renting,” said Naomichi. “Since I can afford the down payment, even if I rent it to someone else later, his/her rents can cover my loan payment anyway. I think this is a good investment.”

He was not sure whether the Olympic Games would have a positive impact on the real estate market, so he didn’t take that into consideration, Naomichi said.

“Many Japanese people don’t dare to invest in real estate nowadays after the real estate bubble burst in 2008,” he added.

Whether the increasing home prices trend will continue or get stronger after the Tokyo Olympic games is still a mystery.

“I feel that at this point, the Olympics have already been fully priced into the market. If anything, it has had the largest impact on the hotel sector, where there is a great deal of supply planned,” said Erik Hansen, an associate in Japan at Savills, a global real estate services provider.

“I think you could say that the Olympics have had some positive knock-on economic effects,” Hansen added, such as helping the Japanese government focus more on attracting tourism and overseas investment to the country.

Photo at top: Commercial and residential buildings in Tokyo.(Zhu Zhu/MEDILL)