Is it really true that the real estate bubble will collapse before and after the Tokyo Olympics?

Is it really true that the real estate bubble will collapse before and after the Tokyo Olympics?

It is now 20 years since the early 90s real estate bubble burst. In that time, excluding the period between 2006 to 2008 when real estate liquidation boomed, the real estate market had been stagnant for a long time.

However, there was an obvious change in 2013. According to the "Real estate price index" (National average) announced by the Ministry of Land, Infrastructure and Transport, housing prices had remained weak until February of 2013 but turned around during April of that year. Since then, prices have continued to rise year on year. Condominiums in particular have seen high price rises, with an increase of 33% from their lowest point in June of 2009 to October of 2016.

In response to these price rises, many have been making the claim "the real estate market will collapse before and after the Tokyo Olympics", the so called "real estate bubble collapse theory". Apart from whether or not to refer to the current situation as a bubble, it certainly isn't strange to think that the money invested in expectation of extraordinary demand leading up to the Olympics will be withdrawn after they finish, leading to a decline in the market.

There is an interesting report on the matter. In 2014, Tomohiko Taniyama, a high level consultant at the Nomura Research Institute announced the "Olympic Economic Ripple Effect Verification" paper. The report used the "Post-games evaluation" report issued by the UK Ministry of Culture, Media, and Sports a year after the games as a reference to examine and estimate the economic ripple effect.

As to why London was chosen as the comparison point for the Tokyo Olympics, firstly both events will suffer or suffered financial difficulties, and secondly both are city-based Olympic events which require consideration of the surrounding environment. Further, one noted analyst came to the conclusion that "Both the UK and Japan are 'Island Nations', and have many similarities in terms of economic scale, fiscal situation, parliamentary systems and policy interest rates, making London an appropriate comparison".

The same report stated in regards to the real estate market that "while areas around places such as the Olympic park which are major locations for events have seen prices rise for commercial and residential real estate, this rise is has been more greatly influenced by the overall real estate cycle than the Olympics". Further, it concluded that "There was not much of a direct ripple effect on commercial and residential real estate due to the Olympics".

Indeed, the UK real estate market dropped due to the influence of the 2008 Lehman shock and the 2010 European financial crisis, then recovering from around 2012, but the rate of recovery was in fact greater after the Olympics. Of course, it is not clear if this will be the case for the Tokyo Olympics. However, at the very least it does not affirm the theory that "the drop off of extraordinary demand following the Olympics will crash the real estate market".

Of course, there is the possibility that condominium prices will drop in some areas, such as the bay area of Chuo ward where the Tokyo Olympic village is to be constructed, after the Olympics. However, looking at the overall real estate market going forward, it may not be necessary to place so much emphasis on the influence of the Tokyo Olympics. Simply stated, "Do not be misled by an Olympic red herring".

During the bubble period of the late 80s, land and real estate was bought regardless of whether or not it would bring about yield of revenue. Currently, appraisal of real estate is conducted based on the "profit return law", making price rises for real estate that does not generate revenue limited (Even now there are many areas where the downturn continues in local suburbs). In this regard, it seems unlikely that a nationwide crash like the bubble burst of the 1990s will occur.