All eyes on guest houses business due new regulations The real estate market moves in an overall favourable manor

All eyes on guest houses business due new regulations
The real estate market moves in an overall favourable manor

It has already been almost three months since the start of the year. Today we'll be giving a news update on the real estate market, and related news.

To start with, there has been some interesting news related to guest houses. On the 10th of this month the government made a cabinet decision to lift restrictions on "guest houses" like Air bnb nationwide in order to provide accommodation for travelers in private residences with the "housing accommodation business bill (new private residence law)". It seems the goal is for it to be established at an ordinary Diet session scheduled to be held by the 18th of June.

Thus far guest houses were either certified within the National Strategic Special Zones or obtained permission as "basic accommodation". However, in order to obtain permission as "basic accommodation", there were various requirements such as building standards, fire laws, ryokan industry laws, and so on that all needed to be met. These hurdles became a major hindrance to those trying to enter the industry. On the other hand, the demand for guest houses is increasing, and there is no shortage of those willing to operate illegally. According to a server by the Ministry of Health, Labor, and Welfare, of 10,000 guest houses registered on a guest house site, little more than 10% had clear business licenses.

If the "new guest house law" is enforced, it is likely that major hotel and real estate companies that hesitated to enter the guest house industry due to regulations will rapidly begin start to push into the market. Further, it seems likely that there will be many cases of second hand condominiums in multi-tenant buildings, or one room condominiums bought for the purpose of investment being converted for use as guest houses. Considering this, it is possible the new regulation will have a significant effect on the stock of condominiums.

Despite harsh criticism that restrictions such as a maximum of 180 days operation per year, and mandatory notification to the Tourism Agency and local municipalities are too strong, it is almost certain that the guest house business will be a big trend heading towards the 2020 Tokyo Olympics.

Now we’ll introduce some of the latest news regarding indicators of the real estate market.

● The state of the office building market

According to real estate brokerage Miki Shoji, the office building vacancy rate in the 5 central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku and Shibuya) during February was 0.04 points lower than the previous month at 3.7%. Since breaking 3% for the first time in 7 years and 11 months in July of last year, it has remained below 4%. Further, the average rent in those same wards saw an increase of 4.2% compared to the same month last year, an increase of 0.4% over the previous month. While small in scale, this is the latest in 30 consecutive months of increase. Likewise, there have been signs of improvement with regards to the office building market nationwide, with indicators such as local cities like Nagoya or Fukuoka, as well as popular tourist destinations such as Osaka seeing vacancy rates drop to below 5% for the first time in 4 years, etc.

●The state of the condominium market

Rent for condominiums in February was 0.6% lower than the previous month, marking a 3 month consecutive fall. However in that time, the rate of fall has remained minimal at 1.4%. In the Kinki and Chubu regions rent adjustment had been continuing since last summer, but in February Osaka and Nagoya cities both saw 1.6% and 0.5% increases respectively, showing a trend for bottoming out since the start of the year (Tokyo Kantei survey).

Meanwhile, the contract price of second-hand condominiums in the Tokyo metropolitan area in February rose by 3.5%. This is part of a 50 month consecutive rise since January of 2013. In 2016 the number of contracts in the Tokyo metropolitan area recorded new records 2 years in a row. The contract price also rose for 4 consecutive years, and broke the 30 million yen mark. This was the first time the 30 million yen mark had been surpassed in 22 years, since 1994 (According to the East Japan Real Estate Distribution Organisation).

In the real estate market, while there has been variation in the increase of inventory or average rent prices, the overall conditions continues to be good.