Are the many real estate crash theories nothing more than agitation? What are the real risks of the real estate market going forward? (Part 1)

Are the many "real estate crash theories" nothing more than agitation?
What are the real risks of the real estate market going forward? (Part 1)

● The city centre real estate market is stable

In the past 1 or 2 years, the number of media outlets claiming there will be a "real estate crash" has increased. Among them, there are articles that are rational and justified, and also those which are simply written to give the reader a sense of crisis. Today, we will be looking at this "real estate crash theory", and verifying its credibility. Then we will be looking at the future of the real estate market.

The most commonly seen real estate crash theory is "Real estate is in a bubble. Bubbles burst at some point". First of all, is the real estate market really in a bubble? It is certainly true that in parts of Ginza, land prices have reached and exceeded their 1990 bubble prices, and newly built tower condominiums in bay areas such as Toyosu and Harumi have seen sudden price rises, which can be be seen as signs of a bubble. However, these are essentially local phenomenon. Even now other metropolitan areas are seeing prices continue to decline, so articles claiming the overall market is in a bubble are simply aiming to incite the feeling of a crisis.

The 90s real estate bubble was entirely the result of buying without regard to demand, and the current land price rises in urban areas have a background of increased demand due to foreign visitors to Japan. The number of foreign visitors from January to September 2017 totaled 21.2 million, breaking the 20 million mark earlier than expected (according to the Japan National Tourism Organization). Last year the same period saw approximately 18 million people, meaning the number is still rising. Department store Matsuya' Ginza branch and J. Front Retailing have also shown strong results, enjoying strong performance supported by the increased demand from foreign visitors to Japan.

The fact is, some luxury tower condominiums, particularly those in the gulf areas, are seeing prices peak out. Purchases for residential purposes are flowing into the surrounding areas due to prices rising too much, which seems to be due to Chinese investors selling one after another as their purchases hit the 5 year mark.

The "Highly utilised land price trends report" released by the Ministry of Land, Infrastructure and Transport in August, said of gulf areas such as Tsukishima and Toyosu "The condominium market is stable, but there is a feeling of oversupply. Depending on economic trends there is a possibility of market price decline". On the other hand, it generally has positive things to say about areas with development underway, such as the Tokyo station area or Roppongi, Akasaka/Toranomon, Shibuya, and Shinagawa etc.

In the centre of the city, the office vacancy rate is at a low level, rent prices are maintaining a high level, and there are no signs that market conditions will collapse at the moment. With regards to office buildings, as long as there is no sudden drop in the number of foreign visitors, the chances of a large price collapse seems low. However, it can be said that the luxury condominium market is starting to overheat due to investment buying, meaning a price collapse wouldn't be unexpected.

*Sales within 5 years (Short term transferred income) and those after (Long term transferred income) see tax rates of 39% (30% Income and 9% Residence) and 20% (15% Income and 5% Residence) respectively, making the tax rate near double before the 5 year mark.