TOKYO - In Japan’s urban housing market, real estate prices continue to rise, with the average price of a newly built condominium in Tokyo’s 23 wards exceeding 100 million yen in fiscal 2024.
Land prices have also surged, with the highest growth rate since the bubble era. In an increasingly complex economic environment, understanding the current state and outlook of the real estate market has become more important than ever.
To shed light on these issues in an accessible way, even for beginners, we spoke with Sakuta Otani, head of the Investment Research Department at the Sumitomo Mitsui Trust Research Institute, which has a team of 50 researchers. What impact do corporate earnings, income levels, and labor shortages have on housing prices? What about the influence of Trump’s proposed tariffs? Using macroeconomic data, Otani breaks down current real estate trends.
Otani explained that while the pandemic caused a significant contraction in the economy, recent data show a gradual recovery. As people and capital once again concentrate in Tokyo, housing prices—particularly for new condominiums—are climbing beyond the reach of many ordinary buyers.
According to a survey by the Real Estate Economic Institute, the average price of a new condominium in Tokyo’s 23 wards reached 116.32 million yen in fiscal 2024, marking an 11.2% increase from the previous year and exceeding the 100 million yen threshold for the second consecutive year. Otani attributes this to population and capital concentration in Tokyo, resulting in prices that feel increasingly unattainable.
Land values are also rising. The Ministry of Land, Infrastructure, Transport and Tourism reported that as of January 1st, nationwide land prices for all property types rose 2.7% from the previous year—the highest rate since the economic bubble, and the fourth consecutive annual increase.
Amid these conditions, what lies ahead for the real estate market?
Otani explained that based on an analysis of extensive data by the Sumitomo Mitsui Trust Research Institute, the second half of the discussion would focus on trends in the condominium market and the impact of Trump’s tariffs.
He began with macroeconomic trends. While real GDP fell sharply during the pandemic, it has now returned to pre-COVID levels. Meanwhile, corporate profits—especially over the past three years—have reached record highs, driven in part by the weak yen.
One key issue is inflation. While prices have been rising, income growth has only recently begun to catch up. Otani noted that although average wages are starting to increase at a pace comparable to inflation (around 3%), household purchasing power remains tight. However, there are signs that incomes may soon outpace inflation, supported by spring wage negotiations and wage hikes. Still, uncertainties remain, including the impact of U.S. tariff policies.
Income trends also vary by age and gender. While average incomes for people in their 40s and 50s have shown little growth over the past decade, younger workers in their 20s and 30s have seen notable increases. Women’s income has also risen, thanks to higher participation in the workforce and a shift from part-time to full-time employment. Young women in particular are now earning incomes nearly on par with their male counterparts. Older workers are also earning more, as re-employment after retirement no longer involves sharp pay cuts, largely due to ongoing labor shortages.
These income trends have implications for real estate. Demand for condominiums is now centered among people in their 20s and 30s, making this demographic key to understanding price movements. As their incomes rise, demand—and prices—for condos are likely to climb.
Turning to interest rates, Otani explained that long-term and short-term interest rates are both rising as the Bank of Japan moves away from its zero interest rate policy. With inflation climbing, the environment of ultra-low mortgage rates is beginning to change. Going forward, rising interest rates are likely to make home loans more burdensome, limiting affordability.
Construction costs are another concern. Over the past three years, the weak yen has driven up the price of imported materials, while the war in Ukraine has also pushed up energy prices. Although lumber prices have stabilized, cement prices continue to rise sharply, exacerbated by labor shortages and higher wages for factory and truck workers. Some plants are shutting down, and major cement makers raised prices again in April. These developments are causing alarm in the construction and real estate sectors.
Otani emphasized that while material costs have been the primary driver of construction price hikes so far, labor shortages are now playing a larger role, and this trend is expected to continue. General contractors that previously absorbed losses during price spikes are now trying to recoup those costs through higher profit margins, which will likely keep construction costs elevated.
This has already begun to impact housing supply. The number of newly started condominium projects in Tokyo has been declining, especially for for-sale units. Developers are holding back on new projects to avoid excess inventory amid high construction costs. Meanwhile, rental housing construction had been rising, but this too is now starting to decline, especially outside the Tokyo 23 wards, where high rents are harder to secure.
Price data reflect these trends. New condo prices continue to rise due to material and labor costs as well as demand from dual-income households. As new units become less affordable, more buyers are turning to secondhand properties. Data now show that transactions in the existing condo market have overtaken those in the new-build segment—a significant shift.
Source: テレ東BIZ
