Hunt for trophy apartments in Tokyo sends prices sky high

A new wave of Japanese entrepreneurs is vying with foreign buyers for a scarce supply of high-end Tokyo apartments, driving property prices in the city to levels not seen since the 1980s bubble.

The price per square metre of new flats for sale in the Japanese capital hit ¥1.62mn ($10,830) in the third quarter, according to property consultancy Tokyo Kantei — exceeding a peak of ¥1.4mn in 1990.

The average price of a new apartment sold in Tokyo also hit a fresh post-bubble high of ¥88.7mn in the first half of the year, according to the Real Estate Economic Institute, which tracks the property market in Japan.

“The main buyers are wealthy Japanese individuals,” said an official at the institute.

Although prices in Tokyo remain lower than in several other major capital cities, analysts at UBS estimate that apartments are more unaffordable to the average person than in almost any major city except for Hong Kong.

It would take 15 years for an average skilled office worker to afford a 60 sq m flat in central Tokyo, compared with 11 years in London, 10 in Singapore and eight in New York, UBS said in a recent note to clients.

“Housing market imbalances in Tokyo have increased from undervalued 20 years ago to bubble risk now” and were decoupled from the rest of Japan, UBS said.

A crunch in supply is part of the issue. In 2022, the supply of condominiums for sale in central Tokyo was just 10,800 units, according to consultancy Cushman & Wakefield, the lowest point for at least 20 years.

Tokyo Kantei said supply had narrowed again in 2023 and that demand for top-end apartments was having a disproportionate effect on average prices.

Local brokers said foreign investors from China and elsewhere were also being pulled in by the cheap yen, with the real effective exchange rate at a near-50-year low.

The trend of increased purchases by foreign buyers “is not likely to stop anytime soon”, said Mari Kumagai, head of research at Cushman & Wakefield in Japan.

Brokers say that only about 100 apartments selling for at least ¥1bn are on the market, with Japanese buyers to the fore.

“Buyers from outside [Japan] just did not believe them when I told them that there was no availability in a size and price range equivalent to the high-end properties that routinely change hands in New York, London and other major cities,” said Zoe Ward, chief executive of brokerage Japan Property Central.

Tokyo’s stock of such properties was significantly boosted recently by the sale of dozens of luxury apartments on 10 floors of the 330-metre Azabudai Hills tower, the city’s tallest building. The development’s most valuable penthouse property sold for about ¥22bn, according to people familiar with the sale.

A spokesperson for Mori, the developer, confirmed that most buyers so far were Japanese but would not disclose the apartments’ prices.

One Japanese entrepreneur said that he knew of three people — each the Japanese founder of a company that has listed on the Tokyo Stock Exchange within the past 18 months — who had bought apartments in the development.

“Among younger shacho [chief executives], the apartment is the new way of showing your prestige,” he said. “Founders used to buy land and build a big house. Now they want an apartment in the centre of the city.”

The Real Estate Economic Institute said rising prices in Tokyo were also being driven by an increase in construction and materials costs, in addition to a “chronic shortage of labour”. Today is “very different from the bubble era”, the official said.