July 9, 2023 - The lack of uber-luxury apartments in Tokyo, a city otherwise full of indulgent shopping choices, has long baffled foreign investors. But that’s starting to change as new developments with sweeping views, swimming pools and 24-hour valets are snapped up by local and overseas buyers taking advantage of a weaker yen and low interest rates.
At The Kita, a complex designed by award-winning architect Kengo Kuma, a penthouse residence with a rooftop infinity pool was sold last week for around $50 million, according to its Vancouver-based developer Westbank. The 507 square meter (5,457 square foot) unit has a view of the lush forest surrounding the nearby Meiji Shrine.
That deal followed the start of sales for the 1,002-unit Mita Garden Hills by top developer Mitsui Fudosan Co., where one 3-bedroom unit was offered for 590 million yen ($4.1 million) in February. The sales were widely seen as the main reason the average selling price of new apartments in the Tokyo area doubled year-on-year in March. Price gains have moderated since then but were still up 60% in April and 48% in May, according to the Real Estate Economic Institute.
“The market here is very much under-supplied. That’s why there’s strong demand,” said Tetsuya Kaneko, the head of research at real estate company Savills. “Also, inbound and full reopening of the border helped."
Japan’s rich, seeking privacy and assisted by private bankers, often turn to off-market deals in which properties aren’t listed. With new, high-end apartments, developers tend to shroud price details in secrecy. But the eye-popping prices of big, luxury developments don’t remain secrets for long.
Later this year, Mori Building Co. will finish its Azabudai Hills project near the central district of Roppongi. Of the 1,400 luxury units, 91 are Aman-branded residences. A penthouse unit in the 64-story tower has already reportedly been sold for around 20 billion yen, the highest price ever recorded for a Japanese apartment, according to Savills.
For millionaires on more modest budgets, Toranomon Hills Residential Tower, another Mori development, has a three-bedroom unit with a view of Tokyo Tower for resale at 890 million yen, according to a realtor.
Mori pioneered the development of sprawling, mixed-use developments in central Tokyo. Its Roppongi Hills project, which opened in 2003, is credited for introducing the appeal of high-rises to Japan’s wealthy home buyers. Traditionally, many of them avoided conspicuous properties, preferring quiet, standalone properties in Tokyo’s western districts. Those who wanted property in the city often opted for discreet homes in relatively quiet, old-money neighborhoods such as Hiroo and Azabu rather than apartments in central business areas. The shift has been slow, but Savills says the concentration of executives’ homes has definitely moved from the outer neighborhoods to areas such as Shinjuku and Roppongi.
One change, industry experts and executives say, has been the rise ofyoung, tech entrepreneurs who took their companies public in recent years. The typical Japanese buyers of Mori’s Azabudai residences are company founders in their 40s and 50s, according to Kosei Ajima, the company's head of residential business promotion. While some are paying in cash, the Bank of Japan’s prolonged easing stance means borrowing costs are minimal.
Brokers also cite growing demand from overseas buyers who see Japan as a stable and attractive place for a second home. Jack Ma, co-founder of China’s Alibaba Group Holding Ltd. who’s been spending more time in Japan after criticizing Chinese regulators in 2020, isn’t the only one.
Tokyo-based real estate firm Post Lintel Investment Management, which works with funds and family offices, has seen its luxury residential transactions increase by about 40% in the last two years. The company’s high net-worth clients from Hong Kong, Singapore and Taiwan are seeking to diversify their assets and take shelter from growing geopolitical tensions around China, according to executive director Joey Yang.
Many of those wealthy Asian buyers are paying in cash or obtaining low-interest loans from foreign banks with local branches. There are few restrictions on foreign property ownership in Japan, and the weak yen also ensures a big discount, brokers said.
“The yen is cheaper and it’s stayed that way, the political climate in China and Hong Kong has a lot of people shifting their money out, and look at the taxes Singapore has put on foreign buyers,” said Zoe Ward, the chief executive officer of Japan Property Central KK, a brokerage that services mainly foreign clients.
While the definition of luxury real estate is different in every country, in Japan, the term usually applies to apartments over 100 square meters, although smaller units that cost a few million dollars can still be considered high-end if their buildings come with amenities such as gyms and concierge services. Super-prime properties refer to even more exclusive residences catering to the ultra-rich and typically sell for over$10 million.
Regardless of the bracket, Tokyo’s luxury apartments are seen as more affordable than comparable listings in other global cities. A prospective buyer with a million dollars can purchase twice as much prime real estate space in Tokyo than they would in New York, and three times more than in Hong Kong, according to Knight Frank’s annual wealth report for 2023. Japan’s inflation, which is picking up after years of deflation and lackluster economic growth, is also bolstering the real estate market on the back of higher labor and raw material costs. Following the burst of Japan’s asset-inflated bubble economy in the early 1990s, properties typically began depreciating from the moment they were sold. But the recent rise in asset prices has meant apartments are starting to maintain or increase in value. Post Lintel’s Yang, who also buys apartments in Tokyo as personal investments, thinks a luxury unit he purchased in 2020 has nearly doubled in value judging from recent sales of similar properties.
The trend has meant a sea change in the mindset of prospective buyers, who are now faced with the fear of missing out. Yukiko Takano, a real estate advisor at List Sotheby’s International Realty, said more people were beginning to see property as a viable and potentially
rewarding investment.
“I think Japan is finally realizing that real estate is a commodity,” she said.
— Lisa Du with assistance by Jane Pong