Now that it has become easier to buy, an independent analysis reveals the reality.
In contrast to condominiums, detached houses were considered to have no asset value. This is because the useful life of a wooden building is only 22 years, and the value of the building is considered a depreciating asset.
The small number of condominiums makes it easy to track price fluctuations within the same building, whereas it is not easy to track transaction prices for detached houses. However, we conducted an analysis of both new and used detached houses using the same method as for condominiums. The results showed a much larger difference than expected.
Areas with higher prices closer to the city center have smaller price declines.
Based on data from “REINS (an information exchange service exclusively for members of the Real Estate Information Network),” we analyzed how much detached houses sold, for which prices were known at the time of new construction.
The results showed that the price declines were smaller in the more expensive areas closer to the center of the city. This location rule is the same trend as for condominiums. The average annual decline rate for detached houses in the Tokyo metropolitan area is 1.4%, which is lower than the Tokyo metropolitan average for condominiums, which is 2.0%. The location is more suburban than condominiums, which is an excellent enough level of asset quality.
The current metropolitan area average price for a new detached house for sale is about 42 million yen. Dividing 42 million yen by the normal mortgage term of 35 years (420 months) yields 100,000 yen per month. Since approximately 50% of the properties are those that have acquired a housing performance evaluation, both the mortgage interest rate and the tax reduction on loan credits will be greater.
How are prices set?
The pricing at which the property is listed is based on the mortgage. The financial institution’s view of asset value for a detached house is calculated separately for land and building. The sum of these is the transaction price, and this is called the total value method in real estate appraisal terminology.
In new construction, the land and building prices are clearly stated at the time of contract. If the consumption tax is 1.2 million yen, the building price is 12 million yen. If the transaction price is 42 million yen, the land price is the remaining 30 million yen. Banks lend mortgages based on the idea that the land has collateral value and the building depreciates over its useful life of 22 years.
In other words, the second hand property price in the above case would be the land price of 30 million yen plus the building price after depreciation. Depreciation depreciates evenly over 22 years, so the value is halved in 11 years and reduced to zero in 22 years. The building cost is 12 million yen divided by 42 million yen, equivalent to 29%, which is depreciated equally over 22 years, which is about 1.3% per year.
If the property price falls only 1.3% per year, the mortgage principal will decrease by about 2.7% per year based on the current low interest rate, which means that 1.4% of unrealized profit will accumulate each year.
The property price will fall 14% in 10 years and 35% in 22 years, but since the principal is nearly 60% paid off after 22 years, the sale will generate 25% cash, from which 20% will remain after deducting the costs of the sale.
The rate of decrease in value each year depends on the property value.
Several buying strategies can be determined from here: one, buying a new detached house for sale closer to the city center, where the percentage of land cost is higher, can be a good choice. As shown below, the rate of price decline will vary from year to year relative to the property price.
For a property priced at 60 million yen, the annual rate of decline is 0.9%.
For a property priced at 50 million yen, the annual rate of decline is 1.1%.
If the property is priced at 40 million yen, the annual rate of decline is 1.4%.
If the property is priced at 30 million yen, the annual rate of decline is 1.8%.
Next, if one were to purchase an existing detached house, the price decline would be smaller because the building price is lower to begin with if the house is purchased at the price after building depreciation. In other words, the price decline will be smaller than for new construction, which means that the property will have a higher asset value.
What to look for when choosing a second hand home.
However, if the building is old and appears to be severely damaged, it will affect the comfort of living. When choosing an existing house, keep in mind that a property that has obtained a housing performance evaluation or a long-term excellent housing rating is more secure for long-lasting residence.
When purchasing a detached house, it is important to be careful to determine the appropriate price for the land. If you make a mistake, you will lose money. For this reason, we recommend that you carefully check the price of land in the surrounding area with the help of an agent when purchasing.
In addition, there is a sense of security in buying a detached house if it is in an area where land prices are rising. This is because the increase in land prices will be converted into unrealized profit for the owner. Areas with rising prices are generally located closer to the city center, where unit prices are generally higher. If you want to know the details, it would be a good idea to check the official announcement of land prices, which are regularly monitored, for examples in the neighborhood.
Custom homes have the lowest property value.
Finally, one choice that is hard to take is a custom-built detached house. What we have discussed so far was the purchase of a detached house for sale that has already been built. The price per square meter of a newly built detached house for sale is 120,000 yen, or 12 million yen for 100 square meters.
In contrast, the unit price per square meter for custom-built detached houses is 316,000 yen in the Tokyo metropolitan area, based on housing start statistics; 100 square meters would cost 31.6 million yen, or about 1.44 million yen per year if amortized evenly over 22 years. However, the transaction price drops drastically after a few years of construction. That is because it is custom-made.
When a custom-made, made-to-order house is built, it is to that household’s specifications, and the likelihood of it fitting the needs of other households is infinitesimally small. People who don’t like it in that house will want to tear down the building, buy it for the cost of the land alone, and build a new one. They will not be able to sell the house without a significant reduction in price. Keep in mind that custom-built homes have the lowest asset value and are the highest luxury item.
Original Article: マンションより割安｢戸建て｣資産性を保つ買い方
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