Last year started with a major earthquake on New Year’s Day, marking the beginning of a turbulent year. However, this year has begun peacefully and uneventfully so far. In such a 2025, how will the real estate market evolve? Let’s examine it from several perspectives that are likely to influence the market.
Population Decline and Aging Society
Japan’s population peaked in 2008 at approximately 128.08 million and has since begun to decline, reaching about 124.88 million last year—a decrease of over 3 million people. Additionally, the issue of aging is highlighted by what is often referred to in news articles as the “2025 problem.” This term points to the fact that, in 2025, all members of the baby boomer generation will become late-stage elderly, aged 75 and older.
While the 2025 problem is often associated with concerns over the future of medical care and eldercare, from the perspective of the real estate market, the potential impact of elderly individuals selling their homes is worth noting. In areas with a high concentration of elderly residents—namely rural and suburban regions—there is concern over declining property prices.
Decline in New Housing Supply
Rising construction material costs, a shortage of skilled workers, and reduced working hours due to labor reforms in the construction industry—all of these factors provide no indication that construction costs will decrease. In addition to rising construction costs, a lack of economic optimism and uncertainty about the future are expected to lead to a stagnation in the number of new housing starts.
However, the decline in new housing supply is likely to drive up demand in the second-hand housing market. Particularly in central urban areas, where demand remains strong, the second-hand market is expected to stay robust. That said, in areas where prices have already reached excessively high levels, price adjustments are entirely possible.
Recovery of Inbound Demand
In 2024, the number of foreign visitors to Japan surpassed pre-pandemic levels. The previous record was set in 2019, but as of November 2024, it has already been exceeded, reaching approximately 33.38 million. Projections suggest that this number could surpass 42 million in 2025, driven by factors such as the weak yen and the Osaka Expo.
As a result, real estate suited for commercial use near tourist destinations, properties appropriate for lodging businesses, and those catering to the anticipated demand for second homes are expected to see price increases. However, the price rise driven by inbound tourism is likely to be limited in scope, both geographically and by property type, meaning not all real estate will benefit from the growth in inbound demand.
Expansion of the “Real Estate Gap”
There are other factors to consider, such as “interest rate increases due to the lifting of negative interest rates” and “the rise in vacant homes.” However, what can generally be said about all of these, including the points mentioned above, is that they are all ongoing issues that have been developing for some time. The population decline, aging society, and rising material costs are not new challenges that started in the past year or two. The fact that the environment is not changing suggests that past trends will likely continue. Among these, the disparity between real estate prices in urban and rural areas is expected to persist this year as well.
Currently, in urban areas, homes exceeding 1 million yen per square meter are not uncommon, while in rural areas, it is not unusual to find properties where the price per unit is 1 million yen. The impact of population decline and aging is more pronounced in rural areas, and this disparity is expected to widen further rather than diminish. The real estate gap between rural properties, which are unlikely to benefit from inbound demand, and urban properties will likely grow even larger.
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