Which ordinances or cities other than Tokyo are asset-rich?
Increasing Supply of Condominiums in Regional Cities
The most asset-rich area for condominiums in Japan will be in central Tokyo. While condominium prices are soaring nationwide, the supply of condominiums in the Tokyo metropolitan area, which used to exceed 90,000 units, has already dropped below 30,000 units, while the supply of condominiums in regional cities has remained steady.
In the relatively increased proportion of condominiums in regional areas, we would like to avoid losing money by buying a condominium. Which cities have the greatest asset value? We independently estimated how the transaction price of used condominiums in government-designated cities changes with the age of the building.
The first thing to know is assuming market prices remain constant, the current mortgage principal repayment is about 2.7% per year, so if the level falls below this level, the property will not sell. This is because the bank will not remove the lien because they cannot pay off the entire debt.
Among the ordinance-designated cities we estimated, those where the decline in asset value was greater than the repayment of mortgage principal were Niigata City (-3.45% on average per year, – being negative), Hamamatsu City (-3.37%), Sakai City (-2.80%), Kitakyushu City (-2.82%) and Chiba City (-2.82%).
Cities that are located far from central office areas and cannot target high white-collar workers are relatively reasonably priced, but the rate of decline is also high. These are the “cities where you should not buy a condominium.”
*This is of course taking in consideration of the long term asset value which this is article’s main focus.
The difference in location can be easily seen in the Tokyo metropolitan area. The most asset-rich ordinance-designated city in the Tokyo metropolitan area is Kawasaki, adjacent to the metropolitan area, at -2.03%, followed by Yokohama at -2.25%, a little further away, Saitama at -2.35%, and Sagamihara, the most distant, at -2.51%. Condominiums in locations with good access to the city center tend to be more advantageous at the end of the spectrum.
Single Family Homes Rather Than Condominiums If Far From The City Center
If you are far from the city center, a detached house is a “safer long term purchase when taking into consideration future asset value” compared with a condominium. The building price of a detached house is depreciated over 22 years. When selling a used house, the price will be the sum of the building price and the land price after this amortization. The bank believes that the land price will not change significantly, so it is a comparison of the speed of amortization of the building cost versus the speed of mortgage repayment.
Note, however, that custom-built detached houses have lower asset value than detached houses for sale (for details, see the previous article “How to buy a “detached house” cheaper than a condominium and keep its asset value“).
The local city with the highest asset value is Kyoto City, with -1.61%. Among them, Sakyo Ward almost never falls from the price at which it was bought. Because it is such a rare location and attracts buyers from all over Japan, advertisements are often used not only locally but also in national newspapers. Within Kyoto City, Nakagyo Ward, Shimogyo Ward, and Higashiyama Wards have an annual decline rate of 1% or less, making them hard places to buy and make a mistake.
However, there are some locations in Kyoto City that are not condominium designated locations where the annual decline rate exceeds 2%. Kita Ward, Minami Ward, Ukyo Ward, Fushimi Ward, Yamashina Ward and Nishikyo Wards are not suitable for condominiums. Since it is difficult to build tall buildings in these areas, it is better to consider them as locations for detached houses.
After Kyoto, Sendai is the second most asset-rich ordinance-designated city at -1.84%. However, this is likely due to the impact of the 2011 Great East Japan Earthquake, which caused housing prices to skyrocket. Going forward, it is somewhat questionable whether the city will be able to maintain the same level of asset quality as it has in the past.
Third is Hiroshima City with -1.87%. This figure is considerably higher than the -2.29% in nearby Okayama City. In Hiroshima City, all wards except Asakita Ward are below 2%, maintaining stable asset values.
Taking a Look at Nagoya and Osaka Cities by Ward
Other leading cities include Nagoya at -2.19%, Osaka at -2.21%, Fukuoka at -2.29%, Sapporo at -2.35%, and Kobe at -2.48%. Within Nagoya City, the wards with the lowest asset value are Midori Ward, Meito Ward, and Moriyama Ward, in that order.
In Osaka City, there are large differences by ward. The highest property quality is in Fukushima Ward at -0.58%, followed by Nishi Ward at -0.98%, which are excellent at less than 1%. In particular, the asset value of landmark high rise condominiums near stations are high. On the other hand, one should refrain from purchasing a condominium in Higashiyodogawa Ward, Ikuno Ward, Sumiyoshi Ward, and Suminoe Wards, where the annual mortgage principal repayment rate of 2.7% or more, the rate mentioned earlier, is higher.
Fukuoka City also has a specific location for condominiums. The annual decline rate of less than 2% is in Hakata Ward, Chuo Ward, and Minami Wards. The other wards are in the low 2% range, so the property quality is quite different from these three wards and there is a cloud of difference between them.
As we have seen, while there are areas in local cities where condominiums hold asset value, there are also locations where you should be wary.
Along with asset value, an important point of view is whether the price is fair. Whether it is a new or used condominium, check the selling price of used condominiums at the same station on a property search site. The selling price will typically be 10-20% lower than the closing price. The contracted price will be reduced by about 2% per year of the building’s age to determine if the price is appropriate. If you do that much research, your chances of buying a property at a fair price and with high asset value will increase dramatically.
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