“Some people are worried about the sharp rise in repair reserve funds, but…”

Construction costs have soared, and some major general contractors have fallen into operating deficits. This issue is not limited to wooden structures (mainly detached houses) but also applies to reinforced concrete buildings. In particular, large-scale projects with long construction periods have been the main cause of these deficits. While material and labor costs have skyrocketed, contractors have had to absorb the full impact due to fixed-price contracts. For general contractors, longer construction periods pose a significant risk.

Estimates for long-term projects have risen sharply, and high-rise condominiums are a prime example. Since it is said that each floor takes about a month to construct, taller buildings naturally require longer construction periods. Given this situation, let’s consider the potential impact on the prices of future high-rise properties.

How Much Will the Price of New High-Rise Condominiums Continue to Rise?

First, the prices of newly built high-rise condominiums will continue to rise. The prices of already released properties have increased significantly, and it is inevitable that upcoming properties will be priced even higher. The key issue is whether these high prices pose a risk of decline.

The sales performance of new high-rise condos is expected to vary by area. Sales depend on the level of demand in the locations where these properties are supplied. In most cases, demand within the target market area can largely explain sales trends based on price range distribution.

When purchasing a home, most people take out a mortgage. If a bank’s valuation is low, the borrowing limit decreases, reducing the price range of properties that can be purchased. Typically, a condominium’s bank valuation is determined based on past resale transactions.

In addition, real estate is also evaluated based on the concept of “replacement cost,” which refers to the cost of constructing the same building from scratch today. This method is mainly used for detached houses because it is easier to separate the value of the land and the building. However, since construction costs for high-rise condos differ significantly, soaring prices for newly built high-rises ultimately bring their valuation in line with replacement costs.

In practice, replacement cost is adjusted for depreciation over time based on the building’s “useful life.” The statutory “useful life” of a reinforced concrete structure is 47 years, meaning a simple annual depreciation rate of about 2%. If the land and building are valued equally, the total property price would decrease by about 1% per year. However, if replacement costs continue to rise at a faster pace, the overall value of high-rise towers is expected to increase.

The higher the price of new high-rise condos, the greater the demand for resale units, which in turn drives up their prices. As a result, banks may expand mortgage credit limits for these properties.

With the continuous rise in new condo prices, the prices of resale high-rise condominiums are also likely to increase. Ultimately, high-rise condominiums may not only become the most expensive properties in their respective areas but also an unattainable “luxury beyond reach.”

The Reality of Loans and Resale Faced by Those Who Have Already Purchased

Next, let’s look at the trends among those who have already purchased high-rise condominiums. Recently, full loans (where the mortgage covers the entire purchase price) have become common, and research shows that about 60% of buyers sign contracts with zero down payment. In such cases, unless a significant portion of the loan has been repaid, it becomes difficult to sell the property for less than the purchase price.

Developers selling new condominiums need to sell many units at once, making it difficult for them to aim for the highest possible price. In contrast, individual sellers, who have only one unit to sell, are strongly motivated to get the highest price possible. As proof of this, sellers tend to choose a real estate agency based on which one offers the highest estimated selling price.

When a Sale is Finalized at a Price Higher Than the Market Average…

Let me give you an example. Let’s look at Park Court Hamamatsucho The Tower. As of the time of writing, all of the 70-square-meter units currently for sale are priced at over 400 million yen, which equates to around 18 million yen per tsubo (approximately 3.3 square meters). In some high-end areas of Minato Ward, prices have exceeded 10 million yen per tsubo, but the area around Hamamatsucho Station, where this property is located, is not typically in that price range. The reason for this increase is that a sale was registered in the real estate industry’s database where a foreign buyer purchased a unit for 425 million yen, which is far above the market price.

When this happens, real estate agents may engage in what is called a “price push,” reaching out to potential sellers with offers like, “Would you like to sell for 400 million yen?” and try to secure an exclusive listing agreement. Prior to this, the price range for similar properties was in the low 200 million yen range, but now it’s jumped to 400 million yen. However, it’s questionable whether there are buyers who will pay that much for the property. Still, once an exclusive listing agreement is signed and the seller is convinced to sell, even if the price drops back to the 200 million yen range, a sale could still be possible. Since the agent would earn a 3% commission on the sale price, it’s financially “advantageous” for them.

As a result, both the agent and the seller may become fixated on the 400 million yen price. This is called an “anchor price.” By setting 400 million yen as the benchmark, it creates a psychological effect called “anchoring,” which influences buying and selling behavior. In psychology, this is considered a cognitive bias, which can hinder rational decision-making and thought processes.

In the future, we may see more examples like this in high-rise property transactions. From a broader perspective, the situation is favorable for high-rise condos to become the most expensive properties in the market. Some people may hesitate to purchase due to the rising repair reserve fees, but it’s important to weigh the rising prices against the rising repair reserve fees. While property prices change in increments of 10 million yen, repair reserve fees only increase by a few thousand yen per month, which is a much smaller issue.

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