For as long as I have been a firm believer in global real estate and an active practitioner of that exclusive sport, I have seen the name “Tokyo” on top of the list of the most expensive cities in the world. Once in a while, another city steals for a year this controversial claim-to-fame, like London, or Paris, or Hong Kong… but Tokyo is always up there, number one or number two on the list, no matter what, no matter when.
Obviously there is a host of reasons why real estate in Tokyo (and the rest of Japan) is so expensive. That’s what you call supply & demand, and purely domestic demand is plenty enough to push prices up. Imagine 127 million people (the entire population of Japan) living in an area not even as big as California but with 3 1/2 times more people.
To exacerbate the challenge, only about a quarter of the country is suitable for residential purposes, due to the abundant forests and mountains. This makes Japan one of the most populated countries anywhere. Tokyo is the best (or worst) illustration of the phenomenon. Nine million people reside within the city limits, but “Greater Tokyo” is home to about 30 million people! How about that for real estate demand?
Of course people alone don’t create high real estate values. You need another ingredient. It takes money to buy real estate. And money, Japan always managed to make plenty. After all, Japan is the third biggest economic powerhouse in the world. The wealth produced by this mighty economy has trickled down to the population, giving million the ability to buy a home or to rent.
A couple of months ago, Forbes published its list of the most pricey cities, based on data provided by Savills (global real estate services company). Sure enough, Tokyo was up-there, number two behind Hong Kong. Knowing that, in Hong Kong, a luxury home can go for $13,000 a square foot and that Tokyo is not far behind, you get the idea that home ownership is not for everyone!
To further play hard-to-get, Tokyo was recently listed as the most expensive city to live in (aside from real estate prices) in a CNN Money survey conducted by Jon Copestake. I learned there that a loaf of bread in Tokyo sells for $9 and that you will pay around $1,266 for a high end 3 course dinner for 4 with wine. It actually is not too bad considering that the same feast would cost you $2,177 in Paris!
Well, I have good news for you, if you ever wanted to buy a home in Tokyo or wisely invest your money there. Times are changing. Believe it or not, investors (foreign or domestic) are now making deals. The timing for buyers reached a zenith it had not seen in a long time.
The reason is not the infamous “Lost Decade” of the 90’s which cleaned out a lot of savings, individual investments and pension funds after a huge and long-lasting economic boom and price bubble. That loss has long been absorbed. It is not either the restrictive policies put in place then to reduce speculation, nor is it the effect of the global economic slowdown of 2000. No, the reason for what we may call a “buyers’ market” is just the on-going slide of the yen on the currencies market…
In just a matter of a few weeks, the yen has shrunk about 20%! We are not talking about buying frenzy in the residential real estate arena yet, but foreign investors are sweating looking at opportunities. Makes great sense. As the Livedoor News reported a week ago or so, if an off-shore buyer had put off purchasing a $100M apartment in Tokyo last year, he would “only” need to come up with $80M now to close the deal!
Now you know what to do with your money. Don’t wait, discounts don’t last forever!