In Japan, home prices have risen in recent years as interest rates have fallen. In the case of a variable rate type of mortgage, an annual interest rate of about 0.3% is not uncommon. Even with a loan of 100 million yen (about 4.8 million yuan) and 35 years of equal principal and interest, the monthly repayment is only about 250,000 yen (about 11,992 yuan) .
In Japan, billion-dollar mansions are appearing one after another. The number has increased to about four times what it was 10 years ago, reminiscent of the past bubble economy. If you look closely, the concentration of these properties in Tokyo’s 23 wards will emerge. The trend of rising home prices is unlikely to change easily, but the prospect of low interest rates supporting demand for home purchases is becoming uncertain.
While there is a push to develop high-priced properties throughout Japan, data from Tokyo KANTEI shows that Tokyo’s 23 wards accounted for more than 70% of the supply of over 100 million yen homes in 2022, at about 2,500 units. Outside of Tokyo’s 23 wards, there are only about 900 units of over 100 million yen homes combined across Japan.
Geographical differences also show differences in the number of homebuyer groups. In addition to the “Power Couple,” a couple with high incomes, and the actual demand class, foreign investors are also interested in the center of Tokyo. According to the Japan Real Estate Economics Research Institute, the average price of a new home in Tokyo’s 23 wards from January to June 2023 was 129.62 million yen (about 6,218,500 yen), exceeding the 100 million yen mark.
In terms of well-located over 100 million yen homes, second-hand prices have also risen significantly, with many people being driven by rising expectations. In Japan’s local cities, while local business owners and other people who cannot leave will buy over 100 million yen homes, they will not be driven by the same increase in the group of home buyers as in the Tokyo metropolitan center by rising expectations of home prices.
Demand for homes in the Tokyo metropolitan center is also largely supported by low mortgage rates. Currently, it is not uncommon for about 70% of users to use a variable-rate type of mortgage with an annual interest rate of about 0.3%. Even if a loan of 100 million yen (about RMB 4,797,000 yuan) is taken for 35 years of equal principal and interest repayment, the monthly repayment is about 250,000 yen (about RMB 11,992.5 yuan). In the bubble economy period, Japan’s mortgage interest rates had been as high as about 7%, the same terms of repayment amounted to about 640,000 yen (about RMB 30,700.8 yuan), the monthly repayment burden difference of about 390,000 yen.
Across Japan, house prices have risen in recent years as interest rates have fallen. The decline in floating mortgage rates has been particularly pronounced against the backdrop of monetary easing by the Bank of Japan (the central bank). However, interest rates on a portion of new fixed-type mortgages are rising as a result of current price increases and other factors. If the range of rising interest rates expands, the outlook for demand for housing will also become opaque.