Tokyo is experiencing a building boom, fuelled by the preparations for the upcoming Tokyo 2020 Summer Olympics, and a continuous upward demographic trend with people from the countryside, other cities and abroad moving to the Japanese capital. So there are plenty of opportunities to buy new real estate — to live in or as an investment. On the other hand, there is also a very big market for second-hand properties. So which one should you go for?

There is no short answer that fits all. But this article explains some of the pros and cons of both options.

New properties

Most popular

For the locals, a new property is still the epitome of house-happy. All things new are generally favoured in Japan and real estate is no exception. If your decision were partly also based on wanting to invest in what is popular, a brand new unit in a complex or a newly built house would be your choice.

Comfortable

Obviously, there are real reasons why new places are the most popular. Anyone who has ever lived or stayed in an older Japanese house knows that comfort can sometimes be lacking: The bathrooms are often antiquated and, worst case, still equipped with a Japanese-style lavatory. Kitchens in properties that are 20 years or more are small, dingy and hard to clean. And while the interior issues can be solved with remodelling (ensuing of course additional investment), the absolute lack of insulation in older properties often makes them very cold in winter and extremely hot in summer.

Possibly eco

Newer places offer more comfort, and the modern interior is not only more aesthetic, but also easier to clean and maintain. The more carefully sealed structures also mean less unwanted visitors in form of cockroaches and other insects that can be a real pest in old buildings.

Additionally, they are often also more eco-friendly. Newer properties often have better insulation and double glazed windows and (even though still far behind European standards), it is possible to buy or build a property according to Green building rating systems such as the internationally recognised Leadership in Energy and Environmental Design (LEED) standard and the locally developed Comprehensive Assessment System for Built Environment Efficiency (CASBEE), which have been widely recognized and taken into account since the beginning of the 2010s.

An example of an eco-friendly high-end apartment complex is Azabu Gardens, completed in 2015, in Moto Azabu 3-chome. It was the first property in Japan to have the LEED authorization.

Kevin Meyerson’s certified passive house in Karuizawa, Nagano, which is a great example of a modern Japanese passive house built to the stringent Passive House Institute Germany standard. In Japan, hundreds of architects have been trained through an organisation called Passive House Japan, enabling them to ensure that a building is designed and constructed in compliance with the standards.

The downside: Cost and depreciation

Of course, there is a catch to all the upsides: the cost. New properties in Japan are much more expensive than used ones. While in most European capitals, an older building can still sell for the same or near the same price as new development (depending on its location), but the difference in Japan is staggering, owing to rapid depreciation of properties. Anyone investing in building a new house or buying a brand new unit must keep this in mind — the moment the key is yours, your investment is most likely already worth less than what you paid for it. After about 25 years, most Japanese structures are fully depreciated and are only sold for the value of the land they stand on. Only in the most popular central Tokyo locations can one hope for appreciation caused by rising land prices that will outweigh that of the falling property value.

Older properties

Costly renovations

Structures in Japan are generally built with a timeline to last 30 years, so many abandoned houses around Tokyo are not empty without reason. If you are searching for an old property to live in yourself, you either have to suffice with lower levels of comfort or account for renovations in your budget, which can be costly. Make sure to get an estimate before signing the deal. While beautiful renovations can be achieved in traditional houses, they might cost you as much as building new, so renovations in Japan are more a passion project than done for economic reasons.

Burdens and liabilities

When buying an older property, a number of other issues besides less comfort can be present. The building might contain asbestos or other hazardous materials — which the owner would also be responsible for in case of demolishment. Also, for dated structures it is not always known if the soil they are built on are contaminated in any way — the "statement of important matters", that is part of any Japanese real estate deal, would only state that it is unknown, in this case.

However, you or your real estate agent can ask to view documents on the property in the ward office that would give hints if the plot of land has a history pointing the direction of contamination.

Much cheaper, even virtually free

An old property is much cheaper than a new one. Once a unit in Tokyo is about 25 years old, it is often fully depreciated and at that age you will only pay for the land price, not the structure. Yet, rents paid for older units are only somewhat lower than those for brand new ones, leaving investors with a favourable rate of return on investment — if the other criteria of the property, including location and vacancy rates — are spot on.

For those seriously interested in an old property, it is worth checking Akiya Banks. Akiya means "abandoned house" in Japanese. These banks list all the empty/abandoned houses in an area with their often very low sales price and facilitate between the seller and buyer for fast sales.

Verdict

 If you value comfort and modern/eco standards, consider buying new or building your own home if you are buying to live, as renovations can be costly and difficult. If you are looking for an investment property, consider an older, depreciated unit in a good location to reap maximum return on investment.

By Mareike Dornhege 

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