On November 4th, the Nikkei Shimbun’s Ayumi Tanaka (male) opined on how the Bank of Japan’s interest rate hikes can granularly affect net yields in the different sub-regions of Tokyo’s 23 wards.
Regional Breakdown of Investment Condo Prices Across Tokyo’s 23 Wards
In September, Tokyo’s average listing price for existing condominiums rose by 3.9% from the previous month, reaching an average of 80.53 million yen in the 23 wards.
Using transaction data from January 2019 to September 2024, the below reviews trends in Tokyo 23 ward tenant-occupied, existing condos under 5-minutes' walk to the nearest station, 25 square meters in size, located on the third floor, and built 25 years ago.
Tokyo’s 23 wards are divided into the following six zones:
Central 3 Wards (Chiyoda, Minato, Chuo – 1,116 transactions)
Sub-Central 4 Wards (Shibuya, Shinjuku, Toshima, Bunkyo – 1,566 transactions)
Southern Tokyo (Shinagawa, Meguro, Ota – 821 transactions)
Western Tokyo (Setagaya, Suginami, Nakano – 840 transactions)
Northern Tokyo (Nerima, Itabashi, Kita – 564 transactions)
Eastern Tokyo (Taito, Arakawa, Sumida, Koto, Edogawa, Katsushika, Adachi – 951 transactions)
Central 3 Wards Show Strong Price Growth, Others Stabilize
Prices in the Central 3 Wards are rising noticeably, likely due to affluent investors who are less impacted by interest rate hikes.
However, in Southern and Western Tokyo, prices for these types of condos have leveled off since early 2024, and the Sub-Central 4 Wards and Eastern Tokyo began plateauing in the second half of the year.
Plateauing prices means softening buyer demand so the data can be read that these areas could be more sensitive to interest rate increases.
Northern Tokyo has also experienced a slight price rise, narrowing the gap with Eastern Tokyo, though prices are expected to stabilize going forward.
Impact of a 0.25% Interest Rate Increase on Tokyo 23 Ward Investment Condos
Even a small 0.25% rate increase can affect profitability in the investment condo market.
Consider an investment property priced at 18 million yen with a 900,000 yen annual rental income.
Using a 1.7 million yen down payment and a 17 million yen loan at a 1.5% interest rate over 30 years, and with annual management and tax costs of 180,000 yen, net income before taxes and loan repayments is about 720,000 yen.
At 1.5%, loan repayments are approximately 708,000 yen per year, which net income can cover.
If interest rates rise to 1.75%, repayments increase to about 733,000 yen annually, exceeding net income assuming rents do not rise.
The saving grace moving forward could be rising Tokyo rents; current yields can be preserved and even grow if rents continue to rise higher.
At the bottom of the page three rent related articles that discuss rent levels in both Tokyo’s 23 wards and other areas of Japan.
Source:
Nikkei Shimbun (Japanese only; paywalled)
