Table of ContentsReal estate prices in Tokyo are experiencing an unprecedented surge reminiscent of the bubble period. By delving into the factors behind this trend, potential investors can better grasp the current landscape and make informed decisions when purchasing real estate in Tokyo. In this article, we will elucidate the reasons and background behind Tokyo's soaring real estate prices, particularly for those considering real estate investments. Given the significance of timing in successful investments, we hope this article will provide valuable insights for prospective buyers in Tokyo's real estate market.Call or email us here >>Real Estate Prices in Tokyo: A Bubble-Like Effect of the COVID-19 ImpactThe influence of the new coronavirus has triggered a surge in real estate prices in Tokyo, creating a situation reminiscent of the 1990s bubble period. Since the first COVID-19 case was detected in Japan in January 2020, the number of infected individuals steadily increased. Consequently, real estate searches significantly decreased from January to April 2020. This period, which typically witnesses heightened demand due to relocation needs, experienced a decline in search activity. The initial spread of the virus induced fear and anxiety, fostering a cautious "wait-and-see" attitude among the Japanese population.In April 2020, a state of emergency was declared, accompanied by the widespread adoption of telework, enabling individuals to work from home. The extended periods spent at home, combined with a shift in people's perception of housing, led to a significant surge in real estate searches following the end of the state of emergency in May. Furthermore, despite a sharp increase in Delta variant cases in August 2021, real estate searches for Tokyo continued to grow. Factors such as rising stock prices resulting from fiscal stimulus, low housing loan interest rates, and incentives like housing loan tax reductions fueled the demand for single-family houses and condominiums, primarily in Tokyo. Conversely, the number of people willing to sell real estate diminished due to the impact of the pandemic, leading to a decreased supply of available properties. As a result, the supply-demand balance shifted, causing real estate prices in Tokyo to soar similarly to the bubble period. However, since July 2021, the inventory of pre-owned condominiums, which had been dwindling, has gradually increased. This stabilization indicates that the market is gradually returning to pre-Covid levels, ultimately leading to a gradual calm in the bubble-like situation.Low Interest Rates: A Catalyst for Soaring Real Estate PricesOne of the primary drivers of Tokyo's escalating real estate prices is the historically low interest rates on mortgages offered by financial institutions. The economic downturn caused by the Covid 19 prompted Japan to adopt a negative interest rate policy as an economic stimulus measure. Consequently, housing loan rates have remained low, with financial institutions lending at interest rates below 1%. Comparatively, mortgage interest rates during the 1990s bubble period were approximately 7% to 8%. The availability of mortgages at such favorable rates has attracted numerous buyers, as purchasing real estate becomes more affordable. As demand increases, the prices of real estate naturally soar.Booming Second-Hand Market: Contributing to Price SurgeThe second reason behind Tokyo's soaring real estate prices is the booming second-hand market. Real estate companies, concerned about the economic downturn, reduced the construction and purchase of new properties following the outbreak of the new coronavirus. Consequently, the supply of new properties failed to meet the market demand. As a result, prospective buyers shifted their focus to the second-hand market, leading to increased activity in that sector. The pandemic has also prompted a growing number of individuals to seek second-hand detached houses with suitable spaces for teleworking or second-hand apartments located near city center stations to reduce commuting and travel times. According to data from Tokyo Kantei, a real estate research firm, the average price of pre-owned apartments in Tokyo increased by 11% in 2021, reaching 57.39 million yen. The combination of low interest rates and the flourishing second-hand market has contributed significantly to the surge in real estate prices in Tokyo, mirroring the dynamics of the bubble era.Power Couples as Key BuyersWhen examining the profile of buyers in Tokyo's real estate market, power couples emerge as the primary demographic. These power couples are dual-income households with an annual income of 7 million yen or more, and a combined household income of 14 million yen or higher. Their substantial incomes allow them to afford high-priced properties, driving the demand for real estate in Tokyo. In line with corporate work style reforms and the increased empowerment of women in the workforce, more couples are both working and earning stable incomes. These power couples prefer residing in the city center, where the car ownership rate is declining, and properties near convenient transportation hubs are highly sought after.Swelling Demand: The Third CatalystThe third reason behind the soaring real estate prices in Tokyo is the pronounced surge in demand. While Japan's overall population continues to decline, Tokyo's population is expected to increase until around 2045. However, the outbreak of Covid in 2020 led to a significant increase in the number of property owners refraining from selling their properties, resulting in a notable supply shortage. Despite the growing demand, the limited availability of properties further fueled the upward pressure on prices. As a consequence, the average unit price per tsubo in Tokyo's 23 wards reached a record high in the fiscal year ending December 2021, specifically for pre-owned condominiums.The third reason behind the soaring real estate prices in Tokyo is the pronounced surge in demand. While Japan's overall population continues to decline, Tokyo's population is expected to increase until around 2045. However, the outbreak of Covid in 2020 led to a significant increase in the number of property owners refraining from selling their properties, resulting in a notable supply shortage. Despite the growing demand, the limited availability of properties further fueled the upward pressure on prices. As a consequence, the average unit price per tsubo in Tokyo's 23 wards reached a record high in the fiscal year ending December 2021, specifically for pre-owned condominiums.In ConclusionTo summarize, Tokyo's real estate market is currently experiencing a surge in prices akin to the bubble era. This phenomenon is primarily influenced by the impact of the pandemic, historically low interest rates on housing loans, a thriving second-hand market, and the persistent demand driven by power couples and Tokyo's population dynamics. As a potential investor, it is crucial to consider the background of these price surges, property characteristics, location, and other relevant factors when making informed decisions about purchasing real estate in Tokyo.