A computer-generated image of the 17,000-bedroom Olympic Village, to be built on Harumi island in Tokyo Bay
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Tokyo loves a makeover. In the past 100 years, Japan’s capital has gone from earthquake-ravaged ruin in 1923, to 1940s imperial capital, to 1980s bubble-era glamour puss, when Japan was the world’s second-largest economy. Now parts of it have become neglected concrete eyesores.

Tokyo real estate values have been flat or deflating for 20 years, since the bursting of the 1980s asset bubble, when land prices in the city centre were the highest in the world. In the 1990s, Japan’s economic malaise coincided with the rise of other Asian cities and foreign investors took their business elsewhere. Today, however, buyers from the overheated markets of Hong Kong, Singapore and Taiwan are flocking to buy real estate assets in Tokyo, attracted by the cheap yen, which has lost about a quarter of its value against the dollar since November 2012.

In 1964, the Tokyo Olympics showed the world that Japan was open to foreigners. A quarter of a century of rampant economic growth followed. Tokyo is to host the games for a second time in 2020, and for Shinzo Abe, the prime minister who has vowed to restore his nation’s faded prestige, the precedent is obvious.

This year, Tokyo tops PwC’s list of desirable investment locations in the Asia-Pacific region, up from 13th place last year. “A lot of foreigners are buying in Tokyo right now,” says Yukiko Takano, of Sotheby’s International Realty. “They’re specifically looking for apartments that can offer capital gains.” This is almost unheard of in a country where property has long been a depreciating asset.

The average price of a new flat in Tokyo was Y57.52m ($565,000) in April, or Y900,000 per sq metre, up 7.3 per cent on the previous year, but still only about half the Hong Kong price. Stock levels are falling as buyers scramble to beat predicted price rises. In Tokyo’s 23 central wards – home to 13.3m people – only 1,185 units were on sale in April, 31 per cent fewer than the previous year.

The Andaz hotel’s rooftop bar at Toranomon Hills, where a 173 sq metre apartment would cost about Y630m

Developers are rushing to capitalise on the new optimism. According to Japan’s Real Estate Economic Institute, 173 new high-rise developments containing 70,235 apartments are planned for the greater Tokyo area. At Toranomon Hills, Tokyo’s glitziest new residential building, residents can order room service from the Andaz hotel upstairs. Half the 140 apartments are for sale, with 173 sq metre units priced at about Y630m, according to one agent. The other half are for rent, at rates ranging from Y550,000 per month for a 45 sq metre, one-bedroom flat to Y2.92m per month for a 240 sq metre, three-bedroom flat. Half of the buyers are foreigners, “mostly from Asian countries including Hong Kong and Taiwan”, says Moichi Watanabe, of the developer Mori Building. Mori has Y1tn to build 10 more developments in the area. “We have to do all this by 2020,” says Shingo Tsuji, Mori’s chief executive. “This is a big milestone for Japan.”

Outside the city centre, much of the development is clustered around the site of the Olympic Village on the man-made island of Harumi in Tokyo Bay. The development arms of three of Japan’s vast trading houses, Mitsui, Sumitomo and Mitsubishi, are all building apartment blocks next door.

Mitsui starts work this month on its 180-metre-high tower. Sumitomo’s Deux Tours Canal & Spa will consist of two 51-storey residential blocks with 1,450 apartments. Mitsubishi’s The Parkhouse Harumi Towers will have 1,744 flats, at prices ranging from Y30m to just under Y200m. On the neighbouring island of Kachidoki, a three-bedroom apartment at The Tokyo Towers development, built in 2008, is on sale for Y120m.

The 17,000-bedroom Olympic Village will be converted into a housing development after the games. All this adds up to a potential oversupply of flats in an area with, as yet, little in the way of community facilities, which seems likely to take the heat out of the property market after 2020.

Yet Abe is determined to capitalise on the Olympic hype to attract foreigners to invest in Tokyo. Last month, he said he would cut corporate income tax from 35.6 per cent to below 30 per cent. This may not be much of an incentive to foreign companies, given Japan’s high individual income tax rates: a top rate of 40 per cent, compared with top rates of 15-20 per cent in Hong Kong and Singapore.

However, Jeff Kingston, professor of Asian studies at Temple University in Japan believes that Tokyo is a “much more appealing city with greater creature comforts and cleaner air”.

Christian Mancini, chief executive of Savills in Northeast Asia, agrees. “You have to ask yourself if it’s worth the tax break, when you could be living in the city with the best lifestyle in Asia, which is Tokyo.”

Yet is speculative investment in the city’s residential sector sensible? “Tokyo is a wonderful rental market with very attractive financing rates and reliable yields, but I don’t believe residential real estate offers more than minor capital gains,” says Mancini. “If you’re buying an apartment in the expectation of selling in 10 years for 20 per cent more than you paid, it is the road to financial ruin.”

It remains to be seen whether Abe can halt the depreciating tendencies of Japanese property. But whatever happens, Tokyo will have a brace of sumptuous new apartment blocks by the time the world starts paying attention in 2020.


Buying guide

● New-build apartments in Tokyo cost on average Y900,000 per sq metre, compared with Y1.55m in Hong Kong and Y1.05m in Singapore

● Property purchases are subject to acquisition tax and registration tax, plus stamp duty, legal fees and agents’ fees, totalling about 4.5 per cent of the purchase price

● Crime rates in Japan are very low: 939 murders or attempted murders in a population of 127m in 2013

● Foreign groups opening an Asia HQ in Tokyo qualify for subsidies, such as 50 per cent off some office rents

What you can buy for . . .

Y50m ($490,000) A two-bedroom flat in the Roppongi district

Y100m A two-bedroom apartment in Harajuku, Tokyo’s fashion hub

Y500m Two units merged to create a 250 sq metre home in Shoto

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