Yosu wo miru or “wait and see” seems to be one of the most-used phrases being passed around the luxury housing markets in Tokyo and the nearby mountain resort of Karuizawa.

Map shows Karuizawa and Tokyo

Real estate agents and developers talk of a gap between reluctant buyers, who see prices bottoming but are not convinced they will start rising again soon, and patient sellers, who similarly aren’t in any rush.

Take one of the clients of Plaza Homes, a realtor specialising in high-end properties for rent and sale in Tokyo. The man has been trying to sell his 170 sq metre condominium in the city’s prestigious Minato Ward, surrounded by the fashionable restaurants, bars and shops of Nishi-Azabu, for the past eight months. The price tag is Y300m ($3.15m) and, in spite of scant buyer interest, he is not prepared to budge.

His ability, along with other wealthy Japanese, to “wait and see” partly reflects the fact that the global recession has hit the country most severely in manufacturing. So, although the banking sector has been hurt and those with significant stockholdings have seen their wealth deteriorate, most job losses have been in lower-income households.

This is not to say property prices have not come down at all. According to the Real Estate Economic Institute, the average cost per square metre in Minato Ward in the first four months of the year fell 25.7 per cent compared with the same period in 2008 and, anecdotally, estate agents are reporting reductions of 20-40 per cent on some luxury condos.

Some developers, such as Mitsui Fudosan, Japan’s second-biggest residential real estate company, say they will not discount high-end units as a policy. But others appear to be more flexible. Daisuke Kitai, who handles luxury sales for Nomura Real Estate Development, reports that some of the condos in the city once priced at Y700m-Y800m have recently sold for about half that price. His company will start marketing a new, six-storey complex in the Moto-Azabu neighbourhood later this year, pricing a few of the 32 upscale units in the Y200m-Y300m range.

“These days most people buy luxury condos to use them,” he says.

And “clients are taking more time to decide,” adds Hideyuki Takahashi of Mitsui Fudosan. “Even if they really like somewhere, they feel they can wait before deciding, whereas previously you often had clients deciding after one or two visits.”

Investors are meanwhile letting out properties rather than flipping them. And, according to Plaza Homes’ Ryo Nitta, since new properties tend to sell better than older ones, there has been a knock-on effect in the existing homes market.

The good news for sellers, however, is that the value of Tokyo’s residential property was not sky-high before the downturn, with city-wide condo prices still down nearly 60 per cent from peak 1990 bubble levels and luxury units starting at around Y100m-Y200m. And supply is remarkably low, particularly at the high end, with only a few new buildings opening each year, accounting for less than 2 per cent of the entire city market.

There are also signs of increasing activity. “Things have been looking up since the new year and within the Golden Week holiday [at the beginning of May],” Takahashi says. “In particular we saw more customers visiting our showrooms. The outlook for the US and Japanese economies has become a little clearer and stocks have started to come back, which has helped.”

He also points to government stimulus measures, such as the temporary relaxation of the gift tax that might also boost the real estate market.

Buyers can still afford to be demanding, however. Although Tokyo condos will always be small by international standards and few developments offer amenities such as gyms and swimming pools, some people are insisting on greenery, ceilings as high as 3 metres and the very best earthquake resistant technology, according to developers. Nomura, Mitsui Fudosan and other companies are also working more closely with clients on interior fit-outs, including layouts and materials.

Renters are meanwhile securing better properties for the same money, says Tomo Wakaume, a lettings agent at Ken Corporation, who says he’s been busy since the collapse of Lehman Brothers in September 2008. “Many expats left Tokyo so there are lots of luxury apartments available [and] lots of chances to reduce rent,” he says.

One of his clients saw his housing allowance cut from Y2.7m per month to Y1.5m per month, forcing him to move from a four- to a three-bedroom condo but the quality and “neighbourhood value” of his home in central Minato Ward is unchanged.


Similar market dynamics can be seen about an hour north-west of Tokyo on the bullet train in the popular resort town of Karuizawa, one of the locations used for the 1998 Olympics in Nagano. Located at the foot of Mount Asama, the town became a holiday-home destination in the late 19th century, when Canadian missionary Alexander Shaw decided he needed respite from the intense humidity of Tokyo’s summer. Other expatriates and prominent Japanese followed and today many well-to-do families keep country houses (besso) in the area, often staying for several months while wage-earners commute back to the busy capital.

The town has numerous French and Italian restaurants, the prestigious Kyu-Karuizawa golf club and ample tennis and hiking amenities. But it is also extremely tranquil and private, since most homes are set in quiet back streets behind trees with secluded verandas – a stark contrast to crowded city living.

Yosu wo miru” is also the attitude here. Sellers are bolstered by the knowledge that supply of top existing properties – typically priced from Y100m to as high as Y1bn – is very small. Opportunities to buy homes in the best roads – a few minutes’ drive from the town centre, particularly in the Kajima no Mori district and other popular neighbourhoods such as Ropponzuji, Minami Hara and Mampei, near the area’s first western-style hotel – are “extremely limited”, says Noriaki Shinkai, a sales agent at Karuizawa Project.

As in Tokyo, people are buying to use rather than as an investment, viewing their country homes as a hobby, says Mitsuharu Kawasaki, from the local Seibu Fudosan agency. Even owners who have been hit by stock market losses see no reason to sell now. And many of the prominent political and business figures with houses in Kajima no Mori simply wouldn’t give them up, even if they felt they needed to, due to fears of appearing as if they’ve hit upon hard times.

Kawasaki says he is still planning to market properties priced at more than Y100m this year but his current focus is on selling houses in the Y70m range. Also available are good quality plots of land, starting at about 800 sq metres in prime positions, and estate agents say prices for these are starting to come down. For example, an 874 sq metre plot with plenty of trees in Minami Hara was recently reduced from Y60m to Y43m. And, according to data provided by Seibu Fudosan, land values are down 1.2-2.7 per cent so far this year in the most expensive areas, following three years of annual increases.

Still, Shinkai does not think the area’s “mini-bubble” has been completely deflated since recent declines are much smaller than gains since the mid-2000s. “In general, people buying in this range are in wait-and-see mode,” he acknowledges. But, as in Tokyo, inquiries were up dramatically after the Golden Week holiday and the recent stock market rally.

Kawasaki agrees. “In the case of Karuizawa, even if the economy is stagnating, demand from this [luxury] class won’t disappear.”

Lindsay Whipp is a correspondent in the FT’s Tokyo bureau


Estate agencies

Plaza Homes, tel: +81 33588 0131, www.realestate-tokyo.com
Ken Corp, tel: +81 35413 5666, www.kencorp.com
Karuizawa Project, tel: +81 26745 3800, www.karuizawa-brillante.net
Seibu Fudosan Karuizawa, tel: +81 0120712 221, www.seibu-fudosan.co.jp
Developers Mitsui Fudosan, www.mitsuifudosan.co.jp
Nomura Real Estate Development, tel: +81 33348 8811, www.nomura-re.co.jp/english

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