(Bloomberg) -- Tokyo residential property prices are likely to hold up after the Bank of Japan’s interest-rate increases, though some areas may see declines, industry experts say.
This year’s rate hikes — bringing the central bank’s benchmark to 0.25% — aren’t so large that wealthy people are reluctant to buy, according to Takeshi Ide, senior chief researcher at Tokyo Kantei Co., a real estate data and consulting firm. Capital gains from short-term resales are likely, he said.
Shogo Fujita, president of broker FJ Realty, also recommends buying to his customers. He continues to receive many inquiries about new purchases, and no clients have stopped considering buying because of rising interest rates.
Tokyo’s housing market has been buoyant in recent years, recovering from the post-bubble doldrums thanks to rock-bottom interest rates, low supply and the emergence of wealthy dual-income households.
Recent data signal the market’s resilience to the central bank’s first rate hikes in 17 years. The price of existing condominiums in Tokyo’s 23 wards increased 2.6% in August from a month earlier to about ¥78 million ($544,000), Tokyo Kantei figures show. Prices in the six central Tokyo wards rose 3.9% to around ¥128 million, exceeding ¥100 million for the third consecutive month.
Still, if rates continue to rise, investors in residential property for rental income need to be cautious, analysts say.
According to Ide, a 5% profit margin is ideal for investment properties. However, the hurdle to pass on increases in borrowing costs to renters is high. If rising rates on real estate investment loans are seen as a burden, he said, people may become more cautious about acquiring properties for leasing.
After the BOJ raised rates for a second time this year in July, major banks increased their short-term prime rates, which are linked to variable mortgage rates. Central bank policymakers have indicated that rates are likely to rise further depending on the outlook for the economy and inflation.
Investors are also likely to be wary of buying homes in price ranges that are not for the wealthy. According to Ayumi Tanaka, president of Ayumi Realty Service, active sales are for properties priced above ¥200 million or below ¥50 million, with slower transactions in the price range in between.
While the market remains resilient, the days of making large profits from property in Japan’s capital city may be over.
Condo prices in Tokyo have doubled since 2010, and the price of detached houses has increased 1.34 times, land ministry figures show. The rise began around 2013, triggered by monetary easing under Shinzo Abe’s second administration, which took office in December 2012.
According to Tanaka, the biggest beneficiaries were those who purchased from around 2011, when the market was in a slump, to about five years ago. For those who buy now, Tanaka says, “it has become difficult to expect substantial gains” without making renovations to differentiate the property from others.
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