The housing industry in China seems to have reached a breaking point. Nikkei reported earlier this year that 65 million homes are vacant across the country. Sales volumes in 24 cities fell 44% in the first week of 2019, compared to the previous year. Only the four largest cities saw an increase. While the number itself is concerning, what is most concerning is the fact that many of these units are new and have never seen a tenant. Entire residential communities on the outskirts of China’s tier two and three cities are turning into ghost towns before they come to life.
This is a special case, because the large number of empty apartments, on the one hand, suggests a gross oversupply, but on the other hand, young Chinese people – especially men, culturally compelled to buy a house for attract a spouse – simply can not afford to buy apartments. Between 2015 and 2018, prices jumped more than 40% in some cities. This oxymoron of overvalued oversupply was apparently caused by a bad-player real estate industry that grew at breakneck speed and without much foresight. In fact, Moody’s Investors Service has assigned junk status to 51 of the 61 Chinese property companies it rates.
One might fear that the Tokyo real estate market could suffer a similar fate. After all, redevelopment is increasing all over the city here too, prices are rising and, at the same time, the Japanese population is shrinking. That can’t bode well in the long run, can it? While Japan rose to fame last year on social media for its oversupply of empty homes, the situation is actually quite different here compared to mainland China. Here’s what we mean.
In Japan, empty housing is old, not new
While China is stuck with 65 million gleaming new units, Japan’s empty homes are of a different variety. Most of the so-called akiya, the Japanese term for abandoned houses, are more on the old and sometimes decrepit side. In general, these are mainly individual family houses that were built decades ago. These wooden structures are not built to last beyond a few decades, and when left to their own devices, they quickly fall into disrepair. Often the owners are too old to care for their old home, have moved to nursing homes or have passed away. Their children, who may have inherited the house, have no desire to continue living in these often rural places. As no one else does either, the land is not easy to sell and the property tax, which is due annually in Japan, is cheaper for built-up land than vacant land. Consequently, many houses are left to fend for themselves instead of being demolished.
Vacant homes in Japan are mostly in the countryside
The Chinese statistics are alarming as they reflect an oversupply of housing in urban centers, including cities ranging from Tier 3 (21.8% empty apartments) to the Tier 1 metropolises of Beijing and Shanghai (16. 8% vacant).
However, demand for housing, especially new apartments, remains strong in Tokyo and is on the rise in Japan’s secondary cities like Osaka, Fukuoka and Sapporo. While it is true that Japan’s population is declining, the country is defying the effects of the shifting population pyramid with an uninterrupted movement from the countryside to the city. Moreover, in need of new blood for its booming economy, the influx of foreign workers continues to increase. While Japan has long been wary of immigration, the Abe administration finally overhauled immigration laws in 2018. The new law came into force in April 2019 and particularly appeals to immigrants from Southeast Asian countries who can now work in Japan under a new visa category. Already, one in 10 Tokyoites in his twenties was, in fact, born overseas.
Japan made the same mistake in the past
Japan is no stranger to overvalued real estate. Its bubble years in the late 1980s and early 1990s had the world watching to see if it would overtake the United States as the world’s largest economy. At the time, the land surrounding the Imperial Palace in central Tokyo alone was more valued than all the real estate in California combined; it was a bubble that had to burst. Much like today’s young Chinese, the Japanese used to buy overpriced homes as family homes – some of them are still paying off the mortgage on a property that will likely remain a negative asset for the rest of their lives.
While real estate in Tokyo has seen an incredible recovery this decade, fueled both by Abenomics and to some extent by the upcoming Tokyo Olympics in 2020, prices are nowhere near as utopian than they were in the early 90s. And with interest rates at record highs, a booming economy, and government-backed mortgage programs like the Flat35 home loan trying to make housing affordable, more young people can afford to buy their own house in Tokyo and other Japanese cities, unlike their Chinese. counterparts.
By Mareike Dornhege
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