Resale Homes Are Not a Good Business in Japan?

According to statistics, the lifespan of an average property in Japan is about 20-30 years, which is rather surprising in comparison with other countries. Of course, its reasons are rather special such as the unique culture and the measures generating construction issues or even the frequent earthquakes. The acceptance of resale homes seems to somewhat change, and there is still a significant difference between the cities and rural regions too. The housing issue in metropolises, where the majority of the population lives, is becoming more and more of a challenge; meanwhile, there are millions of vacant buildings all across Japan.

THE COUNTRY THAT BUILDS HOUSES TO LAST FOR 20-30 YEARS

Japan has a lot of curiosities to offer, however, it might be even more interesting that houses basically fully depreciate in 2-3 decades. While in most countries property values have remained stable for years, and the resale home market is far more dominant, in Japan, this segment is almost missing altogether (about 10% of the properties that changed hands were second-hand ones).

Even in the light of the current legislation, buying pre-owned property is not worth it because the property transfer tax is five times higher than for new ones. Moreover, banks have favoured financing the construction of new buildings until recently.

The reason why properties lose their value so soon is partially rooted in the culture. In Japan, the family and the home have a big tradition, they represent a sort of belonging, that is why people rarely divorce or move to other people’s houses. A further cultural phenomenon is that second-hand houses are subject to a negative discrimination as if they were to bring bad luck. Besides, old buildings being highly respected, the people in Japan fanatically love the new ones. An interesting example is that old shrines are demolished and rebuilt from time to time.

However, there is also another more recent historical reason too. After the destruction of WWII, the country underwent significant development and the population began to grow too, so new homes were in high demand. However, the quantity was at the expense of quality; construction companies came up with new house types every year as if they were new car models. Government efforts also shifted towards giving new projects to the construction sector, sustaining its growth.

Additionally, the bursting asset bubble in the early 1990s made the irrationally high property prices plummet, even though this investment type was extremely popular. The price-increase also contributed to that construction projects tried to utilize any space they could.

However, we must not forget that in a country where earthquakes are so frequent, sometimes even entire city districts had to be rebuilt and people preferred new and ‘earthquake-proof’ buildings.

ONE DECADE AND THE NUMBER OF ABANDONED HOUSES WILL REACH 20 MILLION

Lately, the above-mentioned mentality has somewhat changed, and buying pre-owned homes is becoming more accepted. In the past ten years, the number of purchased resale homes in Tokyo grew by 31%.

The government, even if a bit late, decided to double the number of sold pre-owned property. Building new houses would be a wastage, so renovating and refurbishing those vacant homes that otherwise would have been rebuilt has become more common. Some construction firms now are focusing on renovating old homes, a shift that has been fuelled by the demand of younger generations, who generally has income. They are also favouring apartment blocks renovated from old property due to their low costs.

The government is also considering decreasing taxes involving buying a home if it is a pre-owned one. In certain regions, incentives, such as financial support and lower taxes, are offered to resale home buyers. This led us to the most severe issue of the country: the shrinking rural population.

The population in Japan is ageing; currently, it is 127 million, but by 2060 it could shrink to 88 million. At the same time, more and more people are moving to metropolitan areas, abandoning houses and apartments in rural towns. According to estimates, there are about 10 million vacant homes already and it is expected to jump to 30 million by 2030. Mostly small and medium-sized towns are affected and the rural regions will be completely depopulated in decades. This alone is a good reason to believe that the demand for new homes will substantially decrease in the coming years.

Original date of Hungarian publication: 28 March 2018