What Tokyo's Changing Real Estate Market Means for Korea [Kim Yongnam's Real Estate Asset Management]

The heat in the Tokyo real estate market shows no signs of cooling down. According to recent data, the average price of existing condominiums (apartments) in Tokyo's 23 wards rose by 2.9% in September 2025 compared to the previous month, reaching 110.34 million yen (approximately 1.037 billion won) per 70 square meters. This marks the 17th consecutive month of record highs since the survey began in 1997, a staggering 37% jump from the previous year. The average selling price of new condos has also surpassed 100 million yen (approximately 940 million won) for three consecutive months, establishing a new price benchmark. Notably, an unusual phenomenon of both prices and transaction volumes rising simultaneously is occurring. In September, existing apartment transactions surged by 56.6% year-over-year, demonstrating the market's intense heat.

This rise cannot be explained by construction cost increases alone. While construction costs have risen by 36.4% over the past decade, condo prices have soared by 62.3% during the same period. The gap has widened even more since 2022. Compared to 2022, apartment prices in the first half of this year rose by more than 40%, while construction costs increased by less than 20%. This shows that structural factors, such as a supply shortage and concentrated demand, are driving up prices, rather than a simple pass-through of costs.

A supply cliff is the most significant feature of the Tokyo market. Last year, the supply of new condos in the 23 wards was 8,275 units, a 32% decrease from the 2019-2023 average. In the first half of this year, it also decreased by 11% compared to the same period last year. According to a survey by Mitsubishi UFJ Trust and Banking, 73% of developers responded that it is “difficult to secure land.” Large-scale development sites such as factory sites, corporate housing, and public land in the city center have been nearly exhausted, and fierce competition with hotels and commercial facilities exists for the remaining land. Compounded by rising construction costs and labor shortages, new supply is shrinking even further.

On the demand side, high-income dual-income couples, known as 'power couples,' have emerged as the center of the market. The number of dual-income households with an annual income of 7 million yen (approximately 65.8 million won) or more is about 450,000, more than double that of a decade ago. They are primarily targeting premium homes around the 100 million yen mark and are leading the market along with the wealthy, whose assets have grown due to the stock market boom. Foreign investors are also actively participating. According to a luxury real estate company, about 30% of existing condo transactions are currently made by foreigners, concentrated in large, high-end homes in central areas like Minato and Chuo wards.

The price gap is stark by region. The average asking price in the six central wards (Chiyoda, Chuo, Minato, Shinjuku, Bunkyo, and Shibuya) rose 3% from the previous month to 175.5 million yen (approximately 1.65 billion won) per 70㎡, a record high since 2004. Chiyoda Ward, in particular, reached 251.03 million yen (approximately 2.36 billion won), jumping from 200 million to 250 million yen in just eight months. In contrast, outlying areas like Adachi and Katsushika wards remain in the 40 million yen range (approximately 376 million won), with the price gap between the city center and the outskirts widening to more than five times.

An interesting point is that as new supply decreases, actual demand is shifting to the existing market. As the barrier to entry for new construction has risen, both end-users and investors are choosing existing condos as an alternative. Coupled with expectations of asset value appreciation through renovation, existing homes are becoming the center of market liquidity.

The rental market is also showing a solid trend. Real estate consulting firm Savills forecasts that rents and occupancy rates in Tokyo's 23 wards will remain stable throughout 2025. The influx of foreigners continues and new supply is limited, leading to a steady increase in rental demand. In addition, high housing prices and rising interest rates are causing more people to choose renting over buying. As a result, supply and demand in both the sales and rental markets are tightening, leading to a simultaneous trend of stable rental yields and rising market prices.

However, the Bank of Japan (BOJ) is also showing signs of putting the brakes on this overheating atmosphere. With residential real estate prices in the Tokyo metropolitan area soaring by 33% and commercial by 30% compared to 2020, the BOJ has expressed concerns that the expansion of real estate-related loans and the increased risk exposure of the non-bank sector could undermine financial stability. With the stock market also classified as being in a 'red overheating' stage, the risk of valuation losses for banks cannot be ignored if stock prices plummet. In particular, the recent increase in transactions by overseas private equity and hedge funds in Japan is pointed out as a double-edged sword that can increase market liquidity while also increasing volatility.

The structural flow of the Tokyo real estate market offers clear implications for Korea. The trifecta of supply shortages, demand centered on the wealthy, and expanding foreign investment resembles the market structure of Seoul's Gangnam area. However, while Japan has almost no regulations on foreigners, Korea has been curbing speculation by implementing a land transaction permit system since last August, which imposes a two-year real residency obligation on foreigners. Tokyo's supply constraints are far more severe than Gangnam's, and this difference will be a key factor in determining long-term price trends.

In the medium to long term, the number of households in the Tokyo metropolitan area is expected to increase until 2035. Although Japan's total population is declining, concentration in the metropolitan area is expected to continue. Accordingly, the Tokyo Metropolitan Government is considering measures to supply low-cost housing for the working class, and the housing problem is emerging as a national policy agenda.

From an investor's perspective, the key to the Tokyo market can be described as 'scarcity.' As long as supply does not increase dramatically, the market is unlikely to cool down easily. Therefore, it is important to find a balance between stable cash flow and capital gains, rather than chasing short-term profits. In this process, risks related to exchange rates, interest rates, and liquidity must be managed conservatively. A diversified strategy of increasing the value of assets through renovation or dividing investment targets between core city center areas and their surrounding (secondary) areas would be a valid approach.

The Tokyo case clearly shows that the core of the metropolitan real estate market is supply. Since demand suppression measures have clear limits, a sustainable supply expansion plan is necessary. In this era of scarcity where supply is becoming precious, it seems important to have a balanced perspective rather than focusing on speed.

<Korea Economic The Moneyist> Kim Yongnam, CEO and President of GlobalPMC Co., Ltd.