What the Changes in the Tokyo Real Estate Market Imply 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, and a staggering 37% jump from the previous year. The average selling price of new condominiums 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 transaction volume surged by 56.6% year-over-year, demonstrating the market's intense heat.

This rise cannot be explained by construction cost increases alone. Over the past 10 years, construction costs have risen by 36.4%, while condominium 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 of supply shortages and concentrated demand are driving up prices, rather than a simple pass-through of costs.

### Supply Cliff as a Market Driver The supply cliff is the most significant feature of the Tokyo market. Last year, the supply of new condominiums in Tokyo's 23 wards was 8,275 units, a 32% decrease compared to the 2019-2023 average. In the first half of this year, it also decreased by 11% year-over-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 the remaining land faces fierce competition with hotels and commercial facilities. Compounded by rising construction costs and labor shortages, new supply is being further constrained.

### Demand Concentration from High-Income Earners and Foreign Investors On the demand side, high-income dual-income couples, dubbed "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 10 years ago. They are primarily targeting premium homes around 100 million yen 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 specialist company, about 30% of current existing condominium transactions are made by foreigners, concentrated in large luxury homes in core urban areas such as Minato and Chuo wards.

### Widening Price Gaps by Region The price gap is stark by region. The average asking price in the six central wards (Chiyoda, Chuo, Minato, Shinjuku, Bunkyo, Shibuya) was 175.5 million yen (approximately 1.65 billion won) per 70 square meters, a 3% increase from the previous month, renewing the highest record since 2004. In particular, Chiyoda ward recorded 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 such as 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, real demand is shifting to the existing market. As the barrier to entry for new construction becomes higher, both end-users and investors are choosing existing condominiums as an alternative. With the expectation of asset value appreciation through renovation, existing housing is becoming the center of market liquidity.

### A Robust Rental Market The rental market is also showing a solid trend. Real estate consulting firm Savills has forecast that rents and occupancy rates in Tokyo's 23 wards will remain stable throughout 2025. As the influx of foreigners continues and new supply is limited, rental demand is steadily increasing. This is compounded by high housing prices and rising interest rates, leading more people to choose renting over buying. As a result, the supply and demand in both the sales and rental markets are becoming tight, leading to a simultaneous trend of stable rental yields and rising market prices.

### The Bank of Japan's Concerns and Market Challenges 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 prices 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 harm financial stability. With the stock market also classified as being in a "red overheating" stage, the risk of valuation losses for banks in the event of a sharp stock market decline cannot be ignored. In particular, the recent increase in transactions by overseas private equity and hedge funds in Japan is seen as a double-edged sword that can both increase market liquidity and volatility.

### Implications for Korea and Future Outlook The structural trends in Tokyo's real estate market offer clear implications for Korea. The trifecta of supply shortages, demand centered on the wealthy, and increased foreign investment resembles the market structure of Seoul's Gangnam area. However, while Japan has almost no regulations on foreigners, Korea has implemented a land transaction permit system since August, requiring foreigners to reside in the property for two years, aiming to curb speculation. 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 mid-to-long term, the number of households in Tokyo is projected to increase until 2035. While Japan's overall population is declining, the concentration in the metropolitan area is expected to continue. Accordingly, the Tokyo Metropolitan Government is considering measures to supply affordable housing for low-income residents, and housing issues are emerging as a national policy agenda.

From an investor's perspective, the key to the Tokyo market is "scarcity." Unless supply dramatically increases, the market is unlikely to cool down easily. Therefore, rather than chasing short-term gains, it is crucial to find a balance between stable cash flow and capital gains. In this process, risks related to exchange rates, interest rates, and liquidity must be managed conservatively. Strategies such as enhancing asset value through renovation or diversifying investments into central core areas and their surrounding (secondary) regions will be effective approaches.

Ultimately, the Tokyo case clearly demonstrates that supply is the core of a large city's real estate market. Demand-suppression policies alone have clear limitations, necessitating sustainable supply expansion measures. In this era of increasing scarcity where supply is precious, it seems important to maintain a balanced perspective rather than focusing solely on speed.

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