$130,000 for Parking : Land Madness Racks Poor Rich Tokyo
Uganda closed its embassy here recently because it could not afford the rent.
When the Japanese government put 66 new apartments on the market last summer, more than 18,000 people rushed to apply for what was considered a real steal: $200,000 for a small two-bedroom apartment.
Not long ago, a 2,200-square-foot condo in a choice downtown area here sold for more than $12 million, according to a local newspaper. A parking space in the same area went for $130,000.
These are just a few examples of Tokyo’s land madness. In the last two years, real-estate prices have gone sky-high, making millionaires of once struggling shop owners, sharply dividing haves and have-nots and threatening to put an end to the much-vaunted sharing of success that has been a hallmark of this nation’s postwar economic growth.
“Japan is reported to have become the richest country in the world. In reality, most people cannot afford to buy their own home anymore,” said Kensuke Tanaka, head of the Ken Corp. real estate firm.
“It’s become a great social problem,” he said, with young couples forced to settle for two-hour commutes into Tokyo just for the luxury of owning their own “rabbit hutches,” as Japan’s notoriously cramped quarters have come to be known.
The astronomical surge in land prices means that, on paper at least, this island nation about the size of Montana is now worth twice as much as the entire land mass of the United States.
Land has always been at a premium in Japan. An archipelago of 3,900 islands, mostly covered by uninhabitable mountain ranges, it is home to 120 million people, about half the population of the United States, and one-quarter of those live in and around Tokyo.
The current land-price spiral began two years ago, when Japan’s successful corporations and banks, flush with cash, began looking for investments and foreign companies began flocking to Tokyo as the world’s new financial center.
All available office space quickly was gobbled up, and the value of central Tokyo real estate started its climb.
People living in the city center sold out and, to avoid capital-gains taxes, plowed their new profits into nearby high-class residential areas, fueling price increases there. The cycle has repeated itself many times since then, inflating prices farther out into the suburbs and neighboring cities.
Many people blame the national government, saying its policies have made the situation worse. Taxes on farmland remain extremely low. Thousands of small rice paddies, onion fields and barely used vacant plots still dot Tokyo, occupying more than 1,100 square miles, according to an American economist living in Tokyo who has studied the issue.
Although these often scraggly fields provide some welcome greenery in this densely packed city, if the “farmland” were converted to residential land, 1.5 million additional Tokyo residents could be housed, according to some estimates. However, such a drastic change is unlikely here, given the political clout of Japan’s agricultural cooperatives.
But even if the favorable tax treatment of agriculture land were to be changed, it is no easy task putting up a high-rise in Tokyo. A myriad of rules and regulations, including some that protect Tokyo residents’ rights to sunshine, makes development of large projects very time-consuming.
It took the developers of a major new residential and business complex 18 years to fulfill all the government regulations, and 18 months to build the complex.
For all these reasons, one square foot of prime downtown commercial land in Tokyo now sells for $40,000 or more. (By comparison, prime commercial land in Washington sells for about $1,200 a square foot.) According to government figures, the price of land increased by 76% in Tokyo last year alone.
Small shops are selling out to developers, who are promising to change the skyline, and typical Japanese-style homes are being knocked down and replaced with small, high-rent apartment buildings known as “mansions.”
Every day the newspapers are filled with advertisements of 1,500-square-foot apartments, especially for foreigners, that rent for $5,000 or more a month. Only the most determined small shop or homeowner in desirable locations can withstand the urge--or pressure--to sell.
Eijiro Suzuki, the owner of a 460-square-foot fabric shop that has been located at one of Tokyo’s busiest intersections for at least the last century, says countless real-estate buyers have come into his store.
In the current market his rickety wooden building is worth as much as $19 million, but Suzuki isn’t selling. “This is the land from my ancestors, and it is where we have done business for 115 years,” he said. “I have no intention of selling.”
But the issue has caused some friction within his extended family. As a result, Suzuki said, he may keep his land but knock down his old shop and put up a small high-rise of his own.
Meanwhile, the government is scrambling to cool the overheated real-estate market. The government recently told banks to stop lending so much money for real estate, warned several real-estate companies to stop speculating and is considering imposing a 96% tax on income from land resold within two years of acquisition. It is even looking into the possibility of increasing the tax on agricultural lands located in urban areas.
But for now, the Japanese couple looking to own a home anywhere near Tokyo might as well give up. According to Yasushi Fukumoto of the Japan Real Estate Institute, the average salaried worker in the market for a house is 38 years old, makes about $40,000 a year and has saved $50,000.
Based on bank lending practices here, Fukumoto said, this man would be able to buy a $175,000 house.
But, he said, today such a place “simply does not exist anywhere near Tokyo, not a house or a mansion (apartment). It has simply vanished.”