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Tokyo area condo sales down 17.9% in FY2007 as prices rose 9.3%

According to research data released by the Real Estate Economic Institute today, 58,156 new condominium units were sold in the Tokyo area in fiscal 2007, marking the first year since 1993 that the number of new units sold dipped below 60,000, while the number of sales was 17.9% lower than the previous year. In the greater Tokyo area (including Tokyo, Saitama, Kanagawa and Chiba), the average new condo sold for 46.98 million yen last year, which was up 9.3% from FY2006.

If only central Tokyo is considered, the average price shot up 16.0% as higher land and construction costs combined to push up retail prices. Nationwide, land prices rose 1.7% in 2007 after having risen 0.4% in 2006, which was the first increase seen in 15 years.

At current unit prices, it’s getting tougher to close deals, as only 66.3% of new units were sold within one month of coming online, for the lowest figure since 1991. At the same time, 10,837 units remained unsold at the end of FY2007, which was the first time since FY1992 that over 10,000 new condos remained empty at the end of a fiscal year.

The effect of revised building laws, which went into effect in June of last year, continue to crimp the supply of new condos, as sales of new condos in the Tokyo area this past March dropped to their lowest level in 15 years, falling 17.8% on the year to 4,490 units. At the same time, the average sale during March stood at 49.98 million yen, showing the 16th consecutive month of price increase.

What effect could all this have on the market? Just a few weeks ago, Mori Trust CEO Akira Mori told Bloomberg, “Condo builders are facing a severe situation. There is a high probability for bankruptcies among condo builders.”

While many small developers are apparently already feeling the pinch, those developers who manage to hold out may be in for a windfall, according to Mori: “Sellers couldn’t rid themselves of the vision that real estate prices would increase. In about six months, they will probably rush to sell at a loss. Many transactions may take place in half a year.”

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