The recent record highs set by the Nikkei 225 index have been tied to references about the asset-inflated bubble economy of the mid-1980s, when Japanese real estate prices were also soaring.

Recent reports of condominiums in the central Tokyo area selling on average for more than 100 million yen ($653,000) hark back to the real estate prices of the 1980s.

Takeshi Ide, a senior researcher at Tokyo Kantei Co., a real estate assessment company, was asked about why real estate prices in Tokyo have skyrocketed and whether it marks another bubble economy.

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My company’s research on prices for new condominiums in the 23 wards of Tokyo found the average price per tsubo (3.3 square meters) in 2022 was 4.31 million yen but had increased to 5.76 million yen last year.

That means a two- to three-bedroom condo, with a living room, kitchen and dining room for a total floor space of 20 tsubo (66 square meters) was about 100 million yen.

Only very wealthy households, the so-called power couples of dual high incomes, can afford to purchase homes in central Tokyo. There are not many households thinking about buying a residence in the capital.

Investors, including those from abroad, now have a huge presence as buyers of such condominiums.

The globalization of the economy means homes in Japan are now being looked at as possible investment targets and are being compared to financial products around the world.

If the return in the form of rent income is high, investors will purchase the homes. The return on real estate investment is now higher in Tokyo than in other Asian cities, such as Taipei or Singapore.

With the recent surge in prices, there are also many cases of investors selling their purchases after a few years to make a quick killing.

That way of thinking is vastly different from the households that are thinking about acquiring a home and who place greatest consideration on their budget, such as income and the amount of home loan repayments they will have to make.

Under the current market situation, households looking for a home are being left behind.

During the real estate bubble economy up until the early 1990s, there were only a few foreign investors.

Most of those who reached a certain age back then when they began thinking about buying a home were the postwar baby boom generation.

The general mood in society was of high expectations that the economy would continue to grow, and that was reflected in the “land myth,” the belief that real estate prices would never drop.

The government also implemented various measures, such as long-term low-interest loans from what is now the Japan Housing Finance Agency, to encourage home purchases. With a wide sector of the population doing so, housing prices increased around Japan.

In comparison, the recent surge in real estate prices is more localized. That has led to a bipolar market with different mind-sets.

On one side are those purchasing homes for investment purposes, while on the other are those looking for their dream home.

In fact, the rate at which prices are increasing is much slower in parts of Tokyo outside the 23 wards as well as in the Kinki and Chubu regions. Those areas have a higher ratio of families purchasing homes among the buyers.

I have doubts about the sustainability as a real estate business of the current situation in which ordinary purchasers can no longer afford homes in certain areas.

Those who want to purchase a home but cannot afford it now could wait until prices begin falling. But even if prices do drop, there is no guarantee that the prices would continue to decrease over a 10-year period, which is what happened with the collapse of the bubble economy.

Therefore, what will become important is how to think about a home within the overall design of one’s life.

For example, there is the option of buying a home when one is in his or her 50s. Until then, that individual should increase their savings or find other ways to accumulate assets.

Because such individuals will likely not work for the same company for very long periods, they might have a wider area in which to consider purchasing a home because they would not need to worry about the commute.

With job changes becoming more prevalent in society, I believe there is no longer a need to think like in the past of buying a home because an individual has reached a certain age.