Work to dismantle the TOC Building, a commercial facility more than 50 years old in Tokyo’s Shinagawa Ward, was supposed to start in June ahead of the construction of a replacement building.

However, a surge in construction costs has forced the company managing the building to give it a second life. 

According to a plan announced in August 2021, the work was scheduled to begin in spring 2023 and a new 30-story building was expected to be completed in spring 2027.

But the company later announced a delay of at least one year. 

All tenants of the TOC Building had vacated by the end of this March, bringing an end to the operations of the facility.

Just a month later, however, the management company announced a major overhaul of the project, citing a steep rise in construction costs.

It ultimately decided to cancel the demolition and reopen the building around September after doing renovation work.

PUBLIC WORKS PROJECTS ON HOLD

Along with commercial projects, the rise in construction costs is also taking a toll on public works endeavors. 

The Kita Ward government in the capital called off a project to renovate its largest community facility, called Kita Topia, in April.

Ward officials made the decision after an initial estimate of 10 billion yen ($62 million) for the work was found to have nearly doubled due to a sharp rise in construction costs.

The National Theater, which opened in Tokyo’s Chiyoda Ward in 1966, has been unable to find a successful bidder to replace it with a new building despite two open bids from 2022 to 2023.

The central government set aside more than 80 billion yen for the project, but that was apparently not enough to generate interest among contractors. The theater closed in October.

Multiple factors have pushed up construction costs, according to officials in the construction industry.

One reason is an upsurge in building materials prices, triggered by Russia’s invasion of Ukraine, which started in February 2022. Another is the rapidly weakening yen that accelerated the rise in commodity prices. Labor and transportation costs also increased.

According to the Japan Federation of Construction Contractors, prices of building materials have increased about 30 percent since 2021. Some metal sheets and glass sheets are now being traded at prices 70 to 80 percent higher than previously.

As the construction industry struggles with the stark rise in building materials and land prices, the average cost of new apartments on offer last year in Tokyo’s 23 wards exceeded 100 million yen for the first time.

“There are no factors that will lead to a possible reduction in prices in the near future,” said a major real estate company official, referring to growing labor costs.

AFFORDABLE HOMES IN TOKYO HARD TO FIND

Property prices in Tokyo are increasingly beyond the reach of everyday workers.

“Apartments in central Tokyo are so expensive that there are none to purchase within my price range,” said a 37-year-old company employee looking for a home upon his marriage. “The only option left for me will be to rent an apartment.”

Apartment prices in the greater Tokyo area have been steadily rising since the Bank of Japan began its large-scale monetary easing in 2013 under then Prime Minister Shinzo Abe's economic policy.

But fewer new apartments have come onto the market over the past few years.

With a limited inventory, leading real estate firms have shifted to dealing in upscale homes, targeting working couples with higher incomes and well-to-do clients.

Osamu Nagashima, chairman of real estate consulting firm Sakura Jimusho, described the era when even workers could afford to buy homes in central Tokyo “a bonus.”

While ordinary workers are fast being priced out of homes in the center of Tokyo, high-end apartments are being gobbled up by the affluent and entrepreneurs in Hong Kong and Singapore.

“Most of the properties with a scenic view in the Roppongi and nearby districts have been bought by Chinese people,” said Nobuhiro Watanabe, managing director of GA Technologies, a firm that operates Shenjumiaosuan, a website providing information on properties in Japan in Chinese.

Chinese with deep pockets are seeking homes with an impressive view, such as of Tokyo Tower, Mount Fuji and the ocean.

Watanabe said properties that cannot be found anywhere else, like art pieces, have been sold soon after they were put on the market despite their price tags in the hundreds of millions of yen.

Such Chinese investors tend to come to Japan to see the properties in person before they made the purchase.

Buying and selling have been going strong at GA Technologies since August, when the Chinese government lifted a ban on group tours to Japan.

In October, the firm received about 3.5 times as many inquires as the same month a year earlier, a record.

Property prices in Shanghai are 20 to 30 percent higher than in Tokyo. And the weak yen makes properties in Japan good investments.

According to a survey last year of about 330 Chinese investors by GA Technologies, 70 percent of respondents cited the depreciation of the yen as a factor for considering purchasing real estate in Japan.

Nihon Agent Inc., a real estate firm that operates a multilingual website on properties in Japan, has seen a steady stream of inquiries from countries with sizable Chinese-speaking populations, as well as the United States, India and Spain.

In May, the number of inquiries set a record since the site was set up in 2019.
One of its clients who bought a home in Shibuya Ward for 25 million yen in May is an American investor who is in 30s.

The property--a 16-year-old one room apartment that is a five-minute walk from a train station--is the first investment in Japan for the buyer. The deal allows the occupant of the home to continue living there even after the owner changes.

“A growing number of overseas investors are making their first-time property purchases in Japan,” said Masahiro Kusanagi, an executive officer of the firm.

He also said such investors are eyeing real estate not just in major cities, but also in renowned hot spring resorts in the countryside where they can stay during their visits to Japan.

Sales of properties in the Kusatsu hot spring district in Gunma Prefecture and the Echigoyuzawa hot springs area in Niigata Prefecture are going strong.

Some Chinese students have purchased homes in Japan despite plans to stay in the country for only a few years, according to Kusanagi.

He predicted that international investors will continue to buy aggressively even after the yen regains its strength, saying, “Real estate in Japan will remain good bets in terms of liquidity and security.”