In 2000, I moved from my previous job in an architectural design firm to the architectural design department of a real estate company. At first I had no idea what the other members of the team were talking about in the meetings. They were talking about how much the condominiums they were supplying would sell for per square metre and per household. Even though I enjoy architectural design, the perspective of dealing with buildings and land in terms of the market value of the property was a very important key point in my later work.
While working as an architect and construction manager, I was constantly exposed to how the market value of real estate rose and fell, and how projects made or lost money as a result.
I also learnt the importance of building inspections when dealing with second-hand buildings. A building with leaks or faulty equipment can cost a lot of money after purchase, which can drain business profits and increase losses. In some cases, the defects are so fundamental and difficult to resolve that the building is unfit for its intended purpose as a home.
Here I would like to share with you my experience of the market value of such land and buildings.
The following information relates to properties in a limited range of prices in a limited range of areas that I happen to be involved in, so it may not necessarily apply to your area. I hope you will bear this in mind and use it as a reference.
When buying land or a building in a major metropolitan area, we recommend that you assess the price at which it is generally valued in the market, bearing in mind its value when converted to rental use or sold in the future.
1. what to consider when looking for a housing site
How should you go about selecting a potential site or assessing its value when looking for land for your own home or flat in Japan?
Here are some of the things I learnt when I qualified as a first class architect and through my work in a real estate company.
(1) Will permission be granted to build on the land?
(2) What is the best location for a property that will not lose its value?
(3) How can I find out the market price of real estate?
How much a certain land is traded at a price can be known by the fact that a case of dealing is published in the database which only a real estate agent can see.
When there is no real estate agent whom you can consult, some sense of a market price can be grasped by confirming the sale price and the lease price which are published in a real estate portal site.
The following is the data about a real estate deal price “land general information system” which the Ministry of Land, Infrastructure, Transport and Tourism has published.
You may also find it useful to look up properties you are interested in at the following links to real estate auction information websites, which will give you an idea of how the properties are appraised. (This is in Japanese only.)
(4) A useful checklist when researching land
This is a selection of some of the things that a professional estate agent will look for when brokering or buying a property. Even if you are new to buying property, it is important to be aware of these details so that you can make an effective assessment. We hope you find this list useful in your property considerations.
2. Thinking about the market value of buildings
Here I will first share some tips on valuing a second-hand building. I will also write about things to consider when planning your rental home.
(1) The current state of second-hand housing transactions and the increasing number of vacancies
(2) The age of the building and its strength against earthquakes
(3) Is there any real value in second-hand buildings in Japan?
I am often asked this question by friends and acquaintances.
What my team and I do when considering second-hand buildings is to create a hypothetical plan for each building and make a corresponding ” project profit and loss”.
For example, if we were looking at buying a property, we would hypothetically set out the cost of buying it, the cost of holding and maintaining it, the cost and sale price of selling it and the expected holding period.
Even if the building is considerably damaged, it is possible to rehabilitate it by spending money on it. However, it is important to know how much it will cost.
Speaking of the value of second-hand buildings in Japan, I remember an episode in 2004 that impressed upon me how much the Japanese love new buildings (and hate second-hand buildings). I was involved in a project to refurbish and sell a reinforced concrete walled apartment building, and I was the person who dealt with prospective clients. I remember giving a tour of the building to an elderly lady who came to visit. She had come to check out the building because her daughter and her husband liked it and were considering financing it. At that time, the flat had not yet been renovated, so at first glance it just looked like a rundown building. Perhaps that’s why this woman said to me: “This building is not worth a penny”.
To be honest, the building was in a very popular location, the condition of the building was perfect with some maintenance, and the price was so low (property prices were very low in 2004, so it was a bargain) that our team had received ten times as many applications as units available. I didn’t particularly object, as it is not my job to force this building on people who feel they don’t want it. In fact, there is no building more earthquake resistant than a reinforced concrete walled structure, and if you renew the plumbing, wiring and interior, a rundown building can look great. In 2004, “renovated apartments” were not as popular in Japan as they are now (in 2021, as I write this blog), so it was not surprising that this woman rejected second-hand buildings out of hand.
There is no need to judge a second-hand building as worthless without looking into it, as this lady did. What matters is how you assess its performance and value, how much you buy it for, how much tax you pay, how much you spend on renovations, and how much you rent (or sell) it for.
For pre-purchase surveys and inspections of existing buildings, we can help you. If necessary, we would be happy to discuss this with you. (As we are located in Tokyo, we may ask you to cover travel costs if you live further afield.)
(4) For buildings for rent – expected rents and how to make them attractive
If you are renovating an old building, or if you are buying a property and intend to use it as a rental property, you will need to make assumptions about the rent you can expect to receive for the rental space in order to consider the feasibility of your business.
In order to do this, it is necessary to consider what rents are offered by potential competitors, how the property compares to these competitors, and if there are any weaknesses, what needs to be done to make the property more attractive.
A house where you can enjoy cooking and baking with a view
The example in this photo is one of the rental houses designed by our office. We had many discussions with the client to decide the layout of the kitchen, and the result is a bright kitchen with a great view.
We had a lot of discussions with the client about what kind of space they would need for cooking. How big and where do you put the fridge? There are many things to consider, such as where to put cooking appliances, cupboards, food stocks and waste sorting.
When planning a rental home, it is essential to consider the user’s evaluation of the space and to consider the rent.
You may find this case study useful for planning your rental home. Please have a look if you like.