Assessment of the sale value of your real estate

0．Introduction

The price level of the apartment was very high since 2010, but it is predicted that it will peak around 2020 Tokyo Olympic Games.

The graph below is a price forecast of a new apartment by the Japan Real Estate Institute. Apartment prices in the 23 wards of Tokyo are expected to decline after 2019.

※Author created by Data of the Japan Real Estate Institute Press Release

Now, many people are concerned about the price crash rumored in Japan and are considering the sale. However, it is never true that the same situation applies to all real estate. Depending on the property, those who continued to hold without selling may work favorably in future asset formation. Also, depending on the conditions of your own property, the value of your own real estate may change further whether it rises or falls.

※Author created by survey of Urban Future Research Institute

Also, when considering selling, it is important to grasp the market conditions firmly and consider who can purchase your property. The above is the contents described in the Nihon Keizai Shimbun on January 6, 2018. It shows the purchase amount and proportion of foreigners buying Japanese real estate. Looking at this, the percentage of Japanese real estate purchased by foreigners is on an increasing trend year by year, and in 2017 about 24% of Japanese real estate was purchased by foreigners. This figure is expected to rise in the future.

When considering selling, it is important to identify these current market conditions and future market trends. Also, it is important to consider the individual conditions of own property owned as described below.

１．What are the 5 to 7 things that most affect the appraised value of a residential property in Japan?

Depending on whether it is a detached house or an apartment, the points will change somewhat. Below, I will list common points and points based on their respective characteristics.

【Common points (detached house and apartment)】

1-1) Location

Basically, real estate prices will change in areas where you have real estate. On top of that, the distance to the nearest station is important for each location. The distance to the nearest station is usually expressed in minutes on foot. Road distance 80 m is written as 1 minute, and rounding up notation is the basis. For example, a site such as a road distance of 100 meters is not expressed as 100 ÷ 80 = 1.25 minutes, but it is expressed as 2 minutes.

Basically, the shorter the distance from the nearest station, the higher the value of the property. Especially in the residential area, within 10 minutes walking distance from the station is a high price standard.

1-2) Floor plan

Whether it is an easy-to-live arrangement such as the arrangement of furniture, is one criterion for determining the price of real estate.

Especially in the case of a detached house, it can also be built with custom made, so it will affect assessment whether it is an easy-to-use layout for all people living or a difficult to use layout. Also, the light by sun in the room will affect the assessment.

1-3) Year build

According to the “Second-hand housing distribution, the current state of remodeling market” summarized by the Ministry of Land, Infrastructure and Transport, the asset value of wooden detached houses will decline significantly until about 15 years after constructing.

Moreover, it will fall to about half in 10 years after construction. It gradually becomes gentle after 15 years since constructing, and it becomes almost flat after 20 years after constructing.

On the other hand, the value of apartments plummets in one year after purchase, but the speed at which asset value goes down is slower than that of wooden detached houses. It is worth about 70-80% for 10 years from the time of new construction. However, around the age of 25 years, the value tends to be about half.

In this way, since the apartment has a depreciable life of 47 years, it is more than twice as long as the wooden house’s depreciable life of 22 years. In terms of depreciation speed, secondhand condominiums are more moderate than second-hand detached houses.

Based on the characteristics of these buildings, the sale assessment price is set according to the year build.

1-4) Land shape

In the shape of land, molded land is the most valuable. The most valuable shape is a rectangular land with wide openings for roads. If the frontage is wide, everybody would feel the land is bigger and the parking lot can be easily secured, so the value will be high. On the other hand, land that is narrow in frontage and expands in depth is less user-friendly and less valuable. For example, the flagpole-shaped land (旗竿地) has a lower value. Also, triangle land is less valuable because it is hard to make effective use.

1-5) Front road

Road width also affects land prices. The road width also affects the volume ratio of the land. In the zoning of ​​the residence, the volume ratio is a value obtained by multiplying the front road width by 0.4. If the zoning is an area other than a residential area, the volume ratio is a value obtained by multiplying the front road width by 0.6.

For example, even if the zoning is a commercial area and the area ratio is specified as 800%, if the front road has a width of 4 meters, the volume rate will drop to 240%. In other words, high buildings are restricted, so if the front road is narrow, the land price will go down.

1-6) Land area

Of course, the bigger lands will be more valuable. However, each region has its own restrictions, and its value varies depending on whether it is a residential land or a commercial land. Basically, a commercial land has higher volume ratio than a residential land. As a result, even if the land is narrow, the land with high volume ratio will increase in value, and vice versa.

【Apartment】

1-7) occupied area

Basically, the price of an apartment is often determined by the balance between demand and supply, and popular plans and sizes are often highly popular. Regional characteristics are also related, so it would not be said unequivocally, but from the viewpoint of family composition and price, in the case of family type, the 3LDK condominium is in demand, and the supply volume is proportionally large.

1-8) Floor number and direction, corner room

Unlike a detached house, the apartment price will change depending on the floor level, the appearance of entrance and the direction of the veranda. For example, a room on a higher floor tends to have higher appraisal value than a lower floor. Furthermore, the assessed price amount will also change depending on the location within the premises of the apartment.

1-9) Structure / Management and Repair Status

Whether it is building safety or earthquake-resistant structure is a key point in assessing. Also, whether the earthquake resistance criterion is the new earthquake resistance standard or the old earthquake resistance standard greatly influence the assessment. After the Great East Japan Earthquake, it became the point of assessment more, especially if it is an apartment that is taking measures against earthquakes.

Also, the shared part of the apartment will be the point of assessment. The entrance of the apartment impresses visitors, so the appearance of entrance is one of the subjects to be assessed.

And in your own room, it is a point that how much repair cost is necessary for water supply equipment, or scratch of floor and wall. You would often receive some questions about scratch on the floor and walls due to breeding pets and small children living.

2. What are the 5 to 7 things that most affect the appraised value of an investment property in Japan?

2-1) Yield

For residential and investment apartments, the assessment method is different.

For residential apartment, past case examples of the same apartment or neighboring property and current sales cases are compared. And it is common to correct and decide the amount by adding individual circumstances there.

On the other hand, it is common for investment apartment to calculate the price by dividing the net revenue of the real estate by the assumed yield. As a calculation method, the value of the real estate is sought by rebating the profit for one year with a reasonable return yield that can be obtained from the real estate.

For example, suppose you purchase an apartment of 10 million yen with monthly rent of 100,000 yen. In this case, since the profit generated for 100,000 yen × 12 months in one year is 1,200,000 yen, the yield will be 12%. This yield is called net yield.

However, net yield is not an indicator of revenue. It is necessary to deduct the cost from the annual rent income. For rental management, various expenses such as property tax, administrative expense, repair fund to be paid to the management company, fire insurance fee and bank’s interest rate are charged. So, the actual profit (net income) is that minus them.

It is common to obtain yields used for assessment with reference to yields of similar properties in the surrounding area. Then, for investment properties, this yield setting is the most important point.

2-2) Vacancy rate

When assessing, it is important that the apartment is fully occupied or nearly full. In the assessment method of (2-1) of the preceding paragraph, since it calculates from the assumed rent at the time of full occupancy, it becomes meaningless when there are many vacancies. Therefore, it is important for the owner to run the apartment so that only few vacancies are presented, regardless of the time of sale. In order to lower the vacancy rate, it is important to thoroughly manage the apartment such as repairing.

If the apartment is far from the station or the location is not very good, it may be disadvantageous at the time of appraisal. However, if it is full, there is a high possibility that a good evaluation will come out. In this way, it is up to the efforts of the owners to make the assessment amount even better. It will lead to an increase in the assessment amount when it is sold.

2-3) Year build

In the assessment method in the preceding paragraph (2-1), the rent rental rebate is a measure of the price of the investment property, so the rent at the time of appraisal is important in the assessment. There are various indicators that the rent is affected, and one of them is a year build.

※ Mitsui Sumitomo Trust Basic Research Institute calculates by author

Looking at the graph above, you can see that the rent has declined with the year build. Especially, the rate of decline until the 10th year of construction is large, and it will keep gradual after that. Based on this, it will be possible to predict the current and future selling price.

2-4) Location

Although it is the same for residential property, comparing the convenience of location and the environment in the room such as layout, the number of residents seeking convenience rather than the layout is large, so the sale price is higher for apartments with better convenience.

The following contents are representative items that affect when assessing from the viewpoint of location.

1: within 10 minutes on foot from the station / multiple routes (train) available

2: Facilities such as convenience stores, banks, hospitals are nearby

3: There are few condominiums competing in the area

4: Low noise / good security

2-5) Repair history

The repair history is the constructing record concerning the building parts and equipment of the building. In order to sell the profitable property, it is necessary to keep the repair history. Because it is important what kind of repair and maintenance has been done when purchasers are considering buying the property.

Since it becomes a judgment material in purchasing, it would be easier to sell it if there is a repair history. Also, immediately after being properly repaired, there is a possibility of selling higher.

When selling a property, the year build is important, and it is generally difficult to sell an old property. However, if you are repairing firmly, you can sell it at an appropriate price. In particular, in the case of a single apartment or a whole building, it is often said that the purchasers want you to present a repair history.

Because purchasers could not plan funds after purchase unless they know what kind of repair they need to do. If the property has not been repaired, the purchaser must make extensive repairs after purchasing and it may cost a lot. Therefore, repair history is required to confirm them. So, please save the repair history certainly in case of selling the profitable property.