In Japan, there is a culture that places great value on "new construction. The word "new construction" shines brightly in real estate advertisements, and many homebuyers aspire to buy a new home. Surprisingly, however, the world's ultra-wealthy are making the opposite choice. Why do they prefer "used" rather than "new" construction?
In this article, we look at the real estate investment strategies of the ultra-wealthy, whose annual household income exceeds 100 million yen, and the reasons why they choose second-hand properties. While unraveling the differences in real estate values between Japan and the United States and Europe, we will explain the hidden asset value of pre-owned properties and the essence of the real estate selection practices of the affluent class. We will also introduce the secret of "choosing wisely," which ordinary homebuyers can also learn from.
Values for real estate differ greatly between Japan and the West. The difference is clear when looking at the data.
| Country/Region | Share of existing homes in circulation | Share of new homes in circulation |
|---|---|---|
| United States (2017) | 82% (of all new homes sold) | 18% (2017) |
| United Kingdom (2017) | 88% 88 | 12% |
| France | 66% France | 34% France |
| Japan (2013) | 14% Japan (2013) | 86% Japan (2013) |
Source: Based on data from the Ministry of Land, Infrastructure, Transport and Tourism, etc.
In Europe and the U.S., more than 80% of the housing distribution market is for existing homes, whereas in Japan the ratio is reversed. Where does this difference come from?
The reasons for the preference for new construction in Japan are as follows:
On the other hand, in Europe and the U.S., a market has been formed in which the value of used properties is properly evaluated. Especially in the U.S. and the U.K., where the asset value of the building itself hardly declines as it ages, it is not unusual to see houses that are more than 100 years old being sold at high prices.
In wealthy neighborhoods, traditional buildings with a long history are regarded as status symbols and are often sold at higher prices than new buildings.
Why do the world's wealthy, especially in the U.S., tend to buy pre-owned properties? There are six reasons behind the real estate choices of the ultra-wealthy
It is difficult to judge whether the price of a newly built property is appropriate or not, because there is no past transaction data. On the other hand, for existing properties, it is possible to determine the appropriate price based on past transaction prices and the sales history of other rooms in the same building. 2.
Location is the most important factor in determining the asset value of a property. Used properties are often located in already established prime locations. Wealthy people are well aware of the basic principle of real estate that "90% is determined by location," and by selecting a well-located pre-owned property, they ensure the future stability of its value. 3.
Used properties have the advantage of being freely customizable to one's own taste by renovating them after purchase. This "high degree of freedom" is an important reason for choosing a property among the upper class, whose annual household income exceeds 30 million yen.
In addition to cash, insurance, stocks, bonds, gold, etc., the ultra-high-net-worth individuals add real estate, which is considered to be resistant to inflation, to their portfolios to increase asset security. In particular, a pre-owned condominium in the city center can function as a bulwark to protect real assets even under inflationary conditions. 5.
Used real estate in Japan tends to be assessed at a lower value than the prevailing market price. Taking advantage of this characteristic, wealthy individuals purchase pre-owned properties as a measure against inheritance tax.
The ultra-high-net-worth individuals choose real estate based on the premise of long-term ownership, rather than speculative short-term buying and selling. From this perspective, property characteristics that do not decline in value over time are more important than the value at the time of new construction.
When purchasing a pre-owned property, there are three main factors that influence its property value. The ultra-high-net-worth individuals select a property based on these factors.
Good location is the most important factor that determines the asset value of an existing property. Good location is determined by the following points:
In fact, used condominium prices in central Tokyo vary widely by station: over the five-year period from 2019 to 2024, used condominium prices around Kamiyacho Station soared approximately 3.13 times (+213% appreciation rate). This is the result of the scarcity of excellent locations and the demand of affluent people seeking them.
Source: Kenbike
The brand power of the city in which the property is located also has a significant impact on the property value of an existing property. The ultra-wealthy tend to prefer neighborhoods with many similarly affluent residents. This is not simply because they are status-conscious, but because they value the purchasing power of the surrounding area and the stability of property values.
The brand power of a town has a significant impact on the asset value of an existing condominium. Brand power means that the town is popular and has a good image among residents. For example, a town with an upscale residential area, a beautiful landscape, or a redeveloped area has a strong brand, and the property values of used condominiums in that area are more likely to be maintained." Source: Aid My Bank
The brand power of the construction company (general contractor) or developer is important even for existing properties. Properties designed and constructed by reliable companies tend to be of high quality and show little deterioration over time.
The management status of the management association and the history of large-scale repairs are also important factors that affect the property's asset value. The ultra-wealthy choose properties that have appropriate management fees and reserve funds for repairs, and that are maintained on a regular basis.
It is common for the ultra-high-net-worth individuals who purchase pre-owned properties to conduct high-end renovations to customize the space to their liking. The renovation points they focus on include the following features
Wealthy people prefer open floor plans that minimize walls and maximize living space. We have achieved both a sense of openness and a sense of luxury by substantially restructuring the layout, for example, by integrating adjacent rooms to create a large-space LDK.
The use of natural materials such as marble and solid wood to enhance the overall materiality of the space is particularly emphasized in the renovation of affluent homes. These materials, which provide both luxury and warmth, do not deteriorate over time, but rather gain texture over time, which is also highly valued. 3.
The quality of life is enhanced by introducing well-known domestic and foreign brand products such as multifunctional system kitchens, built-in appliances, wine cellars, and bio-ethanol fireplaces. In particular, luxury brand products such as "Miele," "GAGGENAU," and "LIEBHERR" are one of the status of the wealthy.
The overall design is popular for its use of subdued colors such as glaze, monotone, and white tones, with marble and moldings used as accents. Such chic interior designs have a timeless and universal beauty and contribute to maintaining asset value in the future.
| Property Type | Cost price (per m2) |
|---|---|
| High-grade renovation of condominiums | 350,000 yen or more per square meter |
| Detached house (including exterior) | 400,000-500,000 yen/m2 |
There are cultural and historical differences that lie behind the significant difference in values for existing properties between Japan and the West.
In Japan, since the high-growth period, it has been common to believe that "once a house is built, it is finished. This is due to the following factors
On the other hand, in Europe and the U.S., the value of used properties is highly valued due to the following cultural backgrounds:
These differences in cultural backgrounds are manifested in differences in the valuation of used properties in the real estate market.
The real estate investment strategies of the ultra-high-net-worth class include "wise choices" that are not generally known. It has the following characteristics
The ultra-high-net-worth individuals place more importance on long-term stability of asset value than on short-term gains in value. They have a "wait and see" attitude, and will not invest in new properties by force.
The ultra-high-net-worth individuals increase the stability of their assets by incorporating not only financial assets but also real estate into their portfolios. Especially in times of inflation, real estate, which is a real asset, plays a role in asset defense.
High-net-worth individuals take full advantage of tax savings from depreciation. In some cases, especially with pre-owned properties overseas, greater tax savings can be achieved.
The ultra-high-net-worth individuals increase the value of their assets by systematically renovating their properties after purchase. By installing high-end interiors and the latest equipment, they take strategies to increase the value of their properties for future resale or rental.
We have looked at the reasons why the ultra-high-net-worth individuals choose used properties over new construction, and there are many points from which the average real estate buyer can learn.
The value of real estate depends more on "location" than on the newness of the building. Good location is a value that is not lost over time, and in fact, it can become rare. Even if the property is used, if the location is good, the property value is more likely to be maintained. 2.
While there is little data available to judge the appropriateness of pricing for new properties, it is easier to judge the appropriate price for existing properties based on past transaction history. This is an important point for the wise buyer, as there is less information asymmetry and more room for price negotiation. 3.
One of the most attractive features of existing properties is the freedom to customize them to one's own taste through renovations. It is possible to create a unique space that cannot be achieved with new construction. In terms of cost-effectiveness, renovating a high-quality pre-owned property can be a more rational choice than purchasing a new building. 4.
Ultra-high-net-worth individuals always choose properties with a long-term perspective. This attitude, which emphasizes location and quality over short-term trends or the newness of the building, is also helpful to ordinary buyers.
When considering the purchase of an existing property, the following three points should be especially important:
Learning from the real estate choices of the ultra-wealthy and cultivating an eye for the intrinsic value of a property, rather than being obsessed with the supremacy of new construction, will be the first step toward a wise real estate investment.
A. The most important risk to watch out for when purchasing a pre-owned property is "hidden defects. Even if there are no problems on the surface, there may be leaks or structural problems lurking. To avoid this, we recommend that a professional home inspection (building condition survey) be conducted to objectively confirm the condition of the property. It is also important to check the minutes and repair history of the management association. For condominiums, you should also investigate the amount of the repair reserve fund and the management status of the management association.
A. An effective maintenance method to maintain asset value is "preventive periodic inspections and appropriate repairs. In particular, areas prone to deterioration, such as roofs, exterior walls, and water systems, need to be addressed as early as possible before problems become more serious. In the case of condominiums, it is also important to actively participate in the management of the management association and encourage the implementation of appropriate large-scale repair plans. In addition, regular updating of facilities to meet the needs of the times will help prevent a decline in asset value.
A. The main differences between the property selection of the wealthy and the general public are "length of time horizon" and "investment attitude toward quality. High-net-worth individuals evaluate properties from a very long-term perspective of 50 to 100 years, and are less likely to be influenced by short-term fads and trends. They also tend to invest in high-quality materials and equipment without sparing initial costs. The general population often thinks in terms of the mortgage repayment period (30-35 years), and may give priority to controlling initial costs. However, in the long run, investment in location and quality will help maintain asset value, so it is wise to choose to maximize these within your budget.
A. There are three key points to recognize a promising existing property
It is also important to choose an area that will continue to be in demand over the long term, taking into account demographic changes and the diversification of work styles.
A. The key to maximizing the cost-effectiveness of renovation is to "focus investment on areas directly related to asset value. Specifically, focus on the following points
On the other hand, overly unique designs and special equipment may divide tastes at a future sale. Selecting high-quality materials and equipment while keeping versatility in mind will help maintain and increase asset value over the long term.
INA&Associates regularly holds free consultations on how to choose a pre-owned property, referring to the real estate investment strategies of the ultra-wealthy. We will propose the best real estate investment plan for you from the perspectives of "location," "asset value," and "renovation. For more information, please visit our website or feel free to contact us by phone or e-mail.