Potential for Reviving Dilapidated Condominiums Utilizing Funds

Increase in J-REIT Acquiring Rental Condominiums

Given this situation, when living in an urban area increasingly one has the choice of residence in a rental condominium as opposed to acquiring a condominium. Among rental management companies, there is also a movement to stimulate demand for rental condominiums by marketing the kind of lifestyle that does not purchase property.

Looking at the age of J-REIT properties, new constructions are the overwhelming majority. There are also cases, however, where old properties are acquired (the oldest was constructed in 1968), and if tenants have been secured and the property is in good condition and can be expected to be profitable, then newness is not necessarily a deciding factor.

Regarding investment into urban rental condominiums, looking at the risk and return structure over the past ten years shows that small secondhand properties (such as one bedrooms) are characterized strongly by low risk and high return, while mid-sized properties are low risk and low return for both new and secondhand properties. There is significant variation in risk and return among large properties (such as family dwellings). Risk and return attributes vary among properties, and depending on its investment strategy J-REIT makes decisions to incorporate properties based on these attributes.

Conversion from Dilapidated to Rental Condominiums

In this way, the method of utilizing securitization in the supply of rental condominiums is becoming increasingly important. Looking towards the future, this method also carries the potential to help solve the issue of condominium dilapidation, a problem that promises to become more serious. At the moment, the Ministry of Land, Infrastructure, Transport and Tourism is primarily implementing policy that will make rebuilding, as a result of agreement reached between sectional owners, go smoothly. However, there is no way that all properties can be rebuilt. Obtaining agreement from sectional owners is the most difficult step, and as tenants become older raising funds for rebuilding will also become harder.

On the other hand, among dilapidated condominiums there are properties that can be adequately revived through renovation and without rebuilding. These properties should increase. As tenants age, however, renovation will become more difficult in terms of financing. There is also the problem of properties that fundamentally can be used for a long time not being adequately maintained, which increases the likelihood of degeneration into slums. In this way, there are instances where renovation could revive a property but such renovation is impossible. One method in such a case is for a fund to buy out properties from all sectional owners, and after renovation of the entire condominium, revive it as rental housing.

For funds, if they can buy out previously-owned and dilapidated condominiums and revive them into attractive properties through renovation, it becomes possible to produce profits by renting out these properties. In terms of investment in rental condominiums, as previously mentioned obtaining secondhand properties can yield higher returns compared with acquiring new constructions. Acquiring a secondhand property and then renovating involves high costs, a factor that decreases the return. However, depending on the conditions of the property (location and if it is in good repair), in some cases a commensurate return can be yielded. Though it is impossible for all properties, for ones that meet certain conditions this kind of method can make revival into rental condominiums a possibility.

There are also merits for tenants who sell their sectional ownership. It becomes easy to move into elderly housing, and residence in such housing can be continued by covering rent with the gain on sale. The merits of this kind of revival of secondhand and dilapidated condominiums are not limited to funds and sectional owners. Once constructed, long-term use of a property can contribute to the environment through the curbing of construction-related waste, and can also prevent the degeneration of urban areas into slums.

Moreover, if high-quality rental condominiums are supplied in such a way, young adults could freely move among these condominiums appropriate to their stage in life and it would become easier to eventually move into elderly housing. This housing system would circulate the existing stock, and through effective utilization has the potential to lead to a shift from the traditional “housing ownership model” that focuses on home ownership to a “housing utilization model” that effectively utilizes this stock and allows for free movement among residences.

In this way, the method of reviving through utilization of funds has the potential to respond to the problem of dilapidated condominiums, which will rapidly increase in the future, and offers another choice besides rebuilding. Government policy officials should promote research regarding the feasibility of this method.