In 2018, a series of scandals involving real estate investment companies and financial institutions that were active in extending loans for real estate investment rocked the market. The impact is expected to continue in 2019.
With that in mind, let’s take a look at the investment environment for single-family apartments in 2019.
Stricter screening of bank loans
The biggest incident in the real estate investment industry in 2018 was the revelation that Suruga Bank had extended inappropriate loans to the shareholding company, Smart Days Inc. The Financial Services Agency ordered the company to suspend operations.
Suruga Bank has since made great strides in providing loans to individual real estate investors, and the investment environment, which has been called the Suruga scheme has completely changed.
In the same year, TATERU, which achieved rapid growth through apartment investment using smartphone apps, was also found to have falsified loan documents, in an incident which had parallels with the Suruga Bank problem.
The FSA expressed concern over these developments and announced its policy to pay close attention to the soundness of financial institutions’ lending.
Even before the FSA announced this policy, financial institutions had already tightened the screening process for loans to condominiums and apartments, making it virtually impossible for investors to take out so-called full loans.
Stricter lending is a boon for high-attribute investors
These moves by financial institutions have raised the barriers to entry into the market for single-family apartments and condominiums. This has encouraged people who have capital of more than 10 million yen and those with high incomes.
The problems at Suruga Bank and TATERU both involved fraudulent practices, such as pressuring banks to lend money to people who were by no means high-profile and altering income verification documents.
In other words, they were forced to lend money to people who should not have invested in a condominium or apartment. The inability to finance these people should be seen as a return to a healthy financial environment.
The following is a summary of what is happening in the investment environment for single-family condos and apartments in 2019.
・High attributes make it difficult to obtain loans, raising barriers to entry
・As a result, competition has decreased
・Prices of second-hand properties fell as the number of buyers decreased
The decline in the number of people who can invest in single-unit apartments has created a favourable environment for those who can afford to do so.
Those who have land are in luck
In addition to high incomes and self-financing, it is expected that 2019 will continue to be advantageous for those who already have land. This is because it will become more realistic to invest in single-unit condominiums and apartments, thanks to reduced competition in combination with the fact that financing is easier depending on the land collateral evaluation.
A series of scandals has forced banks to tighten lending to single-unit apartments, but this does not mean that demand for apartments will decline.
This is an opportunity for those who are interested in investing in a condominium or apartment building and who can meet the current strict lending standards. If you are interested in real estate investment but have no experience, why don’t you take this opportunity to consider it?
