In investment terms, the phrase PER (Price Earnings Ratio) is a measure of how many years of income on your investments it will take to recoup the investment price.
Apply this to property, and the PER will indicate how many years of annual rent will be needed to recover the acquisition price.
For example, if your apartment is 50 million yen and your annual rent is 2 million yen, then 50 million yen divided by 2 million yen makes your PER 25. If your annual rent is 2.5 million yen, your PER is 20. The smaller the PER number, the better value the investment is. The larger the PER number is, the more difficult it might be to recoup your investment.
Metropolitan PER of 2018 is 24.96, 0.5 years longer
According to Tokyo Kantei, the average PER of new condominiums in the Tokyo metropolitan area was 24.96 in 2018, up 0.47 points from 24.49 in the previous year. This means that it takes almost 25 years to recover the purchase price of a property from the annual rent, which is about 0.5 years longer than the previous year.
This is due to a rise in the cost of newly built condominiums in the Tokyo metropolitan area. Rent is also increasing a little, but the price-earnings ratio is rising because rent prices cannot keep up with the spike in property prices, adding to the feeling of overvaluation.
If you’re looking to invest in a condominium, you might think it’s a good idea to choose an area that has a small PER so that you can recoup your investment as soon as possible, but that’s not always the case.
Areas with low PER and relatively cheap prices are mainly in suburban areas, and there are concerns about maintaining asset values in the long run.
For example, the lowest PER of newly built apartments in the Tokyo metropolitan area in 2018 was 15.53 in Keio, Tama Center Station on the Keio Sagamihara Line. The second-lowest was Musashi-Urawa station on the JR Saikyo line at 15.62, and the third was Misato-chuo Station on the Express at 16.16. It’s true that the price is cheaper and it’s easier to invest in the area compared to the city centre, but profits will not be as high.
Areas in Tokyo’s 23 wards with a PER of less than 20
However, there are still areas in the centre of the city and its surrounding areas where the PER is unexpectedly low and you can expect a faster return on your investment. These are areas that, although they are very convenient for transportation and living, have not received much attention so far, and thus prices remain at a considerably low level compared to the popular areas.
The rent prices, however, are not so different from the popular areas, so as a result, the area has a low PER giving the sense of finding a bargain.
For example, the PER of Kasai Station of Tokyo Metro Tozai Line in Edogawa-ku, Tokyo is 19.33. The price for a property of 70 square metres is 45.46 million yen and the monthly rent is 195,965 yen.
Edogawa Ward has the largest park area among the 23 wards and is known for its comprehensive childcare facilities. In recent years, the number of foreigners of Indian descent working for IT companies has increased to the extent that Indian festivals are held in the ward, and the enthusiasm for English education among the residents is high and internationalisation is progressing. It is also attractive that Tozai Line is directly connected to the centre of Tokyo such as Nihonbashi and Otemachi.
Meguro Station is a bargain area with a surprisingly low PER
Tabata station on the JR Yamanote Line in Kita-ku is also a bargain area with PER of 19.33. The price for 70 square metres is 52.11 million yen, which is a little higher than at Kasai station, but the monthly rent is 224,462 yen.
Besides the JR Yamanote Line, you also have the JR Keihin Tohoku Line, offering good access to transportation. Compared to Nippori, Oji and Akabane stations, there are fewer shopping arcades around the station and development has been somewhat delayed. However, with the completion of the station building in 2008, supermarkets and other specialty stores were opened, improving the convenience of the area.
If you can afford to spend a reasonable amount of money, Meguro station on the JR Yamanote Line is the best. The price is over 100 million yen per 70 square metres, but the monthly rent is high at 431,354 yen, making the PER relatively low at 20.14 yen.
In the Meguro station area, rent prices are increasing due to the number of condominiums in the vicinity of the station, which is pushing down the PER.