Tokyo Used Condo Prices Drop for First Time in Over Two Years

(Bloomberg) -- Used condominium prices in Tokyo dropped for the first time in more than two years in August as rising mortgage rates start to weigh on sentiment among home buyers, according to a research firm.

The average price of condos in Japan's capital dropped 0.2% from the previous month to ¥112.74 million ($714,000), marking the first decline in 28 months, Tokyo Kantei Co. wrote in a report released Thursday. Prices began falling in previous months in the more expensive city center areas, suggesting that weakness in the city's condominium market is spreading.

Mortgage costs are climbing in Japan as the central bank raises interest rates and signals its willingness to tighten credit further, damping condo demand from home buyers. Japan's Financial Services Agency has said it will strengthen its oversight of real estate lending amid concern that property prices are overshooting in Tokyo, driven by domestic and international investors rushing in, chasing capital gains.

"Price adjustments for properties in central Tokyo are expected to continue toward the end of the year," said Masayuki Takahashi, senior principal researcher at Tokyo Kantei. "Similar movements will continue not only in central Tokyo but also in surrounding areas."

Highlighting the earlier condo price declines in the more expensive areas of the metropolis, the average price of properties in Tokyo's six central wards fell 0.7% from the previous month, marking the fourth consecutive month of declines. The prices are adjusted to represent 70 square meter units.