Most old condominiums will be repaired, not rebuilt

Every few months someone in my industry presents a chart of Japan's ageing condominium stock. The bars climb steeply: buildings more than forty years old, then more than fifty, adding up to hundreds of thousands of homes and rising every year. The presentation usually ends with an opportunity. Reconstruction, we are told, is the next large market for developers. I have built a reconstruction business, and I think the chart is right and the conclusion mostly wrong. Most of these buildings will never be rebuilt. They will be repaired, renewed, partly emptied or, where nobody plans for them, slowly abandoned. The useful work for a developer lies in the first two of those outcomes.

I do not say this to diminish reconstruction. Sasamegaoka Heights, the 1971 estate in western Tokyo that we rebuilt with its owners between 2015 and 2019, is the project I am proudest of. But it worked for reasons that most buildings do not share, and our industry's habit of presenting projects like it as a template raises false hopes among owners and misdirects capital among developers.

The floor area that used to pay for everything

The classic Japanese reconstruction pays for itself with floor area. An old building sits on land that current planning rules would allow to carry a much larger one. The developer builds the larger building, gives the existing owners new homes in exchange for their old ones and sells the surplus to new buyers. The proceeds of the surplus pay for demolition, construction and the developer's margin, and owners contribute little or nothing.

That model depended on three conditions: generous unused floor area, high land values and modest construction costs. At Sasamegaoka we had the first two. The site could hold 520 homes against 312, and land in western Tokyo supported the prices of the 208 homes we sold. Even so, the third condition failed us. Construction costs rose while owners were deliberating, our projected margin fell to 6.5 per cent against the 12 per cent our investment committee normally required, and owners' average contribution ended at ¥9.1 million. We went ahead because we needed a reference project, and I would defend that decision. I would not recommend it as a business model.

Outside the most valuable districts of the largest cities the arithmetic is worse. Many older condominiums already use most of the floor area their sites allow, and some exceed what current rules would permit for a new building. Land values in regional cities do not support the prices that surplus homes would need to fetch. And construction costs on our own tenders rose by almost a third in four years. When surplus floor area cannot pay, owners must, and many cannot.

Owners who have outlived their repair plans

The second obstacle is the owners themselves, and I write this with respect for them. In older condominiums a large share of owners are elderly, many live alone, and some units are let or empty, with owners who are hard to reach. Reconstruction needs a large supermajority of owners to vote in favour under the unit-ownership law, and recent legislative changes have aimed to make some of these decisions easier to reach. A lower threshold helps only if the owners who must contribute can afford to. For a pensioner in a 1970s building, a contribution of several million yen and two moves in three years is not only a financial question. It is a question of whether to spend the last decade of a life in a temporary flat.

Meanwhile many of these buildings are under-repaired. Repair reserves in older condominiums were often set low when the homes were first sold, partly because low monthly charges helped sales. My own industry did that. Associations reluctant to ask elderly neighbours for more then raised the reserves slowly, if at all. The result is a building with no money to rebuild and too little to repair.

When an association asks us whether its building can be rebuilt, the honest answer is usually no, and the useful answer is what to do instead. Of the 73 management associations we advised in the year to March 2026, six are pursuing reconstruction. The other 67 are repairing, retrofitting or planning to.

A business in keeping buildings standing

Renewal is less glamorous than reconstruction and, done properly, far more widely useful. It means a long-term repair plan priced at today's costs rather than those of the year the building was sold; repair reserves raised in steps that owners can see coming; seismic retrofitting where diagnosis shows it is needed; lifts added to walk-up blocks where the structure allows; and sometimes combining small units or converting ground-floor flats so that the building suits the people who now live in it.

Developers can earn a fair return from this work, but not the return they earn from selling new homes. Our renewal projects earn a margin of about 8 per cent on much smaller sums, with more of the effort in planning, consultation and project management than in construction. They also demand patience. An association typically needs two or three general meetings to agree a major repair, and we are paid for the work only once it is approved.

Three changes would help. First, developers should stop selling buildings with repair reserves set too low to fund the first major repair. We changed our own practice in 2019, and our new condominiums now start with reserves based on a thirty-year plan at current costs, which makes our monthly charges look higher than some competitors'. Second, associations need advisers who are not paid by the firm that hopes to win the work. At Sasamegaoka our company funded the owners' consultants, and the owners who opposed the rebuild were right to call that a conflict. Third, municipalities and lenders need ways to finance renewal for owners who are rich in property and poor in income, so that one elderly owner's inability to pay does not hold a whole building in decline.

None of this will produce the large, visible projects that developers enjoy announcing. It will produce something more valuable: hundreds of buildings that stay safe and habitable for another thirty years, and owners who are not asked to choose between their savings and their homes. A developer that wants to be part of that work should build a renewal business first and treat reconstruction as the exception it has become. I am asking our board to judge our next medium-term plan on exactly that basis.