A Real Estate Plunge on Tokyo's Waterfront?

Developers in neighborhoods near Tokyo Bay, where apartments are often built on reclaimed land, are halting sales after Japan's earthquake in mid-March turned some of the landfill into mud, shattered pipes, and severed water lines. While most of Tokyo avoided major damage in the Mar. 11 quake because of stringent building codes, some bayside areas experienced liquefaction, a phenomenon in which violent shaking causes soil to fragment and lose its strength. That in turn allows water to well up and create a quicksand-like mess. The most affected suburb was Urayasu, one of only three residential areas in greater Tokyo where land prices rose last year and the home of the Tokyo Disneyland resort.

Tokyo Bay neighborhoods, some of which sit on about 24,955 hectares (61,665 acres) of reclaimed land in the area, are sought after for their ocean views and their proximity to central Tokyo. In a city where a survey by national broadcaster NHK estimates the average commute is 49 minutes, bayside commuters enjoy travel times of less than half an hour.

"The problem is, buyers who bought the high-rise apartments because of the convenience of the bay area's location and a view of the ocean are now reminded of danger," says Miyoshi Kaido, a manager at Sanyu Appraisal, a Tokyo property appraisal company. "We will see a rising number of sellers."

Some high-rise waterfront residents, who can't use elevators because of rolling power blackouts after nuclear power plants were damaged, have told real estate agents that they're willing to sell for as little as 50 percent of their purchase price, says Kaido. Half the households in Urayasu suffered from disruption of water services as pipes snapped, says Rie Sekine, a spokeswoman for the local city council. Liquefaction was found across 86 percent of Urayasu's land surface, Sekine says.

In the Tokyo Bay area, prices could drop as much as 10 percent in three to six months, according to Masahiro Mochizuki, an analyst at Credit Suisse (CS) Securities (Japan). If so, it would reverse an upward price trend for Tokyo flats. The average price of a three-bedroom apartment in Tokyo rose to 47.2 million yen ($562,000) in February, according to the Real Estate Economic Research Institute.

Tokyo Tatemono, which has three condominium projects near Tokyo Bay with a total of 1,501 units, remains optimistic about demand for its properties. The real estate developer, together with trading company Itochu, built a 33-story luxury tower called Brillia Mare Ariake, where some units go for 1 billion yen. "There will always be people who are interested in buying new homes," says Toru Yamaguchi, a spokesman for Tokyo Tatemono. "We will set our price at a level that's attractive to those people."

Other real estate professionals are far less upbeat. The tsunami that hit Japan after the earthquake is a reminder of the perils of living close to the sea, according to Mikihisa Hirai, president of Atlas Partners Japan, which owns more than 2,000 apartments in Nagoya, Osaka, and Tokyo. "If it was just an earthquake, things would probably go back to normal," says Hirai, who predicts a drop in waterfront property prices. "With the tsunami, it's a different story. What's more of a concern is that with seashore properties, there is nowhere to escape."

Even at half the current prices, it would be hard to sell properties in Urayasu, says Satoshi Kawahara, president of Real Bois, a Tokyo real estate agency. "I may be smiling, but I am really crying inside," Kawahara says.

The bottom line: Tokyo Bay area real estate prices may fall 10 percent in 2011 on worries about housing built on reclaimed land in quake-prone Japan.

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