Rising condo repair reserves squeeze owners as borrowing hits record highs

The rising cost of monthly repair reserves for condominiums is putting growing pressure on homeowners across Japan. In 2024, fees for new buildings in major urban areas reached record highs, while existing properties are increasingly resorting to loans to cover repair shortfalls - pushing outstanding debt to its highest level on record.

The financial strain now threatens to spill over beyond owners, potentially affecting surrounding communities.

New Buildings See Record Reserve Fees

According to Tokyo Kantei, a real estate research firm, monthly reserve fees set at the time of new condominium sales - including initial lump-sum contributions - hit record levels in 2024 for the most common building type (under 20 stories, less than 5,000 square meters total floor area) in both the Greater Tokyo and Osaka Areas. Fees were roughly 50% higher than a decade ago.

Photo by Jaison Lin on Unsplash

Rising construction costs, driven partly by labor shortages, are pushing developers to set higher fees. Still, even at 2024 levels, monthly reserves remain below guideline averages set by the Ministry of Land, Infrastructure, Transport and Tourism.

“Condo prices have already soared,” said Masayuki Takahashi, senior chief researcher at Tokyo Kantei. “If reserve fees climb too steeply on top of that, demand could cool. That keeps increases relatively modest.”

By contrast, large-scale projects in the Greater Tokyo Area (over 10,000 square meters) often exceed guideline averages. “These are typically high-end properties with wealthier buyers, who are more willing to accept higher fees,” Takahashi noted, pointing to a widening divide between property segments.

Existing Properties Turn to Borrowing

When reserve funds fall short, management associations turn to loans to finance essential repairs.

The Condo Common Area Renovation Loan program offered by the Japan Housing Finance Agency reached ¥25.7 billion in fiscal 2024 - the highest level since records began in 2011 and triple the amount of a decade ago.

Loan uptake has surged by more than 30% year-on-year for two consecutive years, financing projects such as exterior wall repairs and plumbing system replacements.

“Delaying repairs risks serious damage, such as falling exterior walls affecting neighbors,” warned Teruyuki Tsuchiya, a condominium management consultant at Sakura Home Inspection. “Even if it means borrowing, at least minimum repairs must be carried out.” He added that borrowing inevitably requires further hikes in monthly reserves to cover repayment obligations.

Debt Dependency Deepens

Some properties are now repeatedly relying on loans. According to the Nikkei article, one Tokyo condo owner in a building more than 30 years old admitted “I’m already repaying one loan, but for the next round of repairs I’ll need to borrow again.”

After sudden leaks forced emergency repairs, the property raised monthly reserve fees to several times their previous level. Still, with loan repayments ongoing, the building cannot accumulate enough for the next scheduled overhaul in about 15 years - meaning further borrowing is likely.

At present, fixed-rate loans of one to 10 years carry about 1% interest. Some municipalities subsidize interest, keeping burdens relatively light. But with the Bank of Japan shifting to rate hikes since 2024, the risk of rising borrowing costs looms. Higher rates could make loans unaffordable for some management associations, stalling critical repair work.

Bid-Rigging Concerns Add Pressure

According to the sourced Nikkei article, repair costs may also be inflated by anti-competitive practices. Since March, Japan’s Fair Trade Commission has raided numerous companies on suspicion of bid-rigging in condominium repair contracts.

If improper margins are added, already-rising construction costs could swell further, draining even well-managed reserve funds.

Calls for Stronger Oversight

The government has passed legal reforms, including easing conditions for condominium redevelopment decisions, to take effect in stages. Yet experts warn legislation alone will not resolve the issue.

“Authorities should calculate and publish fair benchmarks for repair costs to make bid-rigging easier to detect,” Tsuchiya argued. “It’s also time to debate what kind of support should be offered to management associations that can’t even access loans.”

Source:

Nikkei Shimbun (Japanese only; paywalled)