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  • Writer's pictureAdam German

Surge in Japan condo associations seeking loans for major repairs

Updated: Jul 12

According to Daisuke Hori of the Nikkei Shimbun published on July 2nd, the trend of condominium management associations relying on loans for major repairs is gaining momentum. Properties built in the 2000s are now due for repairs, and rising construction costs are straining budgets.  


Key Takeaways 

  • Condo associations increasingly rely on loans for major repairs due to rising costs. 

  • Loans for condo renovations by Japan Housing Finance Agency have tripled in value over a decade. 

  • Aging condos and rising construction costs drive the need for more repair loans.  

  • Low initial repair reserves and disagreements hinder sufficient fund accumulation for repairs. 

  • Future interest rate hikes and insufficient reserves pose challenges for repair funding and loan qualifications. 


Recently, some associations have faced funding shortfalls as plans to gradually increase repair reserves have been derailed. With the Bank of Japan anticipated to adjust its policies, potentially signaling the end of historically low interest rates, ensuring repayment feasibility is crucial. 

Who does this effect?  Anyone who owns a Japan condo and ergo is a member of a homeowners' association, otherwise known as body corporates. This article calls attention to the importance of staying on top of how your HOA is managing the monthly repair reserve fees member owners pay.  

Loans for condominium common area renovations offered by the Japan Housing Finance Agency have steadily increased. In the fiscal year 2023, these loans totaled approximately ¥19.6 billion, the highest since 2011 when the agency began reporting results.  

These loans, which cover projects such as exterior wall painting and plumbing repairs, have nearly tripled in value over the past decade, with a notable 40% increase in 2023 alone compared to the previous year. 

Japan Homeowners Association loans for large scale common area renovations reach record high.

Original graphic produced by the Nikkei Shimbun, translated by Patience Realty. 

Tetsuyuki Tsuchiya, a condominium management consultant at Sakura Office in Tokyo’s Shibuya quoted in the original Nikkei article, explains, "The main driver for the rise in loans is the growing number of aging condominiums requiring repairs. Additionally, properties built in large numbers during the 2000s are now entering their first repair phase, compounded by rising construction costs." 

The Real Estate Economic Institute in Shinjuku reports that the annual supply of new condominiums nationwide during the 2000s was about 150,000 units, more than double the 2023 figure. Large-scale repairs typically occur every ten to fifteen years, suggesting a recent concentration of repair work on these properties. 

Repair costs are rising due to high material prices. The combined effects of the COVID-19 pandemic and the Ukraine crisis have, at times, caused double-digit year-over-year price increases for steel and ready-mix concrete. Additionally, a severe labor shortage is driving up labor costs. 

Hirokazu Fuchinoue, representative of Condominium Asset Management in Tokyo’s Chiyoda district, observes, "Repair costs have increased by 20-30% over the past decade, with further rises expected in the near future." 

The structure of repair funds further exacerbates loan dependence. Recent properties often set low initial repair reserves, with planned increases every few years. A 2018 survey by the Ministry of Land, Infrastructure, Transport and Tourism found that about 57% of condominiums completed between 2000 and 2009 use this "step-up" method.  

However, some properties struggle to raise reserves as planned due to owner disagreements. 

These issues were discussed at a government expert meeting regularly held until March this year. While concerns were raised, fundamental solutions remain elusive. Even newer properties sometimes find that reserves alone cannot cover rising repair costs. "Private non-banks offering similar loans to the Japan Housing Finance Agency are also seeing increased demand," Fuchinoue noted. 

According to the Ministry's 2023 survey, 36.6% of condominiums reported insufficient reserves for their repair plans. A high-rise condominium in central Tokyo discovered a shortfall of about ¥500 million after reviewing its plans, according to a repair work consultant. 

Historically low interest rates have supported the use of loans. As of July 2024, the Japan Housing Finance Agency offers fixed-rate loans for one to ten years at below 1%, about 0.8 percentage points lower than in 2011.  

Some local governments provide subsidies in the form of interest assistance, further reducing the borrowing burden. 

However, deferring or canceling repairs due to lack of funds can jeopardize living conditions and pose safety risks, such as falling exterior walls. Poorly maintained properties also suffer disadvantages in the resale market. 

Amid rising expectations of future interest rate hikes, particularly following the Bank of Japan’s move in March to end negative interest rates, reliance on loans should be approached cautiously. Tsuchiya emphasizes, "It is essential to plan for potential construction cost increases and avoid running short on reserves. When using loans, long-term financial planning for the association is crucial." 

There is also concern about older condominiums with insufficient reserves that may not qualify for loans. Supporting and advancing repairs for such properties presents a significant challenge for the government and local authorities. 


Nikkei Shimbun (Japanese only; paywalled) 


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