Definition of "suburbs" in terms of real estate investment

What is the definition of "suburbs"?

Where do the suburbs start？

In general, people imagine the "suburbs" as being somewhere "that takes more than 30 minutes to get to by the commuter train," or, in the case of Tokyo, the area beyond Route 16 which is seen as marking the border between Tokyo and the suburbs.
However, there is no clear definition for the word suburb.
Even if you look it up in a dictionary, it is only described abstractly as "an area adjacent to a city."
On the other hand, what is the definition of "city center"?
If you look this up in a dictionary, it is described as "a region where a large number of people are concentrated in a relatively small area, and as a center of politics, economy, and culture."
Because real estate investment involves a lot of money, the definition in the dictionary of what is a suburb or what is a city center is a bit abstract, so it is difficult to make a judgment based on this alone.

25 km from the city center is a guideline

There is a train of thought to change one's perspective in distinguishing the line between suburb and city center with regards to the condominium market.
When looking at the condominium market, in addition to the age of the building and the availability of building facilities, when you look at the train lines that lead into Tokyo you can see that real estate prices and annual household income often change significantly past a certain station.
According to a Study distinguishing the border between suburban and urban areas, it was found that 25 km from the city center (or 30 minutes by express train) along the 13 main train lines leading into Tokyo is considered to be the boundary between suburb and city.

Specific examples for each route

Here are some examples of what kind of station is considered to be on the border of a suburb.

●Chuo Line (Nakano - Takao)
Up to Tachikawa Station, the prices of newly built apartments are high, and the annual income for rentals is in the 4 million yen range, but after that, real estate prices drop sharply.
In other words, it can be considered that the area after Tachikawa Station is in the suburbs.

●Odakyu Line (Shinjuku-Honatsugi/Katase-Enoshima)
It is difficult to give a clear explanation of the route because there is a difference depending on whether the express train stops at a station or not.
In terms of new condominium prices, unit prices are lower around non express stop stations after Ikuta Station.
Also, for second-hand condominiums, the unit price drops after Mukogaoka-Yuen Station.
If you exclude Machida Station and Sagami-Ono Station, you can judge that the area after Mukougaoka-Yuen Station is in the suburbs.

●Tokyu Toyoko Line/Minatomirai Line (Shibuya - Motomachi Chinatown)
On the Tokyu Toyoko Line, real estate prices are high at most stations, and annual rental incomes are above a certain level.
Therefore, there are no suburbs along this route.

Advantages of suburban properties as real estate investments

Let's take a look at some of the benefits of investing in suburban real estate.

Low real estate prices

The biggest advantage of the suburbs is that real estate prices are lower than in the city center.
When starting real estate investment, the extent to which you can reduce the purchase price of real estate will greatly affect future returns.
If you can buy real estate cheaply, you can expect higher yields.
The price range is relatively affordable, even for beginners in real estate investing.

Less competitive

A second benefit is that there is less competition with other investors.
In contrast, there are many cases of competition between investors to purchase property in central Tokyo because of the scarcity of good real estate.
Therefore, it won't be so difficult to buy the real estate you want in the suburbs because it's mostly a residential area.

There is the possibility of having your investment grow significantly

A third benefit is that there is the possibility that there will be a significant rise in the value of real estate in a suburban area as it may be the focus for a future development.
Since there is not much vacant land left in the city center, significant development itself is not expected, and when it comes to development, it takes time to demolish an existing building and build a new one.
However, in the suburbs, there is more space for development than in the city center, making it easier to build relatively new entertainment and commercial facilities.
It is conceivable that demand will increase as new facilities are built and new lines are opened, making an area more convenient and attracting more people.

Demand has risen sharply due to the COVID-19 pandemic

COVID-19 is also having a big impact these days.
COVID-19 has changed the way we work, and recently, remote work has become prevalent.
As a result, people who no longer need to commute every day are moving their homes to the suburbs.
There is a possibility that demand will continue to rise and that rents and real estate prices will continue to rise.

Disadvantages of investing in suburban real estate

On the other hand, what are the disadvantages of investing in suburban real estate?

Anxiety about finding tenants

The first disadvantage is that there may be difficulty finding a tenant.
Although the increase in remote work due to COVID-19 has boosted rental demand in the suburbs, it is still generally lower than is demand for real estate in central Tokyo.
Since the rent from tenants is the main source of income for real estate investment, the longer a vacancy period is, the greater the loss will be.
Even if it is a property in the suburbs, try to minimize the risk by choosing a property that is close to a station, particularly one from which you can commute easily to a major station in the city center.

Lower rents

Another disadvantage of the suburbs is that rents are low.
When comparing properties of the same size in the city center and suburbs, rents are set higher for properties in the city center.
Still, if you can buy suburban real estate cheaply, you may be able to secure a certain amount of yield.
However, it is very difficult to get high rents in the suburbs, and it is important to note that the cash flow from such investments is not as good as that from urban real estate.

Repair costs may be high

Let's compare a property with a rent of 100,000 yen as a concrete example.
For example, if the rent is 100,000 yen in a property in central Tokyo, there are many properties with a floor plan of 1DK to 2K with about 2 rooms.
On the other hand, if you go to the suburbs, even if the rent is the same 100,000 yen, it will not be difficult to find a property with more rooms than 2LDK, or a property with the same floor plan but with larger size rooms.
The larger the number of rooms and the larger each room, the higher the possibility that there will be a need for repairs, and that repair or maintenance costs will be higher.
In other words, even if you get the same rental income, it is conceivable that a large property in the suburbs will give some disadvantage when considering expenses.

Population decline is accelerating

Population is declining throughout Japan, but in comparison with city centers, this is particularly so in the suburbs.
As population declines and demand declines, real estate prices and rents will also fall.
As previously mentioned, there is a possibility of prolonged periods where a property is vacant, and in some cases, rent will need to be lowered in order to find tenants.

Summary

In this article we explained the advantages and disadvantages of investing in real estate in the suburbs.
The big advantage is that you can start real estate investment at a lower price than in the city center, but there are risks that cannot be avoided.
Choosing the right property in the right place is the most important thing. Doing your research will help you make a good choice.