Is Your Condominium Safe?! The Future of the “Condominium Price Collapse” Coming Due to the IRS’s “Tawaman Tax-saving” Measures.

Condominium prices, which have been rising steadily, have reached a major turning point.

The reason for this is the “Tax Reform Proposal for Reiwa 2023,” which was announced at the end of last year. As a result, the National Tax Agency has announced that it will review the calculation method of inheritance tax on condominiums as early as next January.

Inheritance tax and condominium prices. At first glance, these two seem unrelated, but in fact they are closely related. The key word is “Tawaman tax-saving,” a tax-saving method used by the wealthy. When one inherits a condominium unit with a large number of units, such as a townhouse, the tax burden can be significantly reduced compared to that of a single-family home. This is one of the reasons why high-rise condominiums are often purchased by wealthy individuals to reduce taxes on inheritances and gifts, and is one of the reasons for the rise in real estate prices.

The IRS has decided to contain this tax saving on townhouses. So how much will the new inheritance tax calculation method increase inheritance taxes for owners of tawamans? For example, in the case of a townhouse in Tokyo with a market value of 119 million yen, the assessed value of the property under the current system is only 37.2 million yen, but under the new system, the assessed value is 71.42 million yen. In the case of a single child, the inheritance tax would be 120,000 yen under the current system, but 5,080,000 yen under the new system. This is an increase of about 5 million yen at once. (The market value of the condominium in question was researched by the National Tax Administration Agency.)

From the standpoint of tax fairness, it is probably a good thing that the tax reductions on condominiums are being blocked. However, this new taxation system is not just a matter of concern to the general public. It is the collapse of condominium prices. The tax reduction will cause a drop in the price of condominiums, which in turn will affect the price of condominiums in general. Housing journalist Junji Sakaki explains.

It is said that 20-30% of the units in newly built townhouses in central Tokyo are bought for inheritance tax purposes. The blocking of tax-saving measures in tawamans will slow down this demand considerably.

In addition, if there are other good tax-saving measures, such as moving assets overseas, there may be a trend for asset owners to sell their townhouses. This could have a negative impact on tawamans prices. And if the prices of tawamans, which drive the condominium market, go down, other condominiums will be affected as well.”