The average price of a new condominium in Tokyo's 23 special wards has reached ¥136.13 million (roughly $900,000), the third consecutive year above the ¥100 million mark. Behind the numbers, a warning siren is sounding. In February 2026, Japan's Financial Services Agency (FSA) issued an unprecedented alert to regional banks about surging real estate lending. The Bank of Japan keeps raising rates. The ghost of Japan's 1990s bubble collapse is haunting the market again.

The FSA's "Unprecedented Warning"

On February 20, 2026, news broke that the FSA had issued a formal warning to regional banks ("chigin" in Japanese) about the rapid expansion of real estate lending. This was no routine memo. It was a preemptive measure rooted in the lessons of Japan's catastrophic 1990s bubble.

The FSA's investigation revealed troubling practices: some regional banks had failed to set proper loan limits per borrower, and many hadn't adequately conducted "stress tests", simulations of what would happen to their portfolios if land prices dropped sharply.

Particularly alarming was the rise of "cross-border lending" (ekkyō yūshi), where regional banks, struggling to find creditworthy borrowers in their home territories, were financing real estate deals in Tokyo and other major cities far from their base. Not only did this make proper oversight difficult, but the flood of capital may have been artificially inflating urban property prices.

The Numbers Tell a Striking Story

According to the Real Estate Economic Institute, the average price of newly built condominiums in Tokyo's 23 wards reached ¥136.13 million (roughly $900,000) in 2025, a 21.8% jump from the previous year. In the six central wards (Chiyoda, Chūō, Minato, Shinjuku, Bunkyō, and Shibuya), the average hit ¥195.03 million (about $1.3 million), closing in on the ¥200 million ($1.33 million) threshold. That is the highest since 1991, when the average was ¥216.78 million; the all-time peak was ¥226.62 million in 1990.

More dramatic still: in the three core wards, used condominium prices surged 25% year-on-year through October 2025. At that pace, prices would double in three years.

Meanwhile, supply has been shrinking. The greater Tokyo area saw only 21,962 new units in 2025, down 4.5% from 23,003 the year before and the lowest figure since records began in 1973. "Oku-tion" (condos priced above ¥100 million/$670,000) jumped to 5,669 units, up by 2,021 from the previous year, making once-rare nine-figure homes almost commonplace.

Who's Buying These Ultra-Premium Properties?

The Ministry of Land, Infrastructure, Transport and Tourism investigated whether foreign buyers were driving the price surge for units above ¥200 million in central Tokyo. The finding was surprising: there was "no particular trend of active short-term trading by overseas residents."

So who is behind the buying frenzy? Analysis of property registration data for major tower condominiums revealed: approximately 10% foreign or foreign-affiliated entities, 20-30% Japanese corporations, and roughly 70% individual owner-occupiers.

The real story lies in the "Japanese corporations" category. Independent research found that lenders to these corporate buyers were credit unions (shinkin/shinso) at 54%, non-bank lenders at 38%, and regional banks at 8%. Major city banks were notably absent from speculative lending.

In other words, a chain of non-bank and regional bank financing flowing to property flippers may be a major driver of the price surge. The pattern echoes uncomfortably with the past.

BOJ Rate Hikes Hit Home, Literally

The Bank of Japan raised its policy rate by 0.25% to 0.75% on December 19, 2025, the highest level since 1995. It went further on June 16, 2026, lifting the rate to 1.00%, a level not seen in roughly 31 years.

This matters enormously because 84.3% of Japanese homebuyers use variable-rate mortgages. When rates rise, they feel it directly.

And the water has already moved. Following the December hike, major banks raised their benchmark mortgage rates by about 0.25% at the April 2026 revision, taking the three megabanks' posted rate to 3.125%. Applied variable rates at Sumitomo Mitsui and Mizuho crossed 1% for the first time in decades. The June hike is expected to feed through at the October revision. Higher monthly payments could push many buyers out of the market, especially in the mid-range segment.

Why Global Investors Keep Pouring Money into Japan

Despite domestic headwinds, international investor appetite for Japanese real estate has never been stronger.

JLL (Jones Lang LaSalle) reports that Japan's commercial real estate investment volume hit ¥5.4875 trillion in 2024, up 63% year-on-year and above ¥5 trillion for the first time since 2015. Tokyo ranked second among cities worldwide. 2025 ran hotter still: ¥4.71 trillion through the third quarter, up 22% year-on-year, with Tokyo taking the global top spot at $21.8 billion.

Several factors continue to attract global capital:

The yen advantage. With the yen persistently weak, Japanese property offers exceptional value for dollar- or euro-denominated investors. Currency alone can amplify returns significantly.

China's real estate woes. As China's property crisis deepens, Asia-Pacific investment capital has shifted toward Japan and Australia. The "Buffett effect," triggered by Warren Buffett's high-profile investments in Japanese trading companies, further boosted global interest.

Low relative interest rates. Even after June's move to 1.00%, Japan's policy rate remains far below U.S. or European levels, which keeps financing costs for acquisitions comparatively attractive.

Corporate restructuring. Japanese companies are increasingly selling non-core real estate assets as part of governance reforms, creating a steady pipeline of investment-grade properties.

1990 vs. 2026: What's the Same, What's Different

With "bubble" talk intensifying, a sober comparison with the 1990s collapse is essential.

Similarities: Aggressive bank lending to real estate is expanding. Real estate lending grew 7.2% year-on-year as of September 2025. Speculative corporate flipping echoes the "land rolling" of the bubble era. And monetary tightening is underway, just as it was in 1989-1990 when rapid rate hikes helped trigger the crash.

Critical differences: The scale of overvaluation is not comparable. At the peak of the 1980s bubble, commercial land in central Tokyo was valued at levels that, famously, would have let the Imperial Palace grounds "buy" all of California. Today's prices are elevated, but nowhere near that far from reality.

Structural factors support current prices in ways they didn't in 1990. Construction costs have surged 30-40% since 2021 due to materials and labor shortages. Wages are finally rising after decades of stagnation. And supply is at historic lows, the opposite of the overbuilding that preceded the 1990s crash.

The financial system is also more resilient. Regulations are far stricter, banks are better capitalized, and authorities are intervening proactively rather than waiting for a crisis.

A "Tri-Polar" Market Emerges

Experts predict Japan's real estate market will increasingly split into three distinct tiers in 2026:

Tier 1: Ultra-prime central Tokyo (Chiyoda, Chūō, Minato). Sustained by wealthy domestic buyers and international investors, largely immune to rate hikes. Prices likely to hold firm or keep rising.

Tier 2: Accessible suburban hubs. Areas with strong transit connections near Tokyo (Nagareyama-Ōtakanomori in Chiba, parts of Yokohama) will see stable demand as priced-out buyers seek realistic alternatives.

Tier 3: Depopulating rural areas. Oversupply, vacant homes, and demographic decline will keep eroding property values, widening the gap with urban Japan.

Will the FSA Pull the Emergency Brake?

The most closely watched policy question is whether the FSA will impose targeted lending restrictions on speculative real estate transactions.

The specter of 1990's "total volume control" (sōryō kisei), a blanket restriction on real estate lending that effectively triggered the bubble's collapse, looms large. Analysts stress that this time, any regulation must be surgical rather than sweeping.

Cutting off lending for new rental housing development would reduce supply and drive rents even higher. Instead, selectively restricting loans for short-term speculative flipping could restore a healthier, owner-occupier-driven market.

The FSA and BOJ are building a joint data platform to monitor lending in detail, creating the infrastructure for this kind of "smart regulation." Whether they can thread the needle between preventing a bubble and avoiding a crash will be the defining challenge of 2026.

Collapse, or Soft Landing

A full-scale 1990s-style collapse is unlikely in the near term. But the FSA's unprecedented warning signals that the risks are real and growing.

Three variables decide it. How aggressively regulators curb speculative lending. How fast the BOJ raises rates. And how global capital flows, shaped by Middle East tensions, U.S. trade policy, and China's trajectory, reshape demand for Japanese property. The answer rests with policymakers and events abroad.

In Japan, homeownership isn't just shelter. It is the cornerstone of household wealth.

What's happening with property prices in your country? Are foreign investors driving up housing costs? How is your government responding? We'd love to hear your perspective.

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