Buying Floor Area: What are Sky Rights?

There is almost a definite maximum to the total floor space of most properties.

The floor area ratios for structures on smaller lots drive a lot people crazy when they try to build.
You can't just construct as big a structure as you want - even if it's on your property. The zoning of the land in most cities is subject to the urban planning law. Here, land is mainly divided into residential, commercial, and industrial zones. In each zone, the maximum structure size that can be built on each lot is determined by the building coverage ratio and floor area ratios.
For example, if we want to create a quiet residential area, the building coverage area and total floor area ratio would be around low values like 50% and 100%. So, a 2-storey house could only have a total floor area of 60m² on a 60m² lot. On the other hand, if we want help develop commercial businesses, we could set the building coverage area and total floor area to higher values such as 80% and 800%. In this case, we could build a 10-storey building with a total floor area of 480m² on a 60m² lot. This mean that if you want to construct a large structure on a small lot, it must be in a zone that allows a large total floor area.

However, the laws were changed in 2000 to allow the sale of total floor area. This was the so-called "Sky Rights."
There are two meanings to "sky rights."
Sky rights refer to the right to use the space above a lot. This is, however, not the legal term, but rather just a colloquialism. Sky rights has two meanings:

1. The right to use the space above a lot
For example, The right to exclusively use overhead structures such as power lines or overpasses.

2. The right to sell un-used floor area
It is possible to transfer unused floor area within the regulations of the urban planning to other buildings.

"Sky Rights" fall under #2. That is to say, by transferring unused floor space, it is possible to build a structure that exceeds the legal limit.

For example, let's say person A owns a 900m² structure built on a 300m² lot in a zone that permits 800%. A has 500m² of unused floor space. Person B has a 100m² lot where they want to build a 1,300m² structure. In this case, B can buy 500m² of sky rights from A to construct the 1,300m² structure. (In reality the area also depends on the width of the connecting road, but we omitted this for simplicity.)
Idea of "transferring sky rights." Originally, B would only have been able to construct a building with 800m², but it was possible to increase this amount to 1,300m² by transferring the sky rights from A.
General example of sky right use
Most people are not familiar with "sky rights," so in what kinds of cases are they actually used?

・Large-scale condominium renovations
Sometimes condominiums require large-scale renovations, but do not have the necessary funds to complete them. If, in this case, they have unused floor area, they can sell it and use the acquired funds to perform the renovations.

・Rebuilding single-family homes
Especially in the 23 wards of Tokyo, people tend to build 2-3 storey homes although they have more than enough allowed floor area to build larger. In this case, they can sell the extra floor space to lower their construction costs.

・Rebuilding older buildings and apartments
Sometimes it is not possible to rebuild older buildings or apartments, because owners do not have enough capital to pay for demolition and costs associated with evictions. Here, it is also possible to sell unused floor area to gather the required capital.

Recently, the use of sky rights in the construction of a certain building has become a major issue. The JR East Tokyo Station Marunouchi Building. JR sold off sky rights for enough capital to complete the renovations. By selling the sky rights to the Shin-Marunouchi Building and 5 other surrounding buildings, they were able to amass 50 billion yen. As a result, the Shin-Marunouchi Building was able to exceed the originally planned 30 floors to a total of 38 floors.

As you can see, there can be major benefits from transferring sky rights. However, this is not possible everywhere in Japan and is determined by local governments. Criteria for use depend on the local government as well, so it is important to check there first.
Shin-Marunouchi Building (right) was originally designed to have 30 floors, but was increased to 38 floors thanks to the transfer of sky rights.
Shin-Marunouchi Building (right) was originally designed to have 30 floors, but was increased to 38 floors thanks to the transfer of sky rights.

Original article published on HOME'S Press on 2018/08/06 11:05

By Shiina Zenta (Residential Property Specialist, Licensed Real Estate Agent)

Translated by LIFULL HOME’S Global Investments Group

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