Abenomics Mobilizes Japan Homebuyers to Action: Mortgages

Photographer: Yuriko Nakao/Bloomberg

The Susukino district of Sapporo, Hokkaido Prefecture, Japan, on June 9, 2013. Japan’s economy grew more than the government initially estimated in the first quarter, helping Prime Minister Shinzo Abe to sustain confidence in his campaign to defeat deflation. Close

The Susukino district of Sapporo, Hokkaido Prefecture, Japan, on June 9, 2013. Japan’s... Read More

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Photographer: Yuriko Nakao/Bloomberg

The Susukino district of Sapporo, Hokkaido Prefecture, Japan, on June 9, 2013. Japan’s economy grew more than the government initially estimated in the first quarter, helping Prime Minister Shinzo Abe to sustain confidence in his campaign to defeat deflation.

Japanese Prime Minister Shinzo Abe’s pledge to end 15 years of deflation has prompted the nation’s biggest banks to raise mortgage rates, mobilizing people like Karin Abe to buy a home four years earlier than he had planned.

“I wanted to take advantage of the low rate before it started going up,” said Abe, 26, who in April bought a three-bedroom apartment for about 30 million yen ($316,455) in Tokyo’s Edogawa ward, named for a river running through it. “I’ve always thought buying a house is something that I would do after I turn 30, but the timing just seemed perfect and I wanted to save money.”

Banks including Mitsubishi UFJ Financial Group Inc. (8306) raised mortgage rates for a second straight month after the Bank of Japan unveiled a plan in April to target a 2 percent inflation rate in two years, leading to an increase in benchmark bond yields. That’s boosting developers such as Mitsubishi Estate Co. (8802) and Mitsui Fudosan Co., with visitors to their showrooms and apartment sales surging in May from a year ago.

“When interest rates are on the rise, housing demand tends to increase because buyers want to acquire homes before rates go up,” said Hidetaka Yoneyama, a senior researcher at Fujitsu Research Institute in Tokyo. “Now is the time we will see such last-minute buying demand.”

Photographer: Akio Kon/Bloomberg

A man walks past residential properties in Yokohama, Kanagawa Prefecture, Japan. Close

A man walks past residential properties in Yokohama, Kanagawa Prefecture, Japan.

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Photographer: Akio Kon/Bloomberg

A man walks past residential properties in Yokohama, Kanagawa Prefecture, Japan.

An unprecedented monetary easing under Bank of Japan Governor Haruhiko Kuroda and increased government spending under Abe’s leadership have helped bolster consumer confidence, spurring Japanese stocks to world-beating gains through May as the yen slid to a more than four-year low.

Tokyo Prices

A fixed-rate loan for 35 years in Japan rose to 2.03 percent in June from an all-time low of 1.8 percent in April, according to the government-affiliated Japan Housing Finance Agency. That compares with 30-year mortgage rate of 3.98 percent in the U.S., Freddie Mac data show.

The agency’s rates tend to be lower than those offered by private banks because they are under a government loan support program designed to boost housing demand, according to the agency’s website.

The homebuyer Abe, who works for an import-export company in Tokyo, took out a 35-year floating rate mortgage, which stood at 0.875 percent at the time of purchase, he said. The rate will be reviewed every six months for a possible adjustment based on the benchmark yield, Abe said.

Property Prices

Demand from buyers like Abe may help lift Japan’s residential land prices, which are about half of what they were after the peak of the bubble economy in the 1980s, according to the land ministry. The number of sites where values increased rose to 80 out of 150 locations as of April 1, from 51 sites three months earlier, a government data on May 29 showed. It was the first time since 2007, before the global financial crisis, when more than half of the places recorded increases.

The average price for a three-bedroom apartment in Tokyo rose 7.1 percent to about 47.3 million yen in April, according to an estimate by the Real Estate Economic Institute Co.

Property companies already are seeing a pickup in demand. In May, visitors to the Tokyo showrooms of Mitsubishi Estate, Japan’s biggest developer by market value, surged 82 percent from a year earlier, while home purchases rose 50 percent from a year ago, said Tsuyoshi Takagi, general manager of corporate planning department at the Tokyo-based company’s residential division.

Faster Pace

Mitsui Fudosan, Japan’s biggest developer by sales, has introduced apartments at a faster pace after seeing an increase in visitors to their showrooms, said Shinichi Hotate, executive manager of sales promotion group at the residential unit of the Tokyo-based developer. The number of potential homebuyers to the company’s showrooms in Tokyo rose by 50 percent from a year ago, lifting apartment sales by about 70 percent, he said.

“The expectation of rising interest rates and prices has helped boost our sales,” Hotate said, adding that increased activity at its showrooms started at the beginning of the year.

The supply of new apartments in Tokyo’s metropolitan area this year will reach the highest level since 2007 to meet rising demand, according to an estimate by the Real Estate Economic Institute. The number of condominiums put up for sale will rise 9.6 percent to about 50,000 units in 2013, according the Tokyo-based industry researcher.

In May, the offering surged 49 percent to 4,967 apartments from a year ago, marking the biggest gain in more than a year, the researcher said on June 17.

Housing starts nationwide gained by 6.2 percent to 893,002 units in the year ended March 31, the fastest pace since 1996, according to land ministry data. Supplies declined 22 percent in a decade to March 2011 from the previous 10 years, according to land ministry data.

‘Buyers’ Sentiment’

Still, an increase in a consumption tax scheduled for next year that also contributed to potential buyers taking action may now cap demand, said Mitsubishi Estate’s Takagi.

Japan plans to double the tax rate to 10 percent from 5 percent by 2015, in two steps. The first increase is scheduled to come in April 2014 when the tax is raised to 8 percent. Wages also remained unchanged in April from a year earlier after a 10th-straight month of declines, a government data showed.

“Income is probably the most important factor for buyers’ sentiment,” said Takagi. “If Abe’s policy is well implemented, then Japan’s economy starts to expand, the performance of corporation improves, the household income increases; that would probably offset the tax increase.”

Targeting Inflation

The 43-member Topix Real Estate Index, which tracks Japan’s real estate companies including Mitsui Fudosan (8801) and Mitsubishi Estate, has returned 41 percent in the past six months, as Abe took power in December, pledging to revive the world’s third-largest economy. The measure gained 1.3 percent in Tokyo today. The benchmark Topix index added 0.2 percent today, bringing its six-month advance to 33 percent.

“When the economy recovers and yields start going up, mortgage rates will also go up,” said Toru Yamamoto, chief strategist at Daiwa Securities Co. in Tokyo. “Since the BOJ is targeting inflation, expectations that asset prices such as stocks and properties will rise are increasing. There is a trend to buy homes now rather than later.”

The economy grew at an annualized 4.1 percent in the first three months of this year, the fastest expansion in a year, a government report showed on June 10.

Inflation Outlook

Market expectations of inflation have been rising, with the break-even rate signaling annual price increases of 1.36 percent in the next five years, compared with less than 1 percent at the start of the year, according to data compiled by Bloomberg. Breakeven rates are the difference in yield between nominal government bonds and same-maturity inflation-linked securities.

Homebuyers are choosing fixed-rate mortgages over floating to lock in borrowing costs before rates start rising, according to a monthly survey by government-affiliated Japan Housing Finance Agency. Fixed-rate mortgages rose to 54.3 percent of new lending in April, the highest level since January 2011, it said.

Rates for 10-year fixed mortgages have risen twice in less than two months to 3.8 percent in June at the Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest publicly traded bank. In December, the rate stood at 3.55 percent, the lowest since 2006, according to the bank.

Sustainable Demand

Home-loan costs for the 10-year fixed-rate at Sumitomo Mitsui Banking Corp., a unit of the nation’s second-largest bank, also rose to 3.8 percent from 3.5 percent in December, while rates for the same type of mortgage gained 3.2 percent from 2.9 percent at Mizuho Corporate Bank Ltd., a unit of, the third-biggest bank in the country.

At the same time, banks are also making sure to offer lower rates to sustain demand by utilizing the BOJ’s support program that extends loans to private banks to encourage them to lend. Sumitomo Mitsui Banking, Mitsubishi UFJ and Mizuho have all introduced a three-year fixed mortgage, with 0.6 percent interest rate this month, based on the program.

“The BOJ’s monetary easing policy has benefited mainly corporations” and hasn’t reached individuals,’’ said Tokuro Yamamoto, group leader of products development for consumer loan and retail business divisions at Sumitomo Mitsui. “In order to boost demand from individuals, we are supporting the government to help revitalize the housing sector.”

About 42 percent of 2,478 people surveyed in April by Haseko Corp., a condominium builder, said apartment prices will gradually increase. That compares with 27 percent three months earlier, according to the survey released on April 22. About 35 percent of the respondents said now is the time to buy, an increase from 30 percent, the quarterly survey showed.

“Things will probably get more expensive from now on,” said the homebuyer Abe. “I believe I have made a wise decision.”

To contact the reporters on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net; Rob Urban at robprag@bloomberg.net

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