Abe Eyes Land-Price Reflation to Spur Construction Boom

Photographer: Akio Kon/Bloomberg

Carpenters work on the construction site of a new house in Yokohama, Kanagawa Prefecture, Japan. Close

Carpenters work on the construction site of a new house in Yokohama, Kanagawa Prefecture, Japan.

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Photographer: Akio Kon/Bloomberg

Carpenters work on the construction site of a new house in Yokohama, Kanagawa Prefecture, Japan.

Japan wants to trigger a jump in inner-city property prices by loosening building restrictions in test zones under Abenomics, a government adviser said.

“Central-city property prices will likely rise when various plans are announced,” Tatsuo Hatta, 70, a member of a government council on special economic zones, said in an interview in Tokyo last week. The economic impact from the urban-planning changes will be “extremely big,” he said.

Prime Minister Shinzo Abe is trying to sustain an economic rebound that risks losing steam in April when a sales-tax increase will damp consumer spending. While Hatta’s comments offer some insight into the government’s plans for special economic zones, investors are still waiting for fuller details of Abe’s growth strategy in what Goldman Sachs Group Inc. calls a “critical year” for Abenomics.

Home prices in Tokyo are around 120,000 yen to 150,000 yen per square foot, Chicago-based Jones Lang LaSalle said last year. That compares with about 280,000 yen to 400,000 yen in Hong Kong and 200,000 yen to 250,000 yen in Singapore, it said.

According to Hatta, the changes will make it easier to construct residential buildings in business districts in designated zones, creating opportunities to improve urban planning and make cities more enticing for employees of foreign companies.

Stock Bust

The bursting of a bubble in the stock market, which peaked in 1989, and a real-estate market bust in the 1990s saddled banks with bad loans, plunging Japan into a deflationary slump that it’s still trying to shake.

While prices in some cities picked up after former Prime Minister Junichiro Koizumi cleaned up the banking system in the early 2000s, a sustained rebound has been elusive. Nationwide residential real-estate prices at the end of September were down 51 percent from a peak in 1991.

Introducing special economic zones is a cornerstone of Abe’s effort to create opportunities for Japanese companies, along with steps to boost industrial competitiveness and open up the country more to international trade.

The government may decide in March where it will locate the special zones, Abe said on Jan 7.

2020 Olympics

The council will decide on criteria for selecting these areas at its next meeting expected to be held at the end of January or early February, Hatta said. There will be a maximum of five zones, with one or two “virtual” areas and the rest in big cities, he said.

Tokyo’s real-estate market has started to perk up, helped by unprecedented monetary easing by the Bank of Japan and the city’s successful bid to host the 2020 Olympics. The monthly average vacancy rate in Tokyo business areas fell to 7.34 percent at the of December from 8.67 percent a year earlier and 9.01 percent at the end of 2011, according to data from Miki Shoji Co.

The real-estate subindex of Japan’s benchmark Topix of shares climbed about 62 percent over the past year, outpacing a 43 percent gain in the Topix index.

Japan’s commercial real-estate transaction volume jumped 41 percent in October-December from the previous quarter, led by Japan Real-Estate Investment Trust activity, according to DTZ Research. Sales of commercial property more than doubled last year to 3.54 trillion yen ($34 billion), the highest since 2007, it said in a research note this week. Commercial property includes office buildings, shopping malls and distribution centers.

Attracting Foreigners

Loosening rules on residential construction in business districts would create more demand for education, medical and other services in those areas, Hatta said.

“Labor and other issues are more important and will have an impact over the long term, but this will have a strong impact in the short run,” Hatta said of the building deregulation. “The focus, as far as attracting foreign nationals is concerned, is to make living in city centers comfortable,” Hatta said.

To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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