Japan May Add Mortgage Tax Benefits to Cushion Slow Sales

Residential and commercial buildings stand in Tokyo. Home sales may slow, retarding economic growth, when the sales tax jumps to 8 percent from 5 percent, according to the Nikkei newspaper. Photographer: Kiyoshi Ota/Bloomberg

Japan may extend mortgage tax benefits by five years and raise the deduction rate to cushion an expected slowdown in home sales in 2014 when a consumption tax increase takes effect.

The finance and land ministries are in talks on a plan that would save the average home buyer as much as 10 million yen ($128,000) in 2014, compared with 3 million yen this year, the Nikkei newspaper said Sept. 1 without citing the source of the information. Details will be decided later this year, it said.

Home sales may slow, retarding economic growth, when the sales tax jumps to 8 percent from 5 percent, Nikkei said. Property and fund association groups are seeking a tax reduction for home buyers to counter any slowing of the housing market.

“This is better than doing nothing,” Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., said yesterday in a telephone interview. “Numbers show the economic outlook started deteriorating already, and this is doing little more than to patch over the problem temporarily.”

The plan will call for extending to 15 years from 10 the tax benefit for new home buyers starting in 2014 and raising the deduction to as much as 2 percent of the outstanding mortgage balance from 1 percent, Nikkei said. The government will consider further benefits from 2015 when the sales tax jumps to 10 percent, it said.

Prime Minister Yoshihiko Noda in August won parliamentary approval for a boost in the sales tax to ease the government’s reliance on debt to cover the rising costs of care for Japan’s aging population.

Housing Loans

New housing loans jumped 14.7 percent from a year earlier in the second quarter, the biggest gain since March 2006, buoying a housing market entering its third decade of deflation. About 1.3 trillion yen of extra home purchases are expected before the tax increase takes effect in 2014, according to estimates by NLI Research Institute, a Tokyo-based research and consulting unit of Nippon Life Insurance Co.

Housing investment rose 3.8 percent, the first increase in five years, to 13.1 trillion yen in the fiscal year ended March 31, according to government data. Japan’s banks offered 2.98 trillion yen of new loans for home purchases in the three months ended June 30, according to the Bank of Japan.

Housing investments surged to almost 28 trillion yen in April 1996, ahead of the most-recent increase in the sales tax to 5 percent from 3 percent, according to NLI Research. Last-minute home buying ahead of that tax boost totaled 2.4 trillion yen.

History shows any gain may be temporary: Japan entered a 20-month recession after the tax was raised in 1997. Housing investments declined to about 19 trillion yen a year after the surge, according to NLI.

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