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Japan Land-Price Drop Eases as Housing Measures Spur Demand

Japan Land Prices
Pedestrians walk through the Ginza district of Tokyo where the most expensive piece of commercial property is. Photographer: Kiyoshi Ota/Bloomberg

Japan’s land prices dropped at a slower pace for a third year as low interest rates and tax incentives supported housing demand.

The nationwide average price slid 2.7 percent as of July 1, compared with a 3.4 percent decline a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in a report released yesterday. Prices have fallen for 21 years, according to the report, which the ministry releases every year.

The drop in land values, which are about half what they were after the peak of Japan’s bubble economy in the 1980s, may ease further, helped by demand before a planned consumption tax increase, the nation’s first since 1997. Japan’s government expanded rebates for homebuyers in 2009 to boost sales, giving a 10-year tax break on properties bought before 2014.

“The recovery trend in land prices has become clearer,” said Masanobu Komoda, the president of Mitsui Fudosan Co., Japan’s largest developer by sales. “As the government plans to increase the consumption tax, we would like to see additional measures to support and boost housing demand.”

The drop in commercial land prices narrowed to 3.1 percent from 4 percent a year earlier, while the decrease in residential values slowed to 2.5 percent from 3.2 percent, the land ministry’s data showed.

‘Remain Lukewarm’

Property acquisitions by Japan’s real estate investment trusts, known as J-REITs, have also supported prices. Assets bought by J-REITs expanded at the fastest pace in four years, rising 8.8 percent to 8.7 trillion yen ($111 billion) as of June 30 from a year earlier, according to Sumitomo Mitsui Trust Research Institute Co., a Tokyo-based consulting company.

Still, credit worthiness of Japanese real estate operating companies and J-REITs as well as commercial mortgage backed securities deals will remain weak in the medium term, Moody’s Japan K.K. said in a report, citing that cash flows from office buildings, which make up the majority of their portfolio will continue to decline.

“The demand for office buildings in Tokyo will remain lukewarm, owing to anemic economic growth, exacerbated by oversupply,” the rating company said in the report. “The latter will result from a build-up in inventory in 2012.”

The Topix Real Estate Index dropped 1.9 percent as of 1:15 p.m. in Tokyo, while the Tokyo Stock Exchange REIT Index lost 0.1 percent.

Metropolitan Areas

Declines in prices in Tokyo, Osaka and Nagoya, the three major metropolitan areas, slowed to 1 percent, from a drop of 1.9 percent a year earlier, according to the report. Prices in rural districts slipped 3.4 percent from a 4 percent slump a year earlier.

The most expensive piece of commercial property remained in Tokyo’s Ginza shopping district, where land can cost as much as 19.7 million yen per square meter (10.76 square foot), the report showed. Tokyo’s Chiyoda ward, where the Imperial Palace is located, had the nation’s priciest residential land at 2.78 million yen per square meter.

Nationwide apartments put up for sale may increase for a third year, Real Estate Economic Institute Co. said in a report.

Household’s housing loans by private banks rose to 164.3 trillion yen in the three months ended in June, the highest since comparable data are available in the last quarter of 1997, according to a central bank report released today.

“We can see signs of a recovery in the property market,” said Keiji Kimura, the chairman of the Real Estate Companies Association of Japan as well as Mitsubishi Estate Co., the nation’s biggest developer by market value.

Low Rates

The Bank of Japan yesterday kept the benchmark interest rate between zero and 0.1 percent and unexpectedly expanded its asset-purchase fund by 10 trillion yen, seeking to counter an increasing danger of contraction in the world’s third-largest economy.

Parliament last month approved a doubling of the nation’s sales tax to 10 percent by 2015 to cope with swelling social welfare costs and slow the increase of the fiscal burden.

The tax increase may drive short-term demand while the outlook in the long run remains unclear, said Takashi Ishizawa, a Tokyo-based real estate analyst at Mizuho Securities Co.

“Demand for residential land will remain firm as home buyers rush to make their purchase prior to the tax increase,” said Ishizawa. “It is not clear how long that trend will continue.”

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