Japan Land Prices Fall at Slower Pace on Low Borrowing Cost

Japan’s land prices dropped at a slower pace for the third year as low interest rates and buying by real estate investment trusts spurred demand.

Nationwide land prices on average fell 1.8 percent as of Jan. 1, compared with a 2.6 percent decline a year earlier, the Ministry of Land, Infrastructure, Transport and Tourism said in a report yesterday. The drop was the smallest since prices posted a gain in 2008, the data showed.

Japan’s land prices, which only rose twice in the past 22 years, are still less than half of the peak in the late 1980s. Real estate investment trusts acquired 1.03 trillion yen ($10.8 billion) last year, the most since 2007, according to a report by the Association for Real Estate Securitization. The low cost of housing loans has also helped demand for residential properties, according to the government report.

“There are stronger signs of prices bottoming out,” Akira Mori, chief executive officer of Mori Trust Co., Japan’s most profitable closely held developer, said in a statement. “Mid-sized, high-quality properties are starting to be traded in the market, reflecting increased appetite and expectations for easing policies. REITs also have strong appetite to buy and we can see how that’s starting to revive the market.”

Average residential land prices nationwide fell 1.6 percent last year, compared with a 2.3 percent slide a year earlier, the report showed. Commercial land values declined 2.1 percent in 2012 after dropping 3.1 percent in 2011.

The Topix Real Estate Index, tracking 44 property companies, fell 0.2 percent as of 10:41 a.m. in Tokyo, after rising as much as 1 percent.

Metropolitan Areas

The decline in average land prices in Japan’s three-biggest metropolitan cities -- Tokyo, Osaka and Nagoya -- narrowed to 0.6 percent in 2012 from 1.5 percent a year earlier.

Nationwide apartment sales rose for a third straight year, gaining 8.4 percent to 93,800 units in 2012 from a year earlier, according to Real Estate Economic Institute Co.

“The low interest rate has supported the home purchases, making it a favorable environment for selling apartments,” said Kenichi Onodera, president of Sumitomo Realty & Development Co. “In the metropolitan areas, that has boosted land sites used to develop apartments. Prices are turning around and it will probably be reflected in the data going forward.”

Post-Earthquake Recovery

Land prices in the northeastern region damaged by the March 11 earthquake and tsunami in 2011 gained the most last year as residents sought to relocate inland or to elevated areas, the government said. Eight out of 10 residential sites that had the biggest gains where in Miyagi, Iwate and Fukushima prefectures, where the coast was hit by the tsunami.

The biggest increase was in the Shirasagidai area in the city of Ishinomaki, where land prices rose 24 percent to 27,800 yen per square meter (10.76 square foot).

Seven out of 10 commercial sites that had the biggest increases were in the greater Tokyo area, including locations in Kawasaki City in Kanagawa Prefecture and in Asakusa area in the east of Tokyo near Tokyo Skytree, the world’s tallest tower.

The most expensive piece of residential property was in Rokubancho in Chiyoda ward, where the Imperial Palace is located, with land costing 2.78 million yen per square meter, the report showed. Marunouchi Building, also in Chiyoda ward, and a patch in Ginza’s shopping district, had the priciest commercial real estate at 27 million yen per square meter, the report showed.

“The real estate market has finally started to show signs of recovery,” said Keiji Kimura, chairman of Mitsubishi Estate Co., Japan’s biggest developer, in a statement. “The decline in residential and commercial land prices has narrowed while revival in some areas can be seen.”

(Updates with shares in sixth paragraph, comments from Sumitomo Realty in ninth, and condo sales in eighth.)
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