Wednesday 22 November 2017

Japan close to ending 22 years of falling prices

The Roppongi Hills Mori Tower in Tokyo. The city is buoyant after it was awarded the hosting of the 2020 Olympic Games.
The Roppongi Hills Mori Tower in Tokyo. The city is buoyant after it was awarded the hosting of the 2020 Olympic Games.

Junko Fujita

JAPAN'S land prices fell the least since the global financial crisis in the year to July 1, while commercial land in the three biggest cities rose in value for the first time in the same period, the latest signs that deflation is easing its stubborn grip on the country.

Land prices nationwide fell just 1.9pc, narrowing from the previous year's 2.7pc decline and the smallest drop since 2008, a government survey showed.

This brings Japan closer to ending 22 years of falling land prices – a legacy of the country's massive 1980s asset bubble.

The gradual narrowing of land-price declines is good news for Prime Minister Shinzo Abe, whose top priority is ending Japan's long battle with deflation.

But the land ministry data also shows how uneven the real-estate improvement has been, with rises limited to the best properties in the choicest areas.

Commercial land prices in the greater Tokyo, Osaka and Nagoya areas ticked up 0.6pc, and residential land in Nagoya – home of Toyota – rose 0.7pc, the first such increases since prices tumbled in the wake of Lehman Brothers' collapse.

Even as real estate in most of Japan remains depressed, a boom in investment in the hottest properties, driven by a search for yield and hopes for "Abenomics", has recently shown signs of a mini-bubble.

Foreign investors have poured into upper-end Tokyo properties and recently extended their purchases to major regional cities.

Last month, a group including former US insurance magnate Maurice "Hank" Greenberg and an Abu Dhabi sovereign fund agreed to buy a 31-year-old office building in Tokyo for about $1bn (€750m).

Sustainability

A building in Tokyo's posh Ginza district, housing the flagship store of Tiffany & Co, is up for sale as owner Asia Pacific Land bets on a recovery in property prices. But some market players doubt the sustainability of the property upswing.

"I question whether or not actual fundamentals are driving the recovery," said Robert Zulkoski, chairman and chief executive of Laurasia Capital Management, a Singapore-based alternative-asset manager.

"Is it just a reflection of all the liquidity that's in the market trying to find investment yield?" he said. "It's very hard to analyse what's really going on in the market. I am hopeful, but I am cautious."

Tokyo may continue to get a lift after winning the right to host the 2020 summer Olympics, given expectations that redevelopment projects will buoy prices. Mitsubishi Estate, a leading developer, said visits to a showroom for its condominium project in Tokyo's Harumi district, the planned site of the Olympic village, had almost tripled since Tokyo was awarded the Olympics.

At the high end of the market, Mitsubishi Estate said 22 units in a high-end condominium it is developing near the Imperial Palace all sold out on the days they became available.

The project, with unit prices ranging from 160 million yen (€1.21m) to 542 million yen, was five times oversubscribed.

Amid continued declines in nationwide residential land prices, Nagoya's upturn was driven by robust profits at Toyota, a land ministry official said. The world's biggest car maker and its related businesses are a dominant presence in that area of western Japan.

Toyota last month posted a near-record quarterly profit thanks to overseas sales that were helped by the falling yen. The booming auto industry has encouraged consumers in Nagoya to spend more, which has driven development of commercial facilities and housing demand, the official said.

Tokyo's residential land prices edged down 0.1pc, while those in Osaka fell 0.4pc. The decline in nationwide prices for industrial land slowed to 2.3pc, buoyed by aggressive development by logistics operators, said the ministry official. (Reuters)

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