After decades drowning in deflation, Japan’s property market is re-emerging, with average prices for new condos in Tokyo hitting levels not seen since 1992, the Real Estate Economic Institute said this week. If the trend continues and broadens, it could mark a turnaround in the long-dormant financial fortunes of the world's third-largest economy.
Such a turnaround is long overdue: Japan’s real estate prices have been
falling for nearly 25 years. From 1990 to 2002, falling real estate
prices swallowed an estimated $9.3 trillion of the nation’s wealth,
according to the Nomura Research Institute.
Now there's evidence from various sectors that the real estate market is rising.
1. Tokyo’s new condo sales grew 31 percent between May and December
2013, compared to the same period in 2012. The average price of new
condos in Osaka rose by 8.8 percent in June 2013 from a year earlier,
Global Property Guide said late last year
2. Resale prices are also rebounding, although at a slower pace.
Sales of existing condos in and surrounding Tokyo grew 17 percent
between May and September last year compared with the same period a year
earlier, according to Real Estate Information Network for East Japan.
The Tokyo Stock Exchange Home Price Index grew 3.3 percent in October
from a year earlier. That’s still 11 percent below the precrisis 2007
peak and 59 percent below June 1993 prices, the earliest data available.
3. Though overall land prices are still falling-- average property
prices are still 71 percent below their peak in 1991, according to a
report released last week by the Bank of Japan-- land prices near major
metropolitan areas are increasing. From June 2012 to June 2013, the
average price of land in the Tokyo area grew by 5.2 percent, according
to the Land Institute of Japan. In the Osaka area, the average land
price grew by 2.3 percent in the same period. According to a Japanese
government survey, more than two-thirds of major urban areas saw their
property values rise last summer. In July, Moody’s upgraded its rating
of Japan’s property market from negative to stable.
4. Residential construction is increasing. The number of new home
buildings increased by 8.6 percent to 451,063 in the first half of 2013,
compared to the same period last year, according to the Ministry of
Land, Infrastructure, Transport and Tourism.
5. If Japan's fiscal and monetary efforts to stimulate the economy
succeed -- including the Bank of Japan's goal of inflation climbing to 2
percent -- interest rates will rise, lowering the cost of fixed-rate
mortgages and, thus, motivating potential borrowers to take out loans
that can be paid back with ever-cheapening money.
The road ahead could be bumpy. New home sales may be up now because
of a planned sales-tax hike in April. But even with a tax hike in April,
the real estate recovery may continue: Unlike the last sales-tax hike
in April 1997, Japan’s economic policies under Prime Minister Shinzo Abe
have raised expectations for higher prices ahead and encouraged
businesses to invest more. To offset any negative impact from the tax
hike, the Abe administration is preparing a stimulus package of up to 5
trillion yen (about $48.3 billion).